Financial Accounting II
Solved Exam Questions
Course Introduction
Financial Accounting II builds upon the foundational principles introduced in Financial Accounting I, delving deeper into the accounting cycle, financial statement preparation, and advanced topics such as accounting for long-term assets, current and long-term liabilities, and equity transactions. The course emphasizes the recognition, measurement, and analysis of complex transactions, including revenue recognition, leases, pensions, and income taxes. Additionally, students will explore the preparation and interpretation of cash flow statements and the impact of accounting standards on the financial reporting process. By the end of this course, students will develop a comprehensive understanding of how to analyze and interpret detailed financial information critical to informed decision-making in business environments.
Recommended Textbook
Intermediate Accounting Vol. 1 4th Edition by Kin Lo
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10 Chapters
1100 Verified Questions
1100 Flashcards
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Page 2
Chapter 1: Fundamentals of Financial Accounting Theory
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) Explain the meaning of information and information asymmetry. Give an example of each
Answer: \(\bold{\text{Information:}}\) Evidence that can potentially affect an individual's decisions. Example: details about the format of the final exam; details about the career placement opportunities for a university's programs; etc. \(\bold{\text{Information asymmetry:}}\) A condition in which some people have more information than others. Example: professor has more information about the final exam than the students; management has more information about the financial results than the shareholders; etc.
Q2) How does accounting information help alleviate adverse selection and moral hazard?
Answer: The presence of adverse selection reduces outsiders' perception of the value of an enterprise, creating a demand for full disclosure of information that is relevant to the value of the enterprise, and that will help assist them to forecast future cash flows.
Moral hazard causes outsiders to be suspicious of information supplied by management regarding its actions, creating a demand for information that is reliable and verifiable.
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Chapter 2: Conceptual Frameworks for Financial Reporting
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60 Flashcards
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Sample Questions
Q1) Which statement best describes a private enterprise?
A)Any entity that is not a publicly accountable enterprise.
B)Any for-profit organization that is not a publicly accountable enterprise.
C)An entity that holds assets in a legal capacity for a broad group of outsiders as one of its primary businesses.
D)Any entity, excluding a not-for-profit organization.
Answer: B
Q2) During the past year, Easy Supplies Ltd.'s assets decreased $33,000, its liabilities decreased $41,000, its share capital increased $5,000, and Easy recorded net profit of $12,000. What was the amount of dividends declared?
A)$ 1,000
B)$ 9,000
C)$12,000
D)$19,000
Answer: B
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4
Chapter 3: Accrual Accounting
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) The following information was provided from the records of Nimble Limited, which began operations in the current year: \[\begin{array} { | l | r | }
\text { Accrued expenses (payable), end of year } & \$ 22,000 \\
\hline \text { Sales revenue (cash and credit) } & 325,000 \\
\hline \text { Prepaid expenses, end of year } & 5,000 \\
\hline \text { Cash collected on customer accounts during the year } & 31,000 \\
\hline \text { Cash paid for expenses (including prepaid expenses and cost of } & 187,000 \\
\text { goods sold) } & \\
\hline
\end{array}\] What was the company's pre-tax income for the year?
A)$116,000
B)$121,000
C)$138,000
D)$169,000
Answer: B
Q2) Using the conceptual frameworks and other ideas, discuss whether a change in accounting policy should be treated prospectively or retrospectively.
Answer: 11ea833d_ff0b_84ab_94c7_bb5eb22298f9_TB6780_00
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Page 5
Chapter 4: Revenue and Recognition
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Which statement best explains the completed contract method?
A)An accounting method that defers revenue and expense recognition until the date when the contractor completes the project.
B)An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress.
C)An accounting method that recognizes an amount of revenue equal to the costs that are expected to be recovered on the contract.
D)An accounting method that recognizes revenue and expenses based on the fair value of the contract.
Q2) On January 1, 2021 Sukhi's Cycles Inc. sells a motorcycle for $24,000. Terms offered are $10,000 cash; $7,000 due on January 1, 2022, and $7,000 due on January 1, 2023. The market interest rate for transactions of this type is 4.0% per annum. What is the amount of revenue that Sukhi should record at time of sale?
Q3) Which of the following is TRUE when goods are sold on consignment?
A)The customer has taken physical possession of the asset.
B)The selling entity has the present right to payment for the asset.
C)The significant risks and rewards of ownership have been transferred.
D)The customer has accepted the asset.
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Chapter 5: Cash and Receivables
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119 Flashcards
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Sample Questions
Q1) Which statement is correct?
A)A transfer with recourse means that the purchaser cannot go back to the company for compensation of bad debts.
