Marvin M.

Barro Bsa2 TFW

MODULE 1
GENERAL FEATURES OF FINANCIAL STATEMENTS

Exercises/Assignments
Answer the following Problems.

1. The components of the financial statement include all of the following, except
a. Statement of financial position
b. Income Statement
c. Statement of cash flows
d. Statement of retained earnings

2. Which of the following best describes “financial position”?

a. The income, the expenses and net income or loss for a period.
b. The assets, liabilities and equity at a particular moment in time.
c. The financial assets minus financial liabilities.
d. The total assets of an entity.

3. Statement of financial position is useful for all of the following, except

a. Assessing risk
b. Evaluating liquidity
c. Evaluating financial flexibility
d. Determining free cash flows

4. The statement of financial position

a. Omits many items are financial value.
b. Makes very limited use of judgement and estimate.
c. Uses fair value for most assets and liabilities.
d. All of these are correct regarding the statement of financial position
5. One criticism not normally aimed at a statement of financial position is
a. Failure to reflect current value information.
b. The extensive use of separate classification.
c. The extensive use of estimate.
d. Failure to include items of financial value that cannot be recorded objectively.

6. An entity shall present

a. The statement of cash flows more prominently than other statements.
b. The statement of financial position more prominently than other statements.
c. The statement of comprehensive income more prominently than other
statement.
d. Each financial statement with equal prominence.

7. Items of dissimilar nature of function

a. Must always be presented separately in financial statements.
b. Must not be presented separately in financial statements.
c. Must be presented separately in financial statement if material.
d. Must be presented separately in financial statement even if immaterial.

8. The basis of classifying assets as current or noncurrent is the period of time

normally required top convert cash invested in
a. Inventory back into cash, or 12 months, w/c ever is shorter.
b. Receivables back into cash, or 12 months, w/c ever is longer.
c. Tangibles fixed assets back into cash, or 12 months w/c ever is longer.
d. Inventory back into cash, or 12 months, w/c ever is longer.

9. Under the IFRS the correct order to present current assets is

a. Cash, accounts receivable, prepaid expenses, inventories.
 b. Inventories, accounts receivable, prepaid expenses, cash.
c. Cash, inventories, accounts receivable, prepaid items.
d. Inventories, prepaid items, accounts receivable, cash.

10. The entity shall classify a liability as current under all of the following conditions,
except
a. The entity expects to settle the liability w/in normal operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled w/in 12 months after the reporting period
d. The entity has a unconditional rights to defer settlement of the liability for at
least 12 months after the reporting period.

11. The presentation and classification of items shall be retained from one period to
the next.
a. Consistency of presentation
b. Materiality
c. Aggregation
d. Comparability

12. In presenting statement of financial position, an entity

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

13. Current and noncurrent presentation provides useful information when the entity
a. Supplies goods or services w/in a clearly identifiable operating cycle
b. Is a financial information
 c. Is a public utility
d. Is a non-profit organization

14. A presentation of assets and liabilities in increasing or decreasing order of

liquidity provides information that is reliable and more relevant than a current and
noncurrent information.
a. Financial institution
b. Public utility
c. Government-owned entity
d. Service provider

15. When there is much variability, the operating cycle is measured at

a. Six months
b. The median value
c. 12 months
d. Less than 12 months

16. Under the International Financial Reporting Standard, notes to financial

statements
a. Must be quantifiable
b. Must qualify as an element
c. Amplify or explain items presented in the main body of the FS
d. All of the choices are correct regarding notes to FS.

17. What is the first item presented in the Notes to FS?

a. Statement of compliance w/ PFRS
b. Summary of significant accounting policies
c. Supporting information for items presented in the FS
d. Other disclosures, including contingent liabilities, unrecognized contractual
commitments and nonfinancial disclosures
18. The presentation of notes to FS in a systematic manner
a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry
19. W/c of the following is not a method of disclosing pertinent information?
a. Supporting schedule
b. Parenthetical explanation
c. Cross reference and contra items
d. All of these are the methods of disclosing pertinent information

20. Adjusting events are those that

a. Provide evidence or conditions that existed at the end of the reporting period.
b. Are indicative of conditions that arose after the end of the reporting period.
c. Are indicative of conditions that arose before the end of the reporting period.
d. Provide evidence or conditions that existed after the date the FS were issued.

21. W/c of the following events after reporting period would require adjustment?
a. Loss of plant as a result of fire
b. Decline in the value of investment
c. Loss on inventory due to major flood loss
d. Loss on lawsuit the outcome of which was deemed uncertain at year-end.

