Intermediate Accounting 3

Intermediate Accounting 3

This course is the culmination of the Financial Accounting cluster. It deals with the preparation of the general purpose financial statements in accordance with the generally accepted Philippine standards on financial reporting. It covers reconstruction of accounts from incomplete records, change from cash basis to accrual basis of accounting changes, correction of errors, discontinued operations and segment reporting.



addition to profit to arrive at a cash flows from operating activities When preparing a statement of cash flows using the indirect method, the amortization of trademarks should be reported as a/an
reduces the reported profit but does not involve an outflow of cash. In a statement of cash flows using indirect method of presenting cash flow from operating activities, depreciation is treated as an adjustment to reported profit because depreciation
Assets These are the resources controlled by the entity as a result of past transactions or events and from which future economic benefits are expected to flow to the entity.
understated by P 600,000. On December 31, 2019, CAL Company sold merchandise for P 750,000 to Biday Company. The terms of the sale were net 30, F.O.B. shipping point. The merchandise was shipped on December 31, 2019, and arrived at Biday on January 5, 2020.
Both I and II Which of the following statements is true concerning interim financial reporting?
P 1,350,000 Quezon Company, a calendar-year entity, had the following income before tax provision and effective annual tax rate for the first three quarters of the current year:
P 3,300,000 Show Company provided the following trial balance on December 31, 2020 which had been adjusted except for income tax expense:
P 2,700,000 Younger Company reported the following assets at year-end:
either a or b The statement of financial position may be presented either showing current/ non-current distinction (classified) or based on liquidity (unclassified) PAS 1 Presentation of Financial Statements encourages the
overstated retained earnings Failure to record accrued salaries at the end of an accounting period results in
in the second quarter. For interim reporting, an inventory loss from a market decline in the second quarter shall be recognized as a loss
Accounting policies and explanatory notes An interim financial report shall include, as a minimum, all of the following components, except
P 8,000,000 Gold Company provided the following information at year-end:
Either the nature of expenses or the function of expenses within the entity, whichever provides information that is reliable and more relevant. An entity shall present expenses using a classification based on
sale of financial assets at fair value through . Which of the following would be classified as an investing activity?
Cost of sales method The expenses are classified according to their function, as part of cost of sales, distribution costs, administrative activities and other operating activities.
Liabilities These are the present obligations of an entity arising from past transactions or events the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Annually Financial statements must be prepared at least
P 780,000 understated Brent Corp. beginning inventory on January 1 was understated by P 260,000 and the ending inventory was overstated by P 520,000.
sale of financial assets at fair value through . Which of the following would be classified as an investing activity
P 4,000,000 Winner Company provided the following information at year end:
decrease in accounts receivable Under the indirect method, which of the following items would be added to profit to arrive at cash flows from operating activities?
All of these are non-current liabilities Non-current liabilities include
It is the time between the acquisition of materials entering into a process and their realization in cash or cash equivalent. The operating cycle of an entity
be shown as an adjustment of the balance of retained earnings at the start of the current year. Where the financial statements for a single year are being presented, a prior period error recognized in the current year ordinarily should
Franchise Which of the following is not a non-current investment?
Treasury share, at cost Which of the following changes during a period is not a component of ?
Either I or II Interim financial report means a financial report containing
Unrealized gain and loss on financial asset held for trading All of the following are components of , except
Both profit and loss and Comprehensive income includes
Statement of changes in financial position The major financial statements include all, except
Equity It is the residual interest in the assets of the entity after deducting all of its liabilities.
Decline in inventory shall be deferred to future interim periods. Which of the following statements is incorrect regarding interim financial reporting?
FALSE The total equity of D Co. at the beginning of the period was P 100. during the period D Co. reports total comprehensive income of P 40 and declares total dividends of P 10. The net change in equity during the period is an
Twelve months When there is much variability in the duration of entity’s normal operating cycle, the operating cycle is measured at
Consistency of presentation The presentation and classification of items in the financial statements shall be retained from one accounting period to the next.
depreciation expense Which of the following would appear only in the statement of cash flows using the indirect method?
Both I and II Which of the following statements in relation to interim financial reporting is true?
cash payment A company required a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in investing activities for the above transaction?
retrospective application This means a new accounting policy to transactions, other events and conditions as if that policy had always been applied.
P 260,000 The following costs were incurred by LIP company, a manufacturer during 20x1:
Assets, liabilities and equity The elements directly related to the measurement of financial position are
Cash receipts and payments from contracts held for dealing or trading purposes Which of the following is classified as an operating activity in the statement of cash flows?
P 850,000 Winner Company has estimated that total depreciation expense for the year ended December 31, 2020 will amount to P 500,000, and that 2020 year-end bonuses to employees will total P 1,200,000.
Statement of retained earnings The major financial statements include all, except
P 260,000 The following information is available for Champaca Company for the year ended December 31, 2020.
retained earnings These are the cumulative net earnings or profit of a firm which may be unappropriated and appropriated.
To the extent practicable, an entity must correct a prior period error retrospectively in the first financial statements authorized for issue after its discovery. Which of the following statements is true?
