Rizal Technological University

CBET 01-502A

Chapter 2

1)The components financial statements include all of the following, except

 

1. 1. Statement of financial position
   2. Income statement
   3. Statement of cash flows
   4. Statement of retained earnings

 

2. The major financial statements include all, except

 

1. 1. Statement of financial position
   2. Statement of changes in financial position
   3. Statement of comprehensive income
   4. Statement of changes in equity

 

3. Which following represents a form of communication through financial reporting but not through financial statements?

 

1. 1. Statement of financial position
   2. President’s letter
   3. Income statement
   4. Notes to financial statements

 

4. The satatement of financial position is useful for analyzing all of the following, except

 

1. 1. Liquidity
   2. Solvency
   3. Profitability
   4. Financial flexibility

 

5. The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as

 

1. 1. Solvency
   2. Financial flexibility
   3. Liquidity
   4. Exchangeability

 

6. The statement of financial position provides a basis for all of the following, except

 

1. 1. Computing rate of return
   2. Evaluating capital structure
   3. Determining increase in cash due to operations
   4. Assessing liquidity and financial flexibility

 

7. The information reported in the statement of financial position is useful for all of the following, except

 

1. 1. To compute rate of return
   2. To analyze cash inflows and outflows for the period
   3. To evaluate capital structure
   4. To assess future cash flows

 

8. Which criticism is not normally aimed at the statement of financial position?

 

1. 1. Failure to reflect current value information
   2. The extensive use of separate information
   3. An extensive use of estimate
   4. Failure to include items of financial value

 

9. The statement of financial position

 

1. 1. Omits many items that are of financial value
   2. Makes very limited use of judgment and estimate
   3. Uses fair value for most assets and liabilities
   4. All of the choices are correct regarding the statement of financial position

 

10. Which of the following is a limitation of the statement of financial position?

 

1. 1. Many items that are of financial value are omitted
   2. Judgment and estimate are used
   3. Current fair value is not reported
   4. All of these are considered limitation of the statement of financial position.

 

11. In presenting a statement of financial position, an entity

 

1. 1. Must make the current and noncurrent presentation
   2. Must present assets and liabilities in order of liquidity
   3. Must choose either the current and noncurrent or the liquidity presentation
   4. Must make the current and noncurrent presentation except when a presentation based on liquidity provides information that is reliable and more relevant.

 

12. Current and noncurrent presentation of assets and liabilities provides useful information when the entity

 

1. 1. Supplies good or services within a clearly identifiable operating cycle
   2. Is a financial institution
   3. Is a public utility
   4. Is a nonprofit organization

 

13. A presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is faithfully represented and more relevant for

 

1. 1. Financial institution
   2. Public utility
   3. Government-owned entity
   4. Service provider

 

14. Which of the following statements in relation to financial statements is incorrect?

 

1. 1. General purpose financial statements do not and cannot provide all of the information that primary users need
   2. General purpose financial statements are designed to show the value of the reporting entity
   3. General purpose financial statements are intended to provide common information to users
   4. Financial statements are largely based on estimate and judgment rather than exact depiction

 

15. Which obligations are classified as current even if the obligations are due to be settled after more than twelve months from the end of reporting period?

 

1. 1. Trade payables
   2. Current portion of noncurrent financial liabilities

1. 3. Bank overdrafts
   4. Dividends payable

 

16. In the Philippines, the common practice is to present in the statement of financial position

 

1. 1. Current assets before noncurrent assets, current liabilities before noncurrent liabilities and equity after liabilities
   2. Noncurrent assets before current assets, noncurrent liabilities before current liabilities and equity after liabilities
   3. Current assets before noncurrent assets, noncurrent liabilities before current liabilities and equity after liabilities
   4. Noncurrent assets before current assets, current liabilities before noncurrent liabilities and equity after liabilities

 

17. An entity shall classify an asset as current under all of the following conditions, except

 

1. 1. The entity exact to realize the asset or intends to sell or consume the asset within the entity’s normal operating cycle
   2. The entity holds the asset for the purpose of trading
   3. The entity expects to realize the asset within twelve months after the reporting period
   4. The asset is cash or a cash equivalent that is restricted to settle a liability for more than twelve months after the report period

 

18. An entity shall classify a liability as current under all of the following conditions, except

 

1. 1. The entity expects to settle the liability within the entity’s normal operating cycle
   2. The entity holds the liability primarily for the purpose of trading
   3. The liability is due to be settled within twelve months after the reporting period
   4. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period

 

19. A financial liability that is due to be settled within twelve months after the reporting period shall be classified as noncurrent

 

1. 1. When it is refinanced on a long-term basis before the issue of financial statements
   2. When the entity has no discretion to refinance for at least twelve months
   3. When it is refinanced on a long-term basis after the end of reporting period
   4. When it is refinanced on a long-term basis on or before the end of reporting perio

 

