Rizal Technological University

CBET 01-502A

Chapter 1

1)A complete set of financial statements includes all of the following components, except

 

1. 1. Statement of financial position, statement of comprehensive income and statement of cash flows.
   2. Statement of changes in equity
   3. Notes, comprising a summary of significant accounting policies and other explanatory information
   4. Reports and statements such as environmental reports and value added statements.

 

2. What is objective of financial statements ?

 

1. 1. To provide information about the financial position, financial performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.
   2. To prepare a statement of financial position, statement of comprehensive income, statement of cash flows and statements of changes in equity.
   3. To present relevant, reliable, comparable and understandable information.
   4. To prepare financial statements in accordance with all applicable standards.

 

3. To meet the objective of providing information about financial position, financial performance and cash flows, financial statements should provide all, except

 

1. 1. Assets, liabilities and equity
   2. Income and expenses, including gains and losses
   3. Contributions by and distribution to owners
   4. Nature of business activities

 

4. The primary responsibility for the preparation and presentation of the financial statements of an entity is reposed in the

 

1. 1. Management of the entity
   2. Internal auditor
   3. External auditor
   4. Controller

 

5. When an entity changed the reporting period longer or shorter than one year, an entity shall disclose all of the following, except

 

1. 1. Period covered by the financial statements
   2. The reason for using a longer or shorter period
   3. The fact that amounts presented in the financial statements are not entirely comparable
   4. The fact that similar entities in the geographical area in which the entity operates have done so.

 

 

6. Which of the following is not a component of the financial statements?

 

1. 1. Statement of financial position
   2. Statement of changes in equity
   3. Report of board of directors
   4. Notes to financial statements

 

 

 

7. Which of the following is included in a complete set of financial statements?

 

1. 1. A statement by the board of directors of compliance with local legislation
   2. A statement of changes in equity
   3. Statements of financial position for the last five years
   4. Value added statement

 

8. Which of the following is included within the financial statements?

 

1. 1. A statement of retained earnings
   2. Accounting policies
   3. An auditor’s report
   4. A director’s report

 

9. An entity shall clearly identify each financial statement and display all of the following, except

 

1. 1. Name of the reporting entity
   2. Name of major shareholders of the entity
   3. The presentation currency
   4. Whether the financial statements cover the individual entity or a group of entities

 

10. Which of the following statements is incorrect concerning fair presentation of financial statements?

 

1. 1. Fair presentation requires the faithful representation of the effect of transactions and other events
   2. Financial statements shall present fairly the financial position, financial performance and cash flows of an entity
   3. In virtually all circumstances, a fair presentation is achieved by compliance with applicable PFRS
   4. An entity whose financial statements comply with PFRS shall not make an explicit and unreserved statement of such compliance in notes

 

11. Which of the following cannot be considered fair presentation of financial statements?

 

1. 1. To present information in a manner that provides relevant and faithfully represented financial information
   2. To provide additional disclosures when compliance with specific PFRS is insufficient to understand the financial position and financial performance
   3. To select and apply accounting policies in accordance with applicable PFRS
   4. To rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory information

 

12. Which of the following statements indicates a going concern?

 

1. 1. Management intends to liquidate the entity
   2. Management intends to cease the operations of the entity
   3. Management has no realistic alternative but to cease the operations of the entity
   4. None of these

 

13. An entity is permitted to depart from a particular standard if all of the following conditions are satisfied, except

 

1. 1. In extremely rare circumstances
   2. When management concludes that compliance with the standard would be misleading
   3. When the departure from the standard is necessary to achieve fair presentation
   4. When the Conceptual Framework for Financial Reporting prohibits such a departure

 

14. The effects of transactions and other events on economic resources and claims are depicted in the periods in which those effects occur even if the resulting cash receipts and payments occur in a different period

 

1. 1. Accrual accounting
   2. Cash accounting
   3. Modified accrual accounting
   4. Modified cash accounting

 

15. Financial statements must be prepared at least

 

1. 1. Annually
   2. Quarterly
   3. Semiannually
   4. Every two years

 

16. Technically, offsetting in financial statements is accomplished when

 

1. 1. The allowance for doubtful accounts is deducted from accounts receivable
   2. The accumulated depreciation is deducted from property, plant and equipment
   3. The total liabilities are deducted from total assets to arrive at net assets
   4. Gain or loss from disposal of noncurrent asset is reported by deducting from the proceeds the carrying amount of the asset and the related disposal cost

 

17. The presentation and classification of items in the financial statements shall be retained from one accounting period to the next

 

1. 1. Consistency f presentation
   2. Materiality
   3. Aggregation
   4. Comparability

 

18. A third statement of financial position as at beginning of the earliest comparative period presented is required

1. When an entity applies an accounting policy retrospectively
2. When an entity makes a retrospective restatement of items in the financial statements
3. When an entity reclassifies items in the financial statements

 

1. I and II only
2. I and III only
3. II and III only
4. I, II and III

 

19. An entity shall prepare how many statements of financial position as a result of retrospective application, retrospective restatement and reclassification of items in the financial statements?

