TOA- F04 (Other Prac 1 Topics)

TSU-CBA Theory of Accounts

Cash and Accrual, Hyperinflation, Current Cost Accounting, Cash Flows

1. Under the accrual of basic of accounting, cash receipts and disbursements may

a. Precede, coincide with, or follow the period in which revenue and expenses are recognized

b. Precede or coincide with but never follow the period in which revenue and expenses are

recognized

c. Coincide with or follow bet never precede the period in which revenue and expenses are

recognized

d. Only coincide with the period in which revenue and expenses are recognized

2. Under the cash basis of accounting

a. Revenues are recorded when they are earned

b. Accounts receivable would appear in the statement of financial position

c. Depreciation of assets having an economic life of more than one ear is not recognized

d. The matching principle is ignored

3. Total net income over the life of an entity is

a. Higher under the cash basis than under the accrual basis

b. Lower under the cash basis than under the accrual basis

c. The same under the cash basis as under the accrual basis

d. Not susceptible to measurement

4. Incomplete accounting records using only cash book is a characteristic of

a. Cash basis

b. Accrual basis

c. Single entry system

d. Double entry system

5. Compared to cash basis net income for the current year, an entity’s accrual basis net income

increased when it

a. Declared a cash dividend in the prior year that it paid in the current year

b. Wrote off more accounts receivable than it reported as uncollectible accounts expense in the

current year

c. Had lower accrued expenses on December 31 of the current year than on January 1

d. Sold used equipment for cash at a fain in the current year

6. Compared to the accrual basis of accounting, the cash basis of accounting understates income by

the net decrease during the accounting period of

a. Both accounts receivable and accrued expense

b. Accrued expenses but not of accounts receivable

c. Neither accounts receivable nor of accrued expenses

d. Accounts receivable bit not of accrued expenses

7. Prior to the current year, an entity used the cash basis of accounting. At the current yearend, the

entity changed to the accrual basis. The entity cannot determine the beginning balance of supplies

inventory. What is the effect of the entity’s inability ot determine beginning supplies inventory on its

accrual basis net income and yearend accrual basis owners’ equity.

Net income Owners’ equity

a. No effect no effect

b. No effect overstated

c. Overstated no effect

d. Overstated overstated

8. The premium on a three-year insurance policy expiring on December 31, 2015 was paid in total on

January 1, 2013. The original payment was initially debited to a prepaid asset account. The

appropriate journal entry had been recorded on December 31, 2013. The balance in the prepaid

asset account on December 31, 2013 should be

a. Zero

b. The same as it would have been if the original payment had been debited initially to an expense

account

c. The same as the original payment

d. Higher than if the original payment had been debited initially to an expense account

9. The premium on a three-year insurance policy expiring on December 31, 2015 was paid in total on

January 1, 2013. The original payment was recorded as a prepaid asset. How would total assets and

shareholders’ equity be affected during 2013?

a. Total assets would decrease and shareholders’ equity would increase

b. Both total assets and shareholders’ equity would decrease

c. Both total assets and shareholders’ equity would increase

d. Neither total assets nor shareholders’ equity would change

10. Failure to record the expired amount of prepaid rent expense would not

a. Understate expense

b. Overstate net income

c. Overstate owners’ equity

d. Understate liabilities

11. Failure to record accrued salaries at the end of an accounting period results in

a. Overstated retained earnings

b. Overstated assets

c. Overstated revenue

d. Understated retained earnings

12. Failure to record depreciation expense at the end of an accounting period results in

a. Understated income

b. Understated assets

c. Overstated expense

d. Overstated assets

13. Which of the following types or errors will not self-correct in the next year?

a. Accrued expenses not recognized at yearend

b. Accrued revenues that have not been collected nor recognized at yearend

c. Depreciation expense overstated for the year

d. Prepaid expenses not recognized as yearend

14. Which of the following is a counterbalancing error?

a. Understated depletion expense

b. Bond premium under-amortized

c. Prepaid expense adjusted incorrectly

d. Overstated depreciation expense

15. An entity uses a periodic inventory system. If the company’s beginning inventory in the correct year

is overstated, and that is the only error in the current year then the company’s income for the

current year will be

a. Understated and assets correctly stated

b. Understated and assets overstated

c. Overstated and assets overstated

d. Understated and assets understated

16. The December 31, 2013 physical inventory of an entity appropriately included merchandise

purchased on account that was not recorded in purchases until January 2014. What effect will this

error have on December 31, 2013 assets, liabilities, retained earnings and earnings for the year then

ended, respectively?