20. When an entity breaches under a ong-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, the liability becomes payable on demand, the liability is classified as

 

1. 1. Current under all circumstances
   2. Noncurrent under all circumstances
   3. Current if the lender has agreed after the reporting period and before the issuance of the statement not to demand payment as a consequences of the breach
   4. Noncurrent if the lender agreed after the end of the reporting period to provide a grace period for at least twelve months after the reporting period

 

21. A contingent liability

 

 

1. 1. Definitely exist as a liability but the amount and due date are indeterminable
   2. Is accrued even though not reasonably estimated
   3. Is the result of a loss contingency
   4. Is not recognized in the financial statements

 

22. Which of the following statements is incorrect concerning contingent liability?

 

1. 1. A contingent liability is not recognized In the financial statements
   2. A contingent liability is disclosed only
   3. If the contingent liability is remote, no disclosure is required
   4. A contingent liability is both probable and measurable

 

23. It is a possible asset that arises from past event and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity

 

1. 1. Contingent asset
   2. Other asset
   3. Suspense account
   4. Current asset

 

24. Which of the following statements is incorrect concerning a contingent asset?

 

1. 1. A contingent asset is not recognized in the financial statements because this may result to recognition of income that may never be realized
   2. When the realization of income is virtually certain, the related asset is no longer contingent asset and its recognition is appropriate
   3. A contingent asset is only disclosed when the occurrence of the future event is possible or remote
   4. The related gain arising from the contingent asset is recognized usually when it is realized

 

25. In which section of the statement of financial position should cash that is restricted for the settlement of a liability due 18 months after the reporting period be presented?

 

1. 1. Current assets
   2. Equity
   3. Noncurrent liabilities
   4. Noncurrent assets

 

26. Which one of the following is not required to be presented as minimum information on the face of the statement of financial position?

 

1. 1. Investment property
   2. Investment accounted for under the equity method
   3. Biological asset
   4. Contingent liability

 

27. Which of the following must be included in the statement of financial position?

 

1. 1. Contingent asset
   2. Property, plant and equipment analyzed by class
   3. Share capital and reserves analyzed by class
   4. Deferred tax

 

28. Which of the following must be included on the face of the statement of financial position?

 

1. 1. Investment property
   2. Number of shares authorized
   3. Contingent liability
   4. Shares in an entity owned by that entity

 

29. Which of the following statements in relation to the statement of financial position is true?

 

1. Biological assets must be shown in the statement of financial position
2. The number of shares authorized for issue may be shown in the statement of financial position or the statement of changes in equity or in the notes

 

1. I only
2. II only
3. Both I and II
4. Neither I nor II

 

30. Which is not in accordance with IFRS regarding the presentation of current liabilities?

 

1. 1. The noncurrent liabilities follow the current liabilities
   2. Current liabilities may be listed in order of maturity, in descending order of magnitude or in order of liquidity preference
   3. Current liabilities are generally recorded at full maturity value
   4. Current liabilities should not be offset against the assets used for liquidation

 

31. In which section of the statement of financial position should employment taxes due for settlement in 15 months’ time be presented?

 

1. 1. Current liabilities
   2. Current assets
   3. Noncurrent liabilities
   4. Noncurrent assets

 

32. An entity has a loan due for repayment in six months’ time, but the entity has the option to refinance for repayment two years later. The entity plans to refinance this loan. In which section of the statement of financial position should this loan be presented?

 

1. 1. Current liabilities
   2. Current assets
   3. Noncurrent liabilities
   4. Noncurrent assets

 

33. The short-term obligations of an entity at the end of reporting period include 90-day notes payable renewable for another 90- day period. The notes payable shall be classified in the statement of financial position as

 

1. 1. Current liabilities
   2. Deferred charges
   3. Noncurrent liabilities
   4. Intermediate debt

 

34. At the end of reporting period, an entity has a 120-day note payable outstanding. The entity has followed the policy of replacing the note rather than repaying it over the last three years. The entity’s treasurer says that this policy is expected to continue indefinitely and the arrangement is acceptable to the

 

bank to which the note was issued. The proper classification of the note in the year-end statement of financial position is

 

1. 1. Dependent on the intention of management
   2. Dependent on the actual ability to refinance
   3. Current liability, unless specific refinancing criteria are net
   4. Noncurrent liability

 

35. In analyzing financial statements, which financial statement would a potential investor primarily use to assess liquidity and financial flexibility?