 

1. 1. Two
   2. Three
   3. Four
   4. One

 

 

20. Items of dissimilar nature or function

 

1. 1. Must always be presented separately

 

1. 2. Must not be presented separately
   3. Must be presented separately in financial statements if those items are material
   4. Must be presented separately in financial statements even if those items are immaterial

 

21. An entity must disclose comparative information for

 

1. 1. The previous comparable period for all amounts reported
   2. The previous comparable period for all amounts reported and for all narrative and descriptive information
   3. The previous comparable period for all amount reported, and for all narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements
   4. The previous two comparable periods for all amounts reported

 

22. When the classification of items in the financial statements is changed, the entity

 

1. 1. Must not reclassify the comparative amounts
   2. Can choose whether to reclassify the comparative amounts
   3. Must reclassify the comparative amounts unless it is impracticable to do so
   4. Must reclassify the current year amounts only

 

23. An entity shall present

 

1. 1. The statement of cash flows more prominently thatn the other statements
   2. The statement of financial position more prominently than the other statements
   3. The statement of comprehensive income more prominently than the other statements
   4. Each financial statement with equal prominence

 

24. What is obhective of financial reporting under the Conceptual Framework for Financial Reporting?

 

1. 1. To provide information about the financial position, performance and cash flows of an entity
   2. To prepare and present a statement of financial position and a statement of comprehensive income
   3. To provide financial information about an entity that is useful to existing and potential investors, lenders providing resources to the entity
   4. To prepare financial statements in accordance with all applicable standards and interpretations

 

25. The primary focus of financial reporting has been on meeting the needs of which of the following?

 

1. 1. Managers of an entity
   2. Existing and potential investors, lender and other creditors
   3. National and local taxing authorities
   4. Independent CPAs

 

26. Which of the following statements best describes the term “financial position”?

 

1. 1. The net income and expenses of an entity
   2. The net of financial assets less liabilities of an entity
   3. The potential to contribute to the flow of cash and cash equivalents to the entity
   4. The assets, liabilities and equity of an entity

27. Which of the following best describes the term :financial performance”?

 

1. 1. The revenue, expenses and net income or loss for a period of an entity
   2. The assets, liabilities and equity of an entity
   3. The total assets minus total liabilities
   4. The total cash inflows minus total cash outflows

 

28. The overall objective of financial reporting is to provide information

 

1. 1. That is useful for decision making
   2. About assets, liabilities and equity
   3. About financial performance during a period
   4. That allows owners to assess performance of management

 

29. Which is an objective of financial reporting?

 

1. 1. To provide information that is useful in making investing and credit decision
   2. To provide information that is useful to management
   3. To provide information to those investing in the entity
   4. To provide information about ways to solve internal and external conflicts about the entity

 

30. An objective of financial reporting is to provide

 

1. 1. Information about the investors in the entity
   2. Information about the liquidation value of the resources of the entity
   3. Information that is useful in assessing cash flow prospects
   4. Information that will attract new investors

 

31. As part of the objective of financial reporting, the phrase “assessing cash flow prospects” is interpreted to mean

 

1. 1. Cash basis accounting is preferred over accrual basis accounting
   2. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of an entity’s present and continuing ability to generate favorable cash flows
   3. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursement
   4. All of the choices are correct regarding “assessing cash flow prospects”.

 

32. The objective of financial reporting is based on

 

1. 1. The need for conservatism
   2. Reporting on management’s stewardship
   3. Generally accepted accounting principles
   4. The needs of the users of the information

 

33. During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about

 

1. 1. Both entity performance and management performance
   2. Management performance but not management performance
   3. Entity performance but not management performance
   4. Neither entity performance nor management performance

 

34. Financial reporting pertains to

 

1. 1. Individual business entities, rather than to industries or an economy as a whole or to members of society as consumers
   2. Individual business entities and an economy as a whole or to members of society as consumers
   3. Individual business entities and an economy as a whole, rather than to industries or to members of society as consumers
   4. Individual business entities, industries and an economy as a whole, rather than to members of society as consumers

 

35. Which of the following is not an objective of financial reporting?

 

1. 1. Financial reporting shall provide information about resources, claims against those resources and changes in them
   2. Financial reporting shall provide information useful in evaluating stewardship of management
   3. Financial reporting shall provide information useful in investment, credit and similar decision
   4. Financial reporting shall provide information useful in assessing cash flow prospects

 

36. Which of the following is not an objective of financial reporting?

 

1. 1. To provide information about assets and claims against those assets
   2. To provide information that is useful in assessing sources and uses of cash
   3. To provide information that is useful in lending and investing decisions

 

37. Which would likely prepare the most accurate financial forecast for an entity based on empirical evidence?

 

1. 1. Investors using statistical models
   2. Corporate management
   3. Financial analysts
   4. Independent certified public accountants

 

38. The most useful information in predicting future cash flows is

 

1. 1. Information about current cash flows
   2. Current earnings based on accrual accounting
   3. Information regarding the accounting policies used
   4. Information regarding the results obtained by using a wide variety of accounting policies

 

39. The accrual basis of accounting is most useful for

 

1. 1. Determining the amount of income tax liability
   2. Predicting short-term financial performance
   3. Predicting long-term financial performance
   4. Determining the amount of dividends to shareholders

 

40. The financial statements prepared under GAAP

 

1. 1. Do not articulate with one another
   2. Reflect a single measurement which is historical cost
   3. Are not highly precise because estimate and judgment must be made
   4. Contain a limited number of future projections

 

 

41. In measuring financial performance, accrual accounting is used because

 

1. 1. Cash flows are considered less important