Accounting Principles II
Textbook Exam Questions
Course Introduction
Accounting Principles II builds upon the foundational concepts introduced in Accounting Principles I, focusing on more advanced topics in financial accounting and an introduction to managerial accounting. This course covers the accounting for corporations, including stock transactions, dividends, and earnings per share, as well as the preparation and analysis of financial statements. Students will also explore long-term assets and liabilities, cash flow statements, budgeting, standard costing, and performance measurement. Emphasis is placed on applying accounting concepts to real-world situations, enhancing analytical skills, and understanding the role of accounting in business decision-making.
Recommended Textbook
Intermediate Accounting 6th Edition Volume 1 by Thomas H. Beechy
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Chapter 1: The Framework for Financial Reporting
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Q1) Which of the following statement(s) is(are) correct?
A)Companies that use the disclosed basis of accounting are in effect using differential reporting.
B)Companies that use the disclosed basis of accounting are NOT allowed to use differential reporting.
C)When used, the disclosed basis of accounting must comply with GAAP.
D)Both "companies that use the disclosed basis of accounting are NOT allowed to use differential reporting" and "when used, the disclosed basis of accounting must comply with GAAP" are correct.
Answer: B
Q2) Lenders and creditors are most concerned with a company's A)profitability.
B)adherence to covenants.
C)solvency.
D)cash flows.
Answer: D
Q3) Canadian corporations are prohibited from using U.S.GAAP.
A)True
B)False
Answer: False
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Chapter 2: Accounting Judgements
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Q1) Valuing assets at their liquidation values rather than their cost is inconsistent with the
A)time period assumption.
B)matching principle.
C)materiality constraint.
D)historical cost principle.
Answer: D
Q2) The time period concept dictates that the reporting period or fiscal period of an entity must be for 12 months.
A)True
B)False
Answer: False
Q3) Under which of the following will revenues and expenses most likely be reported in the period they are earned or incurred?
A)Cash basis accounting
B)A combination of accrual and cash basis accounting
C)Single entry accounting
D)Accrual basis accounting
Answer: D
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Page 4
Chapter 3: Statements of Income and Comprehensive Income
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Q1) The date on which a gain or loss from the disposal of a segment of a business is measured is the:
A)date that operations cease (if disposal is by abandonment).
B)last day of the fiscal year in which the decision to dispose is made plan.
C)date that the assets are sold.
D)date that the entity makes a formal commitment to disposal.
Answer: D
Q2) Accounting income is a less complete measurement of wealth than is economic income.
A)True
B)False Answer: True
Q3) Both extraordinary items and unusual or infrequent items must be reported net of income taxes.
A)True
B)False Answer: False
Q4) Basic and diluted Earnings per share figures must be disclosed under both ASPE and IFRS.
Answer: FAL SE
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Chapter 4: Statements of Financial Position and Changes in Equity; Disclosure Notes
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Q1) Contingent gains are never disclosed in the notes to the financial statements,no matter how likely.
A)True
B)False
Q2) The declaration (but not payment) of common share dividends will have an adverse effect on ROA (Return on Assets).
A)True
B)False
Q3) Ambo Inc.earned $200,000 for the current year.This means
A)Ambo's total assets increased $200,000 during the year
B)Ambo's earnings increased Ambo's net assets $200,000 during the year
C)Ambo's cash increased $200,000 during the year
D)Ambo's retained earnings must be $200,000 more at December 31 than it was at January 1
Q4) Related party transactions,not in the normal course of business,must be recorded at:
A)book value.
B)fair value.
C)amortized cost.
D)carrying value.
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Chapter 5: The Statement of Cash Flows
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Q1) Which method or format for preparing the Statement of Cash Flows reports the major operating cash flows on an individual line-item basis?
A)Only direct method
B)Only indirect method
C)Both direct and indirect
D)Neither direct nor indirect
Q2) Which of the following would not be shown in one of the three activity sections of the Statement of Cash Flows prepared using the indirect format?
A)Refinancing a bond issue currently due with a new bond issue
B)A decrease in trade accounts receivable over the period
C)Purchase of a subsidiary corporation
D)A decrease in long-term notes payable over the period
Q3) Which of the following is not an adjustment to reconcile net income to cash from operating activities?
A)Accrued liability change (increase or decrease)
B)Amortization of premium or discount on bonds payable
C)Cash dividend declared but not yet paid
D)Prepaid expense (increase or decrease)
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Chapter 7: Financial Assets: Cash and Receivables
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Q1) At the end of the accounting year,December 31,2004,a company had a petty cash fund balance of $600,a chequing account balance of $34,000 in Bank A,an overdraft of $800 with Bank B,and $4,000 in customer payments in the form of money orders.Assuming no other differences between the company books and the bank balances,what cash amount should the company report on its 2004 balance sheet?
