1. A financial instrument is

a. A contract that gives rise to a financial asset of one

entity and a financial liability or equity instrument

of another entity.

b. A contract under which neither party has

performed any of its obligations or both parties

have partially performed their obligations to an

equal extent.

c. A contract under which one party accepts

significant insurance risk from another party by

agreeing to compensate the policyholder if a

specified uncertain future event adversely affects

the policyholder.

d. A contract that requires the issuer to make

specified payments to reimburse the holder for a

loss it incurs because a specified debtor fails to

make payment when due in accordance with the

original or modified terms of a debt instrument.

2. A financial asset is any asset that is:

I. Cash

II. An equity instrument of another entity

III. A contractual right to receive cash or another

financial asset from another entity

IV. A contractual right to exchange financial assets or

financial liabilities with another entity under

conditions that are potentially favorable to the

entity

V. A contract that will or may be settled in the

entity's own equity instruments and is a nonderivative

for which the entity is or may be

obliged to receive a variable number of the

entity's own equity instruments

VI. A contract that will or may be settled in the

entity's own equity instruments and is a

derivative that will or may be settled other than

by the exchange of a fixed amount of cash or

another financial asset for a fixed number of the

entity's own equity instruments.

a. I, II, III, IV, V and VI

b. I, II, III, IV and V only

c. I, II, III and IV only

d. I, II and III only

3. Using the data given below, compute for the total

amount of items that meet the definition of financial

asset

Cash P 150,000

Investment in shares - FVTPL 500,000

Investment in associate 2,000,000

Accounts receivable 1,000,000

Inventories 800,000

Prepaid rent 50,000

Interest rate swap receivable 200,000

Investment in debt securities - FVTOCI 400,000

Investment in debt securities - AC 300,000

Land 2,000,000

Buildings 3,000,000

Machinery and equipment 1,500,000

Patents 250,000

a. P4,550,000 c. P2,550,000

b. P4,600,000 d. P2,600,000

4. A financial liability is any liability that is:

I. A contractual obligation to deliver cash or another

financial asset to another entity

II. A contractual obligation to exchange financial

assets or financial liabilities with another entity

under conditions that are potentially unfavorable

to the entity

III. A contract that will or may be settled in the

entity's own equity instruments and is a nonderivative

for which the entity is or may be

obliged to deliver a variable number of the

entity's own equity instruments

IV. A contract that will or may be settled in the

entity's own equity instruments and is a

derivative that will or may be settled other than

by the exchange of a fixed amount of cash or

another financial asset for a fixed number of the

entity's own equity instruments.

a. I, II, III and IV

b. I, II and III only

c. I and II only

d. III and IV only

5. Using the data given below, compute for the total

amount of items that meet the definition of financial

liability

Bank overdraft P 100,000

Accounts payable 1,200,000

Notes payable 500,000

Loans payable 1,800,000

Income tax payable 120,000

Warranty obligations 180,000

Deferred revenue 240,000

Cumulative, redeemable preference

shares at the option of the holder

1,000,000

Non-cumulative, non-redeemable

preference shares

2,000,000

a. P4,900,000 c. P4,600,000

b. P3,620,000 d. P4,500,000

6. Currency (cash) is a financial asset. Why?

a. Because it represents the medium of exchange and

is therefore the basis on which all transactions are

measured and recognized in financial statements.

b. Because it represents the contractual right of the

depositor to obtain cash from the institution or to

draw a check or similar instrument against the

balance in favor of a creditor in payment of a

financial liability.

c. Because it is an equity instrument of another

entity.

d. Because it is a contractual right to exchange

financial assets or financial liabilities with another

entity under conditions that are potentially

favorable to the entity.

7. Cash comprises cash on hand and demand deposits.

Which of the following items can be considered as

'cash'?

I. Credit card receipts representing sales

II. Bitcoins

III. US dollar bills

IV. Certificates of deposit

a. I, II, III and IV c. III only

b. III and IV only d. None of these

8. Which statement is incorrect regarding cash

equivalents?

a. Cash equivalents are short-term, highly liquid

investments that are readily convertible to known

amounts of cash and which are subject to an

insignificant risk of changes in value.

b. Cash equivalents are held for the purpose of

meeting short-term cash commitments rather than

for investment or other purposes.

c. An investment normally qualifies as a cash

equivalent only when it has a short maturity of,

say, three months or less from the end of the

reporting period.

d. None, all the statements are correct.

9. Which of the following may qualify as cash equivalents?

a. Investment in ordinary shares

b. Investment in share options

c. Investment in preference shares acquired within a

short period of their maturity and with a specified

redemption date

d. None of these

10. The following data pertain to Lincoln Corporation on

December 31, 2020:

Current account at Bangko Dito P1,800,000

Current account at Bangko Doon (100,000)

Payroll account at Bangko Dyan 500,000

Foreign bank account

(in equivalent pesos)

800,000

Savings account in a closed bank 150,000

Postage stamps 1,000

Employee's post dated check 4,000

IOU from employees 10,000

Credit memo from a vendor for a

purchase return

20,000

Traveler's check 50,000

Money order 30,000

Sinking fund 2,000,000

DAIF check of customer 15,000

Customer's check dated 1/1/21 80,000

Time deposit - 30 days 200,000

Money market placement (due 6/30/21) 500,000

Treasury bills, due 3/31/21

(purchased 12/31/20)

200,000

Treasury bills, due 1/31/21

(purchased 2/1/20)

300,000

The total amount to be reported as cash and cash

equivalents as of December 31, 2020 is

a. P2,780,000 c. P3,780,000

b. P3,080,000 d. P3,580,000

PLEASE EXPLAIN. STRICTLY CORRECT ANSWERS ONLY