TRUE Firm B’s total equity at the beginning of the period was P 40. During the period, Firm B incurs loss of P 4 and declares total dividends of P 10. Total equity of Firm B at the end of the period is P 26.
To provide information about the financial position, financial performance and changes in financial position useful to a wide range of users. What is the objective of financial statements?
equity The residual interest in the assets of the entity after deducting all of the liabilities is known as
P 1,550,000 Red Company which began operations on January 2019 has elected to use cash basis accounting for tax purposes and accrual basis accounting for financial statements. The entity reported sales of P 1,750,000 and P 800,000 in the tax returns for years ended December 31, 2020 and 2019, respectively. The entity reported accounts receivable of P 300,000 and P 500,000 on December 31, 2020 and 2019, respectively.
To report a measure of overall entity performance What is the purpose of reporting comprehensive income?
legal and accounting fees In a statement of comprehensive income, showing expenses according to their function, which of the following is included in the line item “Administrative expenses?”
a change in accounting policy A change in measurement basis is
P 1,415,000 Tiny Company started operations at the beginning of current year. The entity failed to recognize accruals and prepayments at end of the reporting period. The income before tax, accrual and prepayments at the end of the current year are:
P 200,000 Orchidia Company’s prepaid insurance was P 500,000 at December 31, 2020 and P 250,000 at December 31, 2019. Insurance expense was P 200,000 for 2020 and P 150,000 for 2019.
Either I or II Which method is acceptable in the presentation of the income statement?
Dividend paid to shareholders includes all of the following, except
FALSE A. Corp. has a total equity of P 200 at the beginning of the period. During the period, A Corp. earns a profit of P 40 and declares dividends of P 10. The total equity at the end of the period is P 250.
Names of major shareholders of the entity. Which of the following information is not specifically a required disclosure in relation to financial statements?
A statement of changes in equity Which of the following is included in a complete set of financial statements?
Plant expansion fund Which should be classified as a non-current asset?
Environmental reports and value added statements A complete set of financial statements includes all of the following components, except
P 6,700,000 Little Company reported the following current assets on December 31, 2020:
non-current items In a classified statement of financial position, PAS 1 Presentation of Financial Statements requires deferred tax assets and deferred tax liabilities to be presented as
is an activity that would not be reported in a statement of cash flows. The declaration of cash dividends by the board of directors
None of the choices would indicate going concern. Which statement indicates a going concern
investing activity In a statement of cash flows, receipt from sale of property, plant, and equipment would be classified as cash inflows from
Accrual accounting 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.
borrowing from banks Revenue may be derived from any of the following activities, except
Materiality and aggregation Each material class of similar items shall be presented separately and items of a dissimilar nature or function shall be presented separately unless they are immaterial.
The depreciation expense is added and increase in accounts receivable is deducted. Would the following be added to or deducted from profit when reporting cash flow from operating activities using the indirect method?
sale of a business segment In preparing a statement of cash flows, which of the following transactions would be considered an investing activity?
To provide information that is useful in assessing the ability of the entity to generate cash and cash equivalents. What is the primary purpose of the statement of cash flows?
share premium The funds contributed by shareholders in excess of par or stated value
borrowing from bank Revenue may be derived from any of the following activities except
TRUE Entity C’s total equity at the end of the period is P 230. During the period, Entity C earns profit of P 40 and declares total dividends of P 10. Entity C’s total equity at the beginning of the period was P 200.
Extraordinary item Which of the following terms cannot be used to describe a line item in the statement of comprehensive income
Depreciation, purchases of materials, transport costs, employee benefits and advertising costs. Separate line items of expenses by nature include
cash advances and loans made by financial institutions Which of the following is presented as an operating activity?
retained earnings Corrections of error are reported in
Statement of Changes in Equity This is the formal statement that shows the movement in the elements or components of the shareholders’ equity.
a change in accounting policy and account for it retrospectively. An entity that changed its method of inventory valuation from weighted average to FIFO shall account for the change as
Either I or II An entity shall present all items of income and expense recognized in a period.
Either I or II An entity shall present all items of income and expense recognized in a period
does not prescribe the order or format in which an entity presents items in the financial statements. PAS 1 Presentation of Financial Statements
recognized in the second quarter For interim financial reporting, an expropriation gain occurring in the second quarter shall be
P 3,400,000 On December 31, 2020, Key Company had the following balances in the accounts maintained at First National Bank:
P 4,900,000 Show Company provided the following trial balance on December 31,
None of the choices would indicate going concern. Which statement indicates a going concern?
P 3,900,000 Guard Company reported the following account balances on December 31, 2020:
P 7,500,000 Universal Company reported the following unadjusted current assets and shareholders’ equity at year-end:
P 175,000 Lily Corporation’s transactions for the year ended December 31, 2019 included the following:
Restate the financial statements with corrected balances for all prior periods presented. During 2020, an entity discovered that ending inventory reported in its 2019 financial statements was understated. How should the entity account for this understatement?