22. All of the following fall w/in the definition of an entity’s related party, except
a. Joint venture in w/c the entity is a venturer.
b. A postemployment benefit plan for the benefit of the employees of the entity.
c. An executive director of the entity.
d. The partner of a key manager is major supplier of the entity.
23. Which of the following would not be considered key management personnel
compensation?
a. Short-term benefits
b. Share-based payments
c. Termination benefits
d. Reimbursement of “out of pocket” expenses

24. Close family members of an individual include all of the following, except
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brother or sister of the individual

25. All of the following events after the reporting period should be classified as
nonadjusting, except
a. The entity announced the discontinuance of assembly operation.
b. The entity entered into an agreement to purchase the leased building.
c. Destruction of a major production plant by fire.
d. A mistake in the calculation of allowance for uncollectible accounts receivable.

26. “Fair presentation” requires an entity (choose the incorrect one)

a. To comply with applicable PFRS.
b. To present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information.
c. To provide additional disclosures when compliance with the specific
requirements in PFRS is insufficient to enable users to understand the impact of
particular transactions, other events anr1 conditions on the entity’s financial
position and financial performance.
d. To rectify inappropriate accounting policies used either by disclosure or
by note or explanator material.
27. Items of dissimilar nature or function

a. Must always be presented separately in financial statements

b. Must not be presented separately in financial statements

c. Must be presented separately in financial statements if those items are

material

d. Must be presented separately in financial statements even if those items are

immaterial

28. Which statement is incorrect concerning the rule on “offsetting”?

a. An entity shall not offset assets and liabilities, and income and expenses,
unless required or permitted by PFRS.

b. Measuring assets net of valuation allowance is offsetting.

c. Gains and losses on disposal of noncurrent assets are reported by deducting

from the proceeds on disposal the carrying amount of the asset and related
selling expenses.

e. Gains and losses arising from a group of similar transactions are reported on a
net basis, for example, foreign exchange gains and losses arising from financial
instruments held for trading

29. An entity shall present a complete set of financial statements, including

comparative information, at least annually. When an entity changes the end of
its reporting period longer or shorter than one year, an entity shall disclose all of
the following, except

a. Period covered by the financial statements.

b. The reason for using a longer or shorter period.

c. The fact that amounts presented in the financial statements are not
entirely comparable.
 d. The fact that similar entities in the geographical area in which the entity
operates have done so in the current year.

30. An entity must disclose comparative information for

a. The previous comparable period for all amounts reported.
b. The previous comparable period for all amounts reported and for all narrative
and descriptive information,
c. The previous comparable period for all amounts reported, and for all narrative
and descriptive information when it is relevant to an understanding of the current
period’s financial statements.
d. The previous two comparable periods for all amounts reported.
Marvin M. Barro Bsa2 TFW
MODULE 2
STATEMENT OF FINANCIAL POSITION

Exercises/Assignments
Answer the following Problems.

Problem 1
Indicate the proper classification or presentation of the items below. Use the following
classifications:
A. Current Assets
B. Noncurrent Assets
C. Current Liabilities
D. Noncurrent Liabilities
E. Equity
F. Notes to financial statements

Items
____A____1. Financial assets held for trading
____B____2. Investment in associates
____C____3. Estimated warranty liability
____A____4. Sinking fund for the payment of bond payable due next year
____A____5. Instalments accounts receivable, average normal collection period, 18
months
____B____6. Leasehold improvement
____E____7. Reserves
____E____8. Share premium
____E____9. Stock dividend payable
____B____10. Trademark

Problem 2
Presented below are the accounts of JiChangWook Grocery for the year ended December
31, 2020.

Cash in bank P 780,000

Accounts Receivable
120,000
Accounts Payable 102,000
Merchandise Inventory 960,000
Estimated Uncollectible Accounts 5,000
SJK, Drawing
20,000
SJK, Capital 1, 938,000
Taxes and Licenses 6,500
Acc. Depreciation- Store Equipment
15,000
Depreciation 5,000
Unused Supplies Inventory 25,000
Accrued Expense 20,000
Note payable 50,000
Prepaid Rent 25,000
Unearned Income 30,000
Accrued Income 30,000
Freight Out 3,000
Used Supplies Inventory 5,000
Store Equipment 150,000
Building 500,000
Acc. Depreciation- Building 100,000
Note Payable, due in three years 300,000
Chattel Mortgage 50,000

Prepare a Statement of Financial Position for JiChangWook in good form.