A)$37,200
B)$37,800
C)$38,600
D)$38,800
Q2) A note receivable that is sold (i.e.discounted) to obtain early cash must be:
A)Retained in the accounts in the same manner as before discounting.
B)Reported as an extraordinary loss if it is dishonoured.
C)Disclosed as a contingent liability if it is discounted without recourse.
D)Reported as a sale or a loan.
Q3) If the estimate of bad debt expense is made on the basis of net credit sales,an entry is made each period to the account,"Allowance for Doubtful Accounts," without regard to the prior balance in that account.
A)True
B)False
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Chapter 8: Cost-Based Inventories and Cost of Sales
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Q1) Sales taxes paid by the purchaser that cannot be claimed back will usually become a part of the cost of the inventory.
A)True
B)False
Q2) On December 31,2013 Trade Cards Ltd.completed a physical inventory count that reflected an inventory valuation of $25,000.Theft is suspected; therefore,a reliable estimate of what the inventory should be is needed.Relevant data are: Sales revenue,$400,000; Average gross margin rate on sales for the past three years was 30 percent; Beginning inventory $20,000,and purchases,$290,000.The estimated amount of the theft loss is:
A)$-0-
B)$5,000
C)$7,500
D)$17,500
Q3) The gross profit method may be used to estimate inventory during interim periods when a full physical count cannot be performed,or to test the reasonableness of a physical count.
A)True
B)False
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Q1) A patent should be amortized over its legal life,or useful life,whichever is shorter,but the term should not exceed 20 years.
A)True
B)False
Q2) SAMTO,Inc.transferred $400 cash and a machine (cost,$10,000; accumulated amortization $9,000) to SLO UGH,Inc.in return for SLO UGH's similar machine (cost $12,000,accumulated amortization,$10,500).Provide SLO UGH's entry for the exchange assuming the market value of Santo's machine was $1,600 and SLO UGH's Inc.machine was $2,000.
Q3) Donated land and buildings would normally be credited to a contributed capital account at their fair market values.
A)True
B)False
Q4) A purchased patent has a remaining legal life of 15 years.It should be:
A)expensed in the year of acquisition.
B)amortized over 40 years.
C)amortized over its useful life if less than 15 years.
D)amortized over 15 years regardless of its useful life.
Page 10
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Chapter 10: Depreciation,Amortization,and Impairment
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Q1) The 2010 revaluation journal entry would include
A)A $20,000 credit to the revaluation surplus account.
B)A $20,000 debit to the revaluation surplus account.
C)A $30,000 Loss on the Statement of Comprehensive Income.
D)A $10,000 debit to depreciation expense.
Q2) SBD decided to use group amortization for its new fleet of 10 panel delivery trucks.The trucks were purchased on January 1,2013 at a cost of $12,000 each.The estimated useful life was 5 years and the estimated residual value was 10 percent of cost.Assume straight-line group amortization is used.SBD has a December 31 year-end and only accounts for amortization at year-end.
(a) At the end of 2013,amortization expense should be recorded in the amount of $____________________.
During 2014,three transactions occurred affecting the trucks:
(1) One truck was wrecked and the only recovery was $1,000 received from the salvage yard.
(2) Ordinary repair expenditures amounted to $700.
(3) A new truck was purchased at a cost of $12,200 on December 26.
(b) At the end of 2014,amortization expense should be recorded in the amount of $_____________________.
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Chapter 11: Financial Instruments: Investments in Debt and Equity Securities
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Q1) The data below pertains to the values of various FVTPL investments held by a client company: \(\begin{array}{|l|l|l|l|}
\hline\text { Stock } & \text { Shares } & \text { Cost } & \begin{array}{l} \text { Market Value } \\ (\mathbf{1 2} / \mathbf{3 1} / \mathbf{2 0 1 1})
\end{array} \\
\hline\mathrm{X} & 500 & \$ 30=\$ 15,000 & \$ 24=\$ 12,000 \\
\hline Y & 1,000 & 20=20,000 & 30=30,000 \\
\hline Z & 750 & 24=18,000 & 30=22,500\\\hline
\end{array}\) The company's entire FVTPL portfolio should be valued at which amount on December 31<sup>st</sup>,2011?
A)$50,000
B)$53,000
C)$64,500
D)$67,500
Q2) Impairment tests are required for all investments except those designated FVTPL.
A)True
B)False
Q3) List 3 factors that exhibit evidence of the existence of significant influence.
Page 12
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