a. Understate, no effect, overstate, overstate

b. No effect, overstate, understate, understate

c. No effect, understate, overstate, overstate

d. No effect, understate, understate, overstate

17. If at the end of the period, an entity erroneously excluded some goods from its ending inventory

and also erroneously did not record the purchase of these goods in its accounting records, these

errors would cause

a. No effect on net income, working capital, and retained earnings

b. The cost of goods available for sale, cost of goods sold and net income to be understated

c. The ending inventory, cost of goods available for sale, and retained earnings to be understated

d. The ending inventory, cost of goods sold and retained earnings to be understated

18. Net income is understated if in the first year estimated residual value is excluded from the

depreciation computation when using which of the following?

a. Straight line method

b. Production method

c. Both straight line method and production method

d. Neither straight line method nor production method

19. At the end of the current year, an entity failed to accrue sales commissions during the current year

but paid in the next year. The error was not repeated in the next year. What was the effect of this

error on current yearend ending working capital and retained earnings balance, respectively?

a. Overstated, overstated

b. No effect, overstated

c. No effect, no effect

d. Overstated, no effect

20. All of the following would indicate that hyperinflation exists, except

a. The general population regards monetary amounts in terms of relatively stable foreign currency

b. The cumulative inflation rate over three years is approaching, or exceeds 100%

c. Inflation rates have exceeded interest rates in three successive years

d. The general population prefers to keep its wealth in nonmonetary assets

21. Which of the following would indicate that hyperinflation exists?

a. Sales on credit are at lower prices than cash sales

b. Inflation is approaching, or exceeds, 20% per year

c. Monetary items do not increase in value

d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency

22. The financial statements of an entity that reports in the currency of a hyperinflationary economy

shall be stated in terms of

a. Historical cost

b. Current cost

c. Fair value

d. Measuring unit current at the end of reporting period

23. In a hyperinflationary economy, amounts not expressed in the measuring unit current at the end of

reporting period are restated by applying the

a. General price index

b. Specific price index

c. Both the general price index and the specific index

d. Either the general price index or the specific price index

24. In a hyperinflationary economy, monetary items

a. Are not restated because they are already expressed in terms of the measuring unit current at

the end of reporting period

b. Are not restated because they do not represent money held and items to be received or paid in

money

c. Are restated applying the general price index

d. Are restated applying the specific price index

25. An entity that wishes to present information about the effect of changing prices in a

hyperinflationary economy would report this information in

a. The body of the financial statements

b. The notes to the financial statements

c. Supplementary information to the financial statements

d. Management’s report to shareholders

26. Financial statements that re expressed assuming a stable monetary unit are

a. Constant peso financial statements

b. Nominal peso financial statements

c. Current cost financial statements

d. Fair value financial statements

27. Which of the following is classified as nonmonetary?

a. Allowance for doubtful accounts

b. Accumulated depreciation-equipment

c. Unamortized premium on bonds payable

d. Advances to unconsolidated subsidiaries

28. Which of the following is classified as nonmonetary?

a. Obligations under warranties

b. Accrued expenses

c. Unamortized discount on bonds payable

d. Refundable deposits

29. All of the following are monetary items, except

a. Trade payables

b. Trade receivables

c. Administration costs paid in cash

d. Loan repayable at par value

30. During a period of inflation in which a liability account balance remains constant, which of the

following occurs?