 JiChangWook Grocery
Statement of Financial Position
As of December 31, 2020
CURRENT ASSETS:
Cash in bank P 780,000 
Accounts Receivable 120,000
Estimated Uncollectible Accounts   (5,000) 115,000
Accrued Income   30,000 
Merchandise Inventory             960,000 
Unused Supplies Inventory   25,000 
Prepaid Rent   25,000
    Total current assets P       1, 935, 000

NONCUTRRENT ASSETS:
Store Equipment P150,000 
Acc. Depreciation- Store Equipment   (15,000) 135,000
Building   500,000 
Acc. Depreciation- Building (100,000) 400,000
    Total noncurrent assets P 535,000

TOTAL ASSETS P 2,470,000

CURRENT LIABILITIES:
Accounts Payable P 102,000 
Note payable   50,000 
Accrued Expense   20,000
Unearned Income   30,000 
    Total current liabilities P 202,000

NONCURRENT LIABILITIES:
Note Payable, due in three years           300,000 
 Chattel Mortgage   50,000 
    Total noncurrent liabilities P 350,000

TOTAL LIABILITIES P 552,000

EQUITY:
SJK, Capital P       1, 938,000 
SJK, Drawing (20,000)
TOTAL EQUITY P       1, 918,000

TOTAL LIABILITIES AND EQUITY P       2, 470,000

Problem 3
LeeMinHo Company provided the following information on December 31, 2020:

Accounts Receivable
450,000
Accounts Payable 350,000
Property, Plant and Equipment 5,600,000
Accumulated Depreciation 1,200,000
Mortgage Payable, due in 5 years 1,500,000
Share Capital, P100 par 4,000,000
Share Premium 500,000
Cash and Cash Equivalents
800,000
Accrued Expenses 100,000
Inventories 900,000
Long-term Investments
950,000
Note Payable, Long-term debt
500,000
Note Payable, Short-term debt
200,000
Office Supplies unused 50,000
Patent
800,000
Prepaid Rent 150,000
Retained Earnings 1,350,000
Prepare a Statement of Financial Position using with PFRS.

LeeMinHo Company
Statement of Financial Position
As of December 31, 2020
CURRENT ASSETS:
Cash and Cash Equivalents P
800,000 
Accounts Receivable
450,000 
Inventories 900,000
Office Supplies unused   50,000 
Prepaid Rent 150,000  
    Total current assets P         2, 350,000

NONCURRENT ASSETS:
Long-term Investments P
950,000
Property, Plant and Equipment 5, 600,000 
Accumulated Depreciation-PPE (1, 200,000) 4,400,000
Patent
800,000  
    Total noncurrent assets P         6,
150,000
TOTAL ASSETS P 8, 500,000
CURRENT LIABILITIES:
Accounts Payable 350,000
Note Payable, Short-term debt
200,000
Accrued Expenses 100,000
Total current liabilities 650,000

NONCURRENT LIABILITIES:
Note Payable, Long-term debt
500,000
Mortgage Payable, due in 5 years 1, 500,000
Total noncurrent liabilities 2, 000,000

TOTAL LIABILITIES 2, 650,000

EQUITY:
Share Capital, P100 par 4, 000,000
Share Premium 500,000
Retained Earnings 1, 350,000
TOTAL EQUITY 5, 850,000

TOTAL LIABILITIES AND EQUITY 8, 500,000

Problem 4
True or False. Write True if the statement is correct otherwise write false.

1.Liquidity refers to the ability of an enterprise to pay its debts as they mature. False
2.The balance sheet omits many items that are of financial value to the business but cannot
be recorded objectively. True
3.Financial flexibility measures the ability of an enterprise to take effective actions to alter
the amounts and timing of cash flows. True
4.Companies frequently describe the terms of all long-term liability agreements in notes to
the financial statements. True
5.An asset which is expected to be converted into cash, sold, or consumed within one year
of the balance sheet date is always reported as a current asset. False
6.Land held for speculation is reported in the property, plant, and equipment section of the
balance sheet. False
7.The account form and the report form of the balance sheet are both acceptable under
GAAP. True
8.Because of the historical cost principle, fair values may not be disclosed in the balance
sheet. False
9.Companies have the option of disclosing information about the nature of their operations
and the use of estimates in preparing financial statements. False
10.Companies may use parenthetical explanations, notes, cross references, and supporting
schedules to disclose pertinent information. True

Problem 5
Multiple Choice. Choose the letter of the correct answer.