Income and expenses The elements directly related to the measurement of financial performance are
a financial statement that reports the cash inflows and outflows for an accounting period. Statement of Cash flows is
borrowing from banks Revenue may be derived from any of the following activities except
cost of sales, administrative expenses and distribution expenses Separate line items of expenses by function include
P 200,000 Orchidia Company’s prepaid insurance was P 500,000 at December 31, 2020 and P 250,000 at December 31, 2019. Insurance expense was P200,000 for 2020 and P 150,000 for 2019.
policy A change in reporting entity is actually a change in accounting
Profit or loss It is the total income less expenses, excluding the components of .
shall be reported by retrospectively adjusting the financial statements for all years reported, and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported. Which of the following is a characteristic of a change in accounting policy?
current period and future periods if the change affects both The effect of a change in accounting estimate shall be recognized prospectively by including it in profit or loss of
In determining existing of an asset, the right of ownership is essential. Which of the following statements is incorrect concerning assets?
P 4,900,000 Show Company provided the following trial balance on December 31, 2020 which had been adjusted except for income tax expense:
P 480,000 Brook Corporation reports operating expenses in two categories (1) selling, and (2) general and administrative. The adjusted trial balance at December 31, 20x1, including the following expense and loss accounts:
P 4,292,000 The following was taken from the 2020 financial statements of Tulip
Both statements are true Which of the following statements is true concerning interim financial reporting?
are reflected as adjustments of the opening balance of retained earnings of the earliest period presented. Items reported as prior period adjustments
financing activity In preparing a statement of cash flows, sale of treasury shares at an amount greater than cost would be classified as a/ an
the depreciation expense is added and increase in accounts receivable is deducted Would the following be added to or deducted from profit when reporting cash flow from operating activities using the indirect method?
Both statements are true Which of the following statements in relation to interim financial reporting is true?
change in estimated useful life of an asset. Change in accounting policy does not include
P 8,200,000 ASB Company provided the following information for the current year:
financing activity In a statement of cash flows, proceeds from the sale of a company’s own bonds or mortgages should be classified as
actuarial gain on defined benefit plan that is fully recognized through includes all of the following, except
P 4,292,000 The following was taken from the 2020 financial statements of Tulip Company.
The asset is cash or cash equivalent that is restricted to settle a liability for more than twelve months after the reporting period. An entity shall classify an asset as current when (choose the incorrect one)
Management of the entity The primary responsibility for the preparation of the financial statements is reposed in
valuation Financial statements are structured representation of the financial position and performance of an entity. The objective of general purpose financial statements is to provide information about the entity’s (choose the incorrect one)
a financial statement that reports the cash inflows and outflows for an accounting period. Statement of Cash flows is
share capital These are the funds contributed by shareholders equal to the par or stated value.
Applying a new accounting policy to transactions occurring after the date at which the policy is changed. Which of the following statements best describes prospective application?
A condensed set of financial statements and selected notes Interim financial reports shall include as a minimum
Both profit or loss and Comprehensive income includes
P 4,550,000 Partner Company reported operating expenses as distribution and general or administrative.
Both I and II Prior period errors are omissions from and misstatements in the financial statements of one or more periods arising from a failure to use or misuse of reliable information that
P 114,000 During the year ended December 31, 2020, Zoila Company paid interest totaling P 100,000. The prepaid interest expense is P 23,500 and P 18,000 respectively on December 31, 2019 and 2020. The interest payable is P 45,000 and P 53,500, respectively on December 31, 2019 and 2020.
P 4,200,000 Green Company incurred the following costs during the current year:
Must be presented separately in financial statements if those items are material. Items of dissimilar nature or function
None of the choices would indicate going concern. Which statement indicates a going concern?
Assets These are the resources controlled by the entity as a result of past transactions or events and from which future economic benefits are expected to flow to the entity.
Annually Financial statements must be prepared at least
Statement of retained earnings The major financial statements include all, except
In determining existing of an asset, the right of ownership is essential. Which of the following statements is incorrect concerning assets?
A statement of changes in equity Which of the following is included in a complete set of financial statements?
Equity It is the residual interest in the assets of the entity after deducting all of its liabilities.
The asset is cash or cash equivalent that is restricted to settle a liability for more than twelve months after the reporting period. An entity shall classify an asset as current when (choose the incorrect one)
Liabilities These are the present obligations of an entity arising from past transactions or events the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Management of the entity The primary responsibility for the preparation of the financial statements is reposed in
Names of major shareholders of the entity. Which of the following information is not specifically a required disclosure in relation to financial statements?
Consistency of presentation The presentation and classification of items in the financial statements shall be retained from one accounting period to the next.
Materiality and aggregation Each material class of similar items shall be presented separately and items of a dissimilar nature or function shall be presented separately unless they are immaterial.
Income and expenses The elements directly related to the measurement of financial performance are
Environmental reports and value added statements A complete set of financial statements includes all of the following components, except
To provide information about the financial position, financial performance and changes in financial position useful to a wide range of users. What is the objective of financial statements?
Accrual accounting 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.
Statement of changes in financial position The major financial statements include all, except