a. A purchasing power loss if the item is a nonmonetary liability

b. A purchasing power gain if the item is a nonmonetary liability

c. A purchasing power loss if the item is a monetary liability

d. A purchasing power loss if the item is a monetary liability

31. During period of deflation, an account balance remains constant. With respect to this account, a

purchasing power gain will be recognized if the account is a

a. Monetary liability

b. Monetary asset

c. Nonmonetary liability

d. Nonmonetary asset

32. The gain of loss on the net monetary position in a hyperinflationary economy shall be included in

a. Profit or loss and separately disclosed

b. Retained earnings

c. Equity

d. Other comprehensive income

33. In current cost financial statements

a. General price level gains or losses are recognized on net monetary items

b. Amounts are always stated in common purchasing power unit of measurement

c. All items in the statement of financial position are different from historical cost

d. Holding gains are recognized

34. An entity adjusted its historical cost income statement by applying specific price index to its

depreciation and cost of goods sold. The adjusted income statement is prepared according to

a. Fair value accounting

b. Purchasing power accounting

c. Current cost accounting

d. Nominal peso accounting

35. An entity prepares financial statements on a current cost basis. How should the entity compute cost

of goods sold on a current cost basis?

a. Number of units sold times average current cost of units during the year

b. Number of units sold times current cost of units at yearend

c. Number of units sold times current cost of units at the beginning of the year

d. Beginning inventory at current cost plus cost of goods purchased less ending inventory at

current cost

36. Could current cost financial statements report holding gains for which of the following?

a. Goods sold during the period

b. Inventory at yearend

c. Both goods sold during the period and inventory at yearend

d. Neither goods sold during the period nor inventory at yearend

37. During a period of inflation, the specific price of land increased at a lower rate than the general price

index. The accounting method that would measure the land at the highest amount is

a. Historical cost/nominal peso

b. Current cost/nominal peso

c. Current cost/constant peso

d. Historical cost/constant peso

38. The primary purpose of the statement of cash flows is to provide information

a. About the operating, investing, and financing activities of an entity during a period

b. That is useful in assessing cash flow prospects

c. About the cash receipts and cash payments of an entity during a period

d. About the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for

external financing

39. Cash comprises

a. Cash on hand and demand deposits

b. Cash on hand, demand deposits and cash equivalents

c. Cash on hand and cash equivalents

d. Demand deposits and cash equivalents

40. Cash equivalents are

a. Treasury bills, commercial paper and money market funds purchased with excess cash

b. Investments with original maturities of three months or less

c. Readily convertible to known amounts of cash

d. All of these

41. All of the following can be classified as cash and cash equivalent, except?

a. Redeemable preference shares acquired and due in 60 days

b. Loan notes held due for repayment in 90 days

c. Equity investments

d. A bank overdraft

42. In preparing the statement of cash flows, the purchase of a three-month treasury bill would

a. Be treated as outflow from operating activities

b. Be treated as outflow from investing activities

c. Be treated as outflow from financing activities

d. Have no effect

43. The statement of cash flows reports all of the following, except

a. The net change in cash for the period

b. The cash effects of operations during the period

c. The free cash flow generated during the period

d. Investing transactions

44. Free cash flow is calculated as net cash provided by operating activities less

a. Capital expenditures

b. Dividends

c. Capital expenditures and dividends

d. Capital expenditures and depreciation

45. Which of the following statements is true in relation to cash flows?

I. Operating activities are the principal revenue producing activities of the entity

II. Investing activities are the acquisition and disposal of long-term assets and other

investments not included in cash equivalents

III. Financing activities are activities that result in changes in the size and composition of equity

capital and borrowings of the entity

a. I and II only

b. Ii and III only

c. I and III only

d. I, II and III

46. Bank borrowings are generally considered

a. Operating activities

b. Investing activities

c. Financing activities

d. Borrowing activities

47. Bank overdrafts that are repayable on demand and the bank balance often fluctuates from positive

to overdrawn shall be classified as




d. Component of cash and cash equivalents

48. Which classification of cash flow arising from the proceeds from an earthquake disaster settlement

would be most appropriate?