1. Which of the following is a limitation of the balance sheet?

a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these
2. The balance sheet is useful for analyzing all of the following except
 a. liquidity.
b. solvency.
c. profitability.
d. financial flexibility.
3. Balance sheet information is useful for all of the following except to
a. compute rates of return
b. analyze cash inflows and outflows for the period
c. evaluate capital structure
d. assess future cash flows
4. Balance sheet information is useful for all of the following except
a. assessing a company's risk
b. evaluating a company's liquidity
c. evaluating a company's financial flexibility
d. determining free cash flows.
5. A limitation of the balance sheet that is not also a limitation of the income statement
is
a. the use of judgments and estimates
b. omitted items
c. the numbers are affected by the accounting methods employed
d. valuation of items at historical cost
6. The balance sheet contributes to financial reporting by providing a basis for all of the
following except
a. computing rates of return.
b. evaluating the capital structure of the enterprise.
c. determining the increase in cash due to operations.
d. assessing the liquidity and financial flexibility of the enterprise.
7. One criticism not normally aimed at a balance sheet prepared using current
accounting and reporting standards is
a. failure to reflect current value information.
b. the extensive use of separate classifications.
c. an extensive use of estimates.
d. failure to include items of financial value that cannot be recorded objectively.
8. The amount of time that is expected to elapse until an asset is realized or otherwise
converted into cash is referred to as
a. solvency.
b. financial flexibility.
c. liquidity.
d. exchangeability.
9. The net assets of a business are equal to
a. current assets minus current liabilities.
b. total assets plus total liabilities.
c. total assets minus total stockholders' equity.
d. none of these.
10. The correct order to present current assets is
a. cash, accounts receivable, prepaid items, inventories.
b. cash, accounts receivable, inventories, prepaid items.
c. cash, inventories, accounts receivable, prepaid items.
d. cash, inventories, prepaid items, accounts receivable.
11. The basis for classifying assets as current or noncurrent is conversion to cash within
a. the accounting cycle or one year, whichever is shorter.
b. the operating cycle or one year, whichever is longer.
c. the accounting cycle or one year, whichever is longer.
d. the operating cycle or one year, whichever is shorter.
12. The basis for classifying assets as current or noncurrent is the period of time
normally required by the accounting entity to convert cash invested in
a. inventory back into cash, or 12 months, whichever is shorter.
b. receivables back into cash, or 12 months, whichever is longer.
c. tangible fixed assets back into cash, or 12 months, whichever is longer.
d. inventory back into cash, or 12 months, whichever is longer.
13. The current assets section of the balance sheet should include
a. machinery.
b. patents.
c. goodwill.
d. inventory.
14. Which of the following is a current asset?
a. Cash surrender value of a life insurance policy of which the company is the bene-
ficiary.
b. Investment in equity securities for the purpose of controlling the issuing company.
c. Cash designated for the purchase of tangible fixed assets.
d. Trade installment receivables normally collectible in 18 months.
15. Which of the following should not be considered as a current asset in the balance
sheet?
a. Installment notes receivable due over 18 months in accordance with normal trade
practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the
business.
c. Equity or debt securities purchased with cash available for current operations.
d. The cash surrender value of a life insurance policy carried by a corporation, the
beneficiary, on its president.
16. Equity or debt securities held to finance future construction of additional plants
should be classified on a balance sheet as
a. current assets.
b. property, plant, and equipment.
c. intangible assets.
d. long-term investments.
17. When a portion of inventories has been pledged as security on a loan,
a. the value of the portion pledged should be subtracted from the debt.
b. an equal amount of retained earnings should be appropriated.
c. the fact should be disclosed but the amount of current assets should not be
affected.
d. the cost of the pledged inventories should be transferred from current assets to
noncurrent assets.
18. Which of the following is not a long-term investment?
a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
 d. A sinking fund
19. A generally accepted method of valuation is
1. trading securities at market value.
2. accounts receivable at net realizable value.
3. inventories at current cost.
a. 1
b. 2
c. 3
d. 1 and 2
20. Which item below is not a current liability?
a. Unearned revenue
b. Stock dividends distributable
c. The currently maturing portion of long-term debt
d. Trade accounts payable
21. Working capital is
a. capital which has been reinvested in the business.
b. unappropriated retained earnings.
c. cash and receivables less current liabilities.
d. none of these.
22. An example of an item which is not an element of working capital is
a. accrued interest on notes receivable.
b. goodwill.
c. goods in process.
d. temporary investments.
23. Long-term liabilities include
a. obligations not expected to be liquidated within the operating cycle.
b. obligations payable at some date beyond the operating cycle.
c. deferred income taxes and most lease obligations.
d. all of these.
24. Which of the following should be excluded from long-term liabilities?
a. Obligations payable at some date beyond the operating cycle
b. Most pension obligations
 c. Long-term liabilities that mature within the operating cycle and will be paid from a
sinking fund
d. None of these
25. Treasury stock should be reported as a(n)
a. current asset.
b. investment.
c. other asset.
d. reduction of stockholders' equity.
26. Which of the following should be reported for capital stock?
a. The shares authorized
b. The shares issued
c. The shares outstanding
d. All of these
27. Which of the following would be classified in a different major section of a balance
sheet from the others?
a. Capital stock
b. Common stock subscribed
c. Stock dividend distributable
d. Stock investment in affiliate
28. The stockholders' equity section is usually divided into what three parts?
a. Preferred stock, common stock, treasury stock
b. Preferred stock, common stock, retained earnings
c. Capital stock, additional paid-in capital, retained earnings
d. Capital stock, appropriated retained earnings, unappropriated retained earnings
29. Which of the following is not an acceptable major asset classification?
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Deferred charges
30. Which of the following is a contra account?
a. Premium on bonds payable
b. Unearned revenue
 c. Patents
d. Accumulated depreciation
31. Fulton Company owns the following investments:
Trading securities (fair value) P60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Fulton will report investments in its current assets section of
a. P0.
b. exactly P60,000.
c. P60,000 or an amount greater than P60,000, depending on the circumstances.
d. exactly P95,000.

