Accounting Principles II Final Exam
Course Introduction
Accounting Principles II builds upon the foundational concepts introduced in Accounting Principles I, focusing on more advanced aspects of financial and managerial accounting. The course explores topics such as inventory valuation, long-term assets, liabilities, equity transactions, and the analysis of financial statements. Students learn how to apply generally accepted accounting principles (GAAP) to complex business transactions, develop an understanding of internal controls, and interpret accounting data for decision-making. Emphasis is also placed on the ethical considerations and the role of accounting information in planning, budgeting, and performance evaluation within organizations.
Recommended Textbook
Intermediate Accounting Volume 2 3rd Edition by Kin Lo
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10 Chapters
1033 Verified Questions
1033 Flashcards
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Page 2
Chapter 1: Current Liabilities and Contingencies
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Sample Questions
Q1) A clothing store maintains a loyalty program for its customers.For every purchase,members receive points that do not expire.In fiscal 2016,the store made sales of $1 million and awarded 50,000 points that have a fair value of $50,000.The company estimates that approximately 75% of these points will be redeemed by members.Members redeemed 10,000 points in fiscal 2017.
Provide the necessary journal entries for fiscal 2016 and 2017.
Answer: 2016
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Q2) Which of the following liabilities will be reported only as a current liability?
A) Bank overdraft.
B) Unearned revenue.
C) Bond payable that matures in two years.
D) Obligation under customer loyalty plan.
Answer: A
Q3) Which of the following groups includes only financial liabilities?
A) Accounts payable, Notes payable, Warranties payable.
B) Bank loan, Bonds payable, Finance lease obligation.
C) Accounts payable, HST payable, Bonds payable.
D) Bank overdraft, USD bank loan, Obligation under customer loyalty plan.
Answer: B
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Chapter 2: Non-Current Financial Liabilities
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Sample Questions
Q1) On May 1,2017,SBC INC.buys a photocopier listed for $2,900.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year including interest at 7%.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the photocopier be recorded at in the accounting records?
A) $1,950
B) $2,100
C) $2,900
D) $2,653
Answer: D
Q2) What is a bond indenture?
A) Guarantee of the price to the borrower.
B) Contract that outlines the terms of the borrowing agreement.
C) Promise from the borrower to restrict certain activities.
D) Feature that permits the borrower to redeem before maturity.
Answer: B
Q3) What is meant by the "spread" charged by banks on loans?
Answer: It is the difference between the interest it pays on customer deposits and the interest it earns on loans.
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Chapter 3: Equities
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Sample Questions
Q1) Milton Corporation declared and distributed a 8% stock dividend.Milton had 440,000 common shares outstanding and 940,000 common shares authorized before the stock dividend.The board of directors determined the appropriate market value per share as $10.
Required:
How much should be recorded for the stock dividend? Record the journal entry (if any)for the shares distributed.
Answer:
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Q2) Practice Inc.issued a $10 million bond due in five years,and the bond indenture specifies that the company must set aside $2 million per year in a sinking fund so that the company will have funds to repay the bondholders at the end of 5 years.Assuming that the Practice Inc.complies with the contractual requirements,what would be the journal entries for each of the 5 years?
Answer:
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Q3) When is a corporation legally obligated (liable)to pay dividends?
Answer: A corporation is legally obligated to pay cash dividends when it declares them to be payable.
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Page 5
Chapter 4: Complex Financial Instruments
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Sample Questions
Q1) Assume that Millan agrees to purchase US$100,000 for C$84,745 on January 15,2018.The exchange rate at year-end is US$1 = C$1.20 and the January 15,2018 exchange rate is US$1 = C$1.19.What journal entry is required at year-end?
A) $701 loss.
B) $701 gain.
C) $1,412 loss.
D) $1,412 gain.
Q2) A company located in Canada spends $2,000 to purchase a foreign currency futures contract to buy US$100,000 at C$1.05:US$1.00.The contract matures 110 days later.Under which of the following circumstances could the company consider this future contract to be a fair value hedge for accounting purposes?
Q3) A company pays $5,000 to purchase futures contracts to buy 50 oz of silver at $40/oz.At the company's year-end,the price of silver rose and the value of the company's futures contracts increased to $6,000.
Required:
Record the journal entries related to these futures.
Q4) What is hedging?
Q5) What is speculation?
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Chapter 5: Earnings Per Share
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Sample Questions
Q1) Summer Surprise Ltd.(SSL)was incorporated on January 1,2018.At that time,it issued 210,000 ordinary shares; 95,000,$65,2% preferred shares "A"; and 85,000,$65,4% preferred shares "B." Net income for the year ended December 31,2018 was $500,000.SSL neither declares nor pays dividends during the year.The series A preferred shares are cumulative and the series B preferred shares are non-cumulative.Series A must be fully paid their current entitlement before any monies are paid to the Series B shareholders. Required:
Compute basic BPS.