a. Cash flows from operating activities

b. Cash flows from investing activities

c. Cash flows from financing activities

d. Does not appear in the statement of cash flows

49. Which of the following items should be presented under cash flows from investing activities

a. Employee costs

b. Property revaluation

c. Redemption of debentures

d. Development costs capitalized in the period

50. Which classification of the cash flow arising from the disposal proceeds of a major item of plant

would be most appropriate?

a. Cash flows from operating activities

b. Cash flows from investing activities

c. Cash flows from financing activities

d. Does not appear in the statement of each flows

51. In statement of cash flows, the cash flows from investing activities should report

a. The issuance of ordinary shares in exchange for a factory building

b. Share dividends received

c. A major repair to machinery charged to accumulated depreciation

d. The factoring of accounts receivable

52. Which of the following events will appear in the cash flows from financing activities

a. Cash purchase of equipment

b. Cash purchase of bonds issued by another entity

c. Cash received as repayment for funds loaned

d. Cash purchase of treasury shares

53. Making and collecting loans are




d. Liquidity activities

54. In a statement of cash flows, receipts from sale of property, plant and equipment and other

productive assets should generally be classified as cash inflows from




d. Selling activities

55. Interest payments to lenders and other creditors should be classified as cash outflows for


b. Borrowing activities

c. Lending activities

d. Financing activities

56. Proceeds from issuing equity instruments should be classified as cash inflows from

a. Lending activities

b. Operating activities

c. Investing activities


57. Payments to acquire debt instruments of other entities other than cash equivalents should be

classified as cash outflows for




d. Lending activities

58. A statement of cash flows typically would not disclose the effects of

a. Ordinary shares issued at an amount greater than par value

b. Share dividends declared

c. Cash dividends paid

d. A purchase and immediate retirement of treasury shares

59. Noncash investing and financing transactions include all of the following, except

a. The acquisition of asset either by assuming directly related liability or by means of a finance

lease

b. The acquisition of an entity be means of an equity issue

c. The conversion of debt to equity

d. Noncash items such as depreciation provisions, deferred taxes and unrealized foreign currency

gains and losses

60. Noncash investing and financing activities are

a. Reported in the statement of cash flows only of the direct method is used

b. Reported in the statement of cash flows only of the indirect method is used

c. Disclosed in a note or separate schedule accompanying the statement of cash flows

d. Not reported or disclosed because they have no impact on cash.

61. An entity shall report cash flows from operating activities using

a. Direct method

b. Indirect method

c. Either direct method or indirect method

d. Neither direct method nor indirect method

62. An entity shall report separately cash flows from investing and financing activities using

a. Direct method

b. Indirect method

c. Either direct method or indirect method

d. Neither direct method nor indirect method

63. Which of the following statements is correct?

a. The indirect method starts with income before income tax

b. The direct method is known as the reconciliation method

c. The direct method is more consistent with the primary purpose of the statement of cash flows

d. All of these

64. Under indirect method, cash flows from operating activities

a. Are always equal to accrual accounting income

b. Are calculated as the difference between revenue and expenses

c. Can be calculated by appropriately adding to or deducting from net income those items in the

income statement that do not affect cash

d. Can be calculated by appropriately adding to or deducting from net income those items in the