32. For Grimmett Company, the following information is available:

Capitalized leases P200,000
Trademarks 65,000
Long-term receivables 75,000
In Grimmett’s balance sheet, intangible assets should be reported at
a. P65,000.
b. P75,000.
c. P265,000.
d. P275,000.
33. Houghton Company has the following items: common stock, P720,000; treasury
stock, P85,000; deferred taxes, P100,000 and retained earnings, P313,000. What
total amount should Houghton Company report as stockholders’ equity?
a. P848,000.
b. P948,000.
c. P1,048,000.
d. P1,118,000.
34. Kohler Company owns the following investments:
Trading securities (fair value) P60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
 Kohler will report securities in its long-term investments section of
a. exactly P95,000.
b. exactly P107,000.
c. exactly P142,000.
d. P82,000 or an amount less than P82,000, depending on the circumstances.
35. For Randolph Company, the following information is available:
Capitalized leases P280,000
Trademarks 90,000
Long-term receivables 105,000
In Randolph’s balance sheet, intangible assets should be reported at
a. P90,000.
b. P105,000.
c. P370,000.
d. P385,000.
36. Olmsted Company has the following items: common stock, P720,000; treasury stock,
P85,000; deferred taxes, P100,000 and retained earnings, P363,000. What total
amount should Olmsted Company report as stockholders’ equity?
a. P898,000.
b. P998,000.
c. P1,098,000.
d. P1,198,000.
37. Presented below are data for Antwerp Corp.
2020 2021 2022
Assets, January 1 P2,800 P3,360
?
Liabilities, January 1 1,680 ?
$2,016
Stockholders' Equity, Jan. 1 ? ?
2,100
Dividends 560 420
476
 Common Stock 504 448
500
Stockholders' Equity, Dec. 31 ? ?
1,596
Net Income 560 448 ?
Stockholders' Equity at January 1, 2020 is
a. P 504.
b. P 560.
c. P1,120.
d. P1,624.
38. Presented below are data for Bandkok Corp.
2020 2021 2022

Assets, January 1 P5,400 P6,480

?
Liabilities, January 1 3,240 ?
$3,888
Stockholders' Equity, Jan. 1 ? ?
4,050
Dividends 1,080 810
918
Common Stock 972 864
920
Stockholders' Equity, Dec. 31 ? ?
3,078
Net Income 1,080 864
?
Stockholders' Equity at January 1, 2021 is
a. P1,890.
b. P1,998.
c. P3,132.
d. P3,186.
39. Stine Corp.'s trial balance reflected the following account balances at December 31,
2020:
Accounts receivable (net) P24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture
15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent
4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Stine's December 31, 2010 balance sheet, the current assets total is
a. P90,000.
b. P82,000.
c. P77,000.
d. P73,000.
40. On January 4, 2020, Kiley Co. leased a building to Dodd Corp. for a ten-year term at
an annual rental of P75,000. At inception of the lease, Dodd received P300,000
covering the first two years' rent of P150,000 and a security deposit of P150,000.
This deposit will not be returned to Dodd upon expiration of the lease but will be
applied to payment of rent for the last two years of the lease. What portion of the
P300,000 should be shown as a current and long-term liability in Kiley's December
31, 2020 balance sheet?
Current Liability Long-term Liability
a. P0 P300,000
b. P75,000 P150,000
c. P150,000 P150,000
d. P150,000 P75,000