Q2) Tropical Island Inc.(TIl)was incorporated on January 1,2018.At that time it issued 300,000 ordinary shares; 10,000,$10,8% preferred shares "A"; and 100,000,$10,9% preferred shares "B." Net income for the year ended December 31,2018 was $1,600,000.TIl declares and pays a total of $68,000 in dividends.The series A preferred shares are cumulative and the series B preferred shares are non-cumulative.Series A must be fully paid their current entitlement before any monies are paid to the Series B shareholders. Required:
Compute basic BPS.
Q3) Explain why dividends to preferred shareholders are adjusted in the numerator of the EPS calculation.
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Chapter 6: Accounting for Income Taxes
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Sample Questions
Q1) In the first year of operations,a company reports taxable income of $225,000 and paid a tax rate of 28%.It is now the end of the second year,and the company has a loss of $375,000 for tax purposes.The company's management believes it is probable the company will be able to use up its tax losses.The tax rate is currently 32%.
Required:
Compute the amounts of income tax receivable and/ or deferred income tax asset in the current (second)year.
Q2) During its first year of operations,Karol Corp.reported the following information: Income before income taxes for the year was $550,000 and the tax rate was 35%.
Depreciation expense was $100,000 and CCA was $50,000.
Warranty expense was reported at $20,000,while actual cash paid out was $10,000.
$25,000 of expenses included in income were not deductible for tax purposes.
No other items affected deferred tax amounts besides these transactions.
Required:
Prepare the journal entries to record income tax expense for the year.
Q3) Compare and contrast the two tax allocation methods.
Q4) Describe what is meant by a timing difference.
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Chapter 7: Pensions and Other Employee Future Benefits
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Sample Questions
Q1) Tener Company sponsors a defined contribution pension plan for its employees.The plan specifies that the company will contribute $2 for every dollar that an employee contributes to the plan.Employees are eligible to contribute up to 7% of their salary to the pension plan.During 2017,employees covered by the pension plan earned salaries totalling $42 million.Employee contributions to the pension totalled $2.1 million.Tener contributed $3 million to the plan during the year.
Required:
Provide the summary journal entry for Tener's pension plan for 2017.
Q2) Which of the following component does not relate to the assets/liabilities held in the pension trust for a defined benefit plan?
A) Interest cost on pension obligations.
B) Current service cost.
C) Income from plan assets.
D) Amortization of actuarial gains and losses.
Q3) What amount is included in the pension reconciliation for the balance sheet?
A) Current service cost.
B) Unamortized actuarial gains.
C) Benefit paid.
D) Contributions paid.
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Page 9
Chapter 8: Accounting for Leases
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Sample Questions
Q1) On January 1,2017,Brownee Company entered a lease to rent office space.The lease requires $350,000 per year,at the end of each year,for 20 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 40 years,and its current fair value is estimated to be $6 million.The incremental borrowing rate is 5%.
Required:
Classify this lease and record the journal entries for the first year of the lease.
Q2) What are executory costs?
A) Maintenance costs that are applicable to only operating leases.
B) Maintenance costs that are incurred only when the asset is leased.
C) Maintenance costs that are incidental costs in a lease that would be incurred by the lessee independent of whether the lessee had purchased or leased the asset.
D) Maintenance costs that are applicable to only finance leases.
Q3) Why do the supporting indicators for lease classification use "major part" and "substantially all" rather than "all" in reference to the amount of time and value contained in the lease?
Q4) List four examples of the risks and four examples of rewards of ownership.
Q5) Why do lessors prefer financing lease treatment over operating lease treatment?
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Page 10
Chapter 9: Statement of Cash Flows
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Sample Questions
Q1) George Corp.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section.Angela's activities for the year ended December 31,2016 included the following:
Declared a $12,000 cash dividend payable on January 15,2017.
Acquired an automobile costing $30,000 under a finance lease.
Declared and issued a stock dividend valued at $15,000.
Issued $330,000 in ordinary shares.
Accounts payable increased $18,000 during the year.
Paid $980,000 to repurchase bonds.The book value of the bonds was $1,010,000. Made a $15,000 principal payment on a bank loan.
Interest expense for the period was $8,000.The interest payable account increased $2,000.
Required:
a.Prepare the cash flows from financing activities section of the statement of cash flows. b.Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.
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Chapter 10: Accounting Changes
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Sample Questions
Q1) Why are retrospective adjustments to past years' income and expenses recorded directly in retained earnings?
Q2) How should enterprises reflect changes in accounting standards?
Q3) Which of the following is a change in policy?
A) A company changes from the gross method to the net method of recording cash discounts.
B) A change in the terms of a loan from repayment on demand to a fixed repayment date two years after the fiscal year-end.
C) A contingency for a lawsuit that was evaluated to be likely to lead to an outflow of resources was ultimately resolved against the reporting entity.
D) A temporary tax difference was treated as permanent tax difference.
Q4) Define the term "prospective adjustment." Which type of accounting changes is it applied to?
Q5) What is the essential characteristic that distinguishes an error correction from a change in estimate?
Q6) Why is the prospective treatment conceptually appropriate for changes in estimates?
Q7) Define "a retrospective adjustment."
Page 12
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