 

1. 1. Statement of retained earnings
   2. Income statement
   3. Statement of changes in equity
   4. Statement of financial position

 

36. Which of the following is an essential characteristic of an asset?

 

1. 1. The claims to an asset’s benefits are legally enforceable
   2. An asset is tangible
   3. An asset is obtained at a cost
   4. An asset provides future benefits

 

37. Working capital is

 

1. 1. The group of assets which enables the entity to operate profitability
   2. Total current assets
   3. Total current assets minus total current liabilities
   4. Capital invested in business

 

38. Conceptually, asset valuation accounts are

 

1. 1. Assets
   2. Neither assets nor liabilities
   3. Part of shareholder’s equity
   4. Liabilities

 

39. The term “net assets” represent

 

1. 1. Retained earnings
   2. Current assets less current liabilities
   3. Total paid in capital
   4. Total assets less total liabilities

 

40. When classifying assets as current and noncurrent for reporting purposes

 

40. 1. The amounts at which current assets are reported must reflect realizable cash value
    2. Prepayments are included in other assets
    3. Current assets are determined by the seasonal nature of the business
    4. Assets are classified as current if these are reasonably expected to be realized in cash or consumed during the normal operating cycle
41. The operating cycle concept

 

1. 1. Causes current and noncurrent items to depend on whether they will affect cash within one year
   2. Permits some asset to be classified as current even if more than one year removed from becoming cash
   3. Has become obsolete
   4. Affects the income statement

42. The basis for classifying assets as current or noncurrent is the period of time normally elapsed from the time the accounting entity expends cash to the time it converts

 

1. 1. Inventory back into cash or 12 months, whichever is shorter
   2. Receivables back into cash or 12 months, whichever is longer
   3. Tangible fixed assets back into cash, or 12 months, whichever is longer
   4. Inventory back into cash or 12 months, whichever is longer

 

43. Which of the following should be classified as current asset?

 

1. 1. Trade installment accounts receivable normally collectible in 18 months
   2. Preference share redemption fund
   3. Cash surrender value of a life insurance policy
   4. A deposit on machinery ordered, delivery of which will be made within six months

 

44. The essential characteristics of an asset include all, except

 

1. 1. The asset is the result of pass event
   2. The asset provides future economic benefit
   3. The cost of the asset can be measured reliably
   4. The asset is tangible

 

45. Which statement is incorrect regarding assets?

 

1. 1. An asset represents a probable future economic benefit
   2. An asset is obtained or controlled as a result of probable future event
   3. Assets reported in the statement of financial position include current and noncurrent assets
   4. Assets include costs that have not yet been matched with revenue

 

46. Equity investments held to finance future construction of additional plant should be classified as

 

1. 1. Current assets
   2. Property, plant and equipment
   3. Intangible assets
   4. Long-term investments

 

47. Which of the following is not a noncurrent investment?

 

1. 1. Cash surrender value of life insurance
   2. Franchise
   3. Land held for speculation
   4. A sinking fund

 

48. The term “deficit” to

 

48. 1. An excess of current assets over current liabilities
    2. An excess of current liabilities over current assets
    3. A debit balance in retained earnings
    4. A loss that is reported as a prior period error
49. The correct order to present current assets is

 

1. 1. Cash, inventories, prepaid items, account receivable
   2. Cash, inventories, account receivable, prepaid items
   3. Cash, accounts receivable, prepaid items, inventories
   4. Cash, account receivable, inventories, prepaid items

 

50. Which should be classified as a noncurrent asset?

 

1. 1. Plant expansion fund
   2. Prepaid rent
   3. Supplies
   4. Goods in process

 

51. Which of the following items would normally be excluded from the computation of working period

 

1. 1. Advance from customers
   2. The portion of long-term debt that matures within one year after the reporting period
   3. Prepaid insurance
   4. Cash surrender value of life insurance policy

 

52. Accrued revenue would normally appear in the statement of financial position under

 

1. 1. Noncurrent assets
   2. Current liabilities
   3. Noncurrent liabilities
   4. Current assets

 

53. An operating cycle

 

1. 1. Is twelve months or less in length
   2. Is the average time required for an entity to collect account receivable
   3. Is used to determine current assets when the operating cycle is longer than one year
   4. Starts with accounts receivable and ends with cash

 

54. For liability to exist

 

1. 1. There must be a past event
   2. The exact amount must be known
   3. The identity of the party to whom the liability is owed must be known
   4. There must be an obligation to pay cash in the future

 

55. Which of the following best describes the term “liability”?

 

1. 1. An excess of equity over current assets
   2. Resources to meet financial commitments when due
   3. The residual interest in the assets of the entity after deduction all of the liabilities
   4. A present obligation arising from past event

 

56. Which item is not a current liability?

 

1. 1. Unearned revenue
   2. Stock dividend payable
   3. The currently maturing portion of long-term debt
   4. Trade account payable

 

57. Noncurrent liabilities include

 

1. 1. Bonds payable
   2. Accrued benefit cost
   3. Deferred tax liability
   4. All of these are noncurrent liabilities

 

58. Which is not within the definition of a liability?

 

1. 1. The signing of a three-year employment contract at a fixed annual salary
   2. An obligation to provide goods or services in the future
   3. A note payable with no specified maturity date
   4. A present obligation that is estimated in amount