income statement that do affect cash

65. Preparing the statement of cash flows, using the indirect method, involves all of the following,

except determining the

a. Cash provided by operations

b. Cash provided by or used in investing and financing activities

c. Change in cash and cash equivalents during the period

d. Cash collections from customers during the period

66. Cash advances and loans made by financial institutions are usually classified as




d. Component of cash and cash equivalents

67. Interest and dividend received may be classified as cash outflows for


b. Borrowing activities

c. Lending activities


68. Dividend paid may be classified as cash outflows for




d. Ordinary activities

69. All of the following could potentially be classified as either operating or investing cash flows, except

a. Interest received

b. Dividends received

c. Taxes paid that are specifically identified with investing

d. Dividends paid

70. Cash flows arising from income taxes shall be separately disclosed and classified as




d. Extraordinary activities

71. The aggregate cash flows from acquisition and disposal of a subsidiary shall

a. Be classified as operating activities

b. Be classified as investing activities

c. Be classified as financing activities

d. Not be reported

72. Dividends received from an equity investee shall be presented as

a. Deduction from cash flows from operating activities

b. Addition to cash flows from operating activities

c. Deduction from cash flows from investing activities

d. Addition to cash flows from investing activities

73. Which cash flow does not appear in a statement of cash flows using indirect method?

a. Net cash flow from operating activities

b. Cash received from customers

c. Cash inflow from sale of equipment

d. Cash outflow for dividend payment

74. Which would increase reported cash flows from operating activities using the direct method?

a. Dividends received from investments

b. Gain on sale of equipment

c. Fain on retirement of bonds

d. Change from straight line to accelerated depreciation

75. When preparing a statement of cash flows under indirect method, which of the following is not an

adjustment to reconcile net income to net cash provided by operating activities?

a. A change in interest payable

b. A change in dividends payable

c. A change in income taxes payable

d. All of these are adjustments

76. Which should not be disclosed in the statement of cash flows using the indirect method?

a. Interest paid, net of amounts capitalized

b. Income taxes paid

c. Cash flow per share

d. Dividends paid on preference shares

77. How should a gain from the sale of equipment be reported using the indirect method?

a. In investing activities as a reduction of the cash inflow from the sale

b. In investing activities as cash outflow

c. In operating activities as a deduction from income

d. In operating activities as an addition to income

78. In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash flow

from investing activities equals the carrying amount of the equipment

a. Plus the gain

b. Plus the gain and less the amount of tax attributable to the gain

c. Plus both the gain and the amount of tax attributable to the gain

d. With no addition or substation

79. When preparing a reconciliation of net income to cash from operations, an increase in inventory will

result in an adjustment to reported net income because

a. Cash is increased because inventory is a current asset

b. Inventory is an expense deducted in computing net earnings, bit is not a use of cash

c. The net increase in inventory is part of the difference between cost of goods sold and cash paid

to suppliers

d. All changes in noncash accounts must be disclosed

80. The amortization of bond premium related to long-term debt shall be presented in a statement of

cash flows prepared using the indirect method as

a. Inflow and outflow of cash

b. Outflow of cash

c. Deduction from net income to reconcile net income to cash from operating activities

d. Addition to net income to reconcile net income to cash from operating activities

81. The amortization of patent shall be presented in a statement of cash flows prepared using the

indirect method as

a. Inflow and outflow of cash

b. Outflow of cash

c. Addition to net income

d. Deduction from net income

82. When using the direct method, amortization of goodwill is

a. Shown as an increase in cash flows from operating activities

b. Shown as a reduction in cash flows from operating activities

c. Included with supplemental disclosures of noncash transactions

d. Not reported in the statement of cash flow or related disclosures

83. Which of the following is not added to net income as an adjustment to reconcile net income to cash

from operating activities in the statement of cash flows?

a. Increase in an accrued liability

b. Amortization of discount on bond payable

c. Loss on sale of nonoperating asset

d. Increase in deferred tax asset

84. When an entity uses the indirect method, which of the following would not be reported?

a. Depreciation expense

b. Retirement of bonds payable

c. An increase in inventory

d. Purchase of equipment by issuing a note

85. Which of the following is not disclosed in the statement of cash flows when prepared under the

direct method, either on the face of the statement or in a separate schedule?

a. The major classes or gross cash receipts and gross cash payments

b. The amount of income taxes paid

c. A reconciliation of net income to net cash flow from operations

d. A reconciliation of ending retained earnings to net cash flow from operations

--Honestly, I want to see you be brave.

Sara Bareilles

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