B)A transfer with recourse means that the purchaser of the receivables takes the collection risk.
C)A transfer with recourse means that the seller of the receivables takes the collection risk.
D)A transfer without recourse means that the seller of the receivables takes the collection risk.
Q2) Medical Machines reported credit sales of $800,000, cash returns of $25,000 and bad debt expense of $150,000 for last year. Accounts receivable had a balance of $1,000,000 at the beginning of the year and $1,250,000 at the end of the year. Assuming there are no write-offs during the year, how much cash was collected from customers during the year?
A)$375,000
B)$525,000
C)$550,000
D)$650,000
Q3) Identify the two criteria for classifying an investment as a cash equivalent.
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Page 7
Chapter 6: Inventories
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Sample Questions
Q1) At the end of 2019, a company reported cost of goods sold of $4,800, which represented 80% of the goods available for sale. The beginning inventory amount was twice as much as the ending inventory amount. What was the amount of purchases for 2019?
A)$1,200
B)$2,400
C)$3,600
D)$5,400
Q2) Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2020 financial reporting?
A)Gross margin is overstated by $1,000.
B)Cost of sales is overstated by $1,000.
C)Ending inventory is understated by $1,000.
D)Beginning inventory is overstated by $1,000.
Q3) Give some examples of how a merchandising company can manipulate earnings through its year-end inventories. What can an auditor do to detect this type of manipulation?
Q4) Explain why the absorption costing method is appropriate under GAAP.
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Chapter 7: Financial Assets
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Sample Questions
Q1) Which statement is correct about an associate?
A)An arrangement where one party has the power to participate in the financial and operating policy decisions of another entity.
B)An arrangement where one entity governs the financial and operating policies about another entity.
C)A contractual arrangement whereby two or more parties share control over an economic activity and all strategic decisions requires unanimous consent by all parties.
D)An arrangement that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity.
Q2) On January 1, 2020, a company pays $100,000 to purchase 100 Government of Canada bonds that have a maturity date of December 31, 2024 and an interest rate of 5%. At December 31, 2020, the bonds had a quoted price of $1,022 per bond. Assume that 45 of these bonds are sold on June 30, 2021 for $1,100 per bond plus accrued interest. Determine the gain or loss that would be recorded in 2021 assuming:
a. Classified at fair value through profit or loss
b. Classified at amortized cost
Q3) Explain the meaning of the "effective interest method."
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Page 9
Chapter 8: Property, Plant and Equipment
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Sample Questions
Q1) A building costing $7,000,000 was purchased on January 1, 2020. Based on management's best estimates, the useful life of the building was estimated to be 40 years, with no residual value. During 2026 it was discovered that the local government had plans to build a freeway where the building stands. This project would require significant engineering and regulatory approval, so the site would be expropriated by January 1, 2032. The government agreed to pay $320,000 compensation for the building. The company has a December 31 year-end.
Required:
Case A: Prepare the journal entries to record depreciation for 2020 and 2026. The company uses straight-line depreciation.
Case B: Same as Case A except the company uses the double-declining balance method. The rate will be 5% until 2026 and 2/6 or 33.33% thereafter. Prepare the journal entries to record depreciation for 2020 and 2026.
Q2) Explain derecognition of property, plant or equipment.
Q3) What is the effect of overstating 2021 depreciation expense?
A)Accumulated depreciation will be understated for 2021.
B)Net income for 2021 will be overstated.
C)Ending retained earnings for 2021 will be understated.
D)Ending retained earnings for 2021 will be overstated.
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Page 10
Chapter 9: Intangible Assets, Goodwill, Mineral Resources, and
Government Grants
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Sample Questions
Q1) Which statement is not correct?
A)The three phases in mining activities are: mineral exploration, development and extraction.
B)The accounting for mineral exploration is conceptually similar to that for research activities.
C)Mineral exploration costs can be capitalized because markets for mineral resources are well established.
D)A mineral site entering the development phase would normally satisfy the six criteria required for capitalization.
Q2) Which criteria under IAS 38 would be met if the "project plan outlines the feasibility and timeline of the project"?
A)Measurement reliability.
B)Ability to use or sell.
C)Technical feasibility.
D)Management intention.
Q3) Explain the accounting for assets in the mineral resource exploration industry.
Q4) Why is it important to understand the difference between research costs and development costs?
Q5) Explain the accounting for internally developed intangible assets.
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Chapter 10: Applications of Fair Value to Non-Current Assets
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Sample Questions
Q1) Company Nine purchased land for $600,000 some years ago. Fair value was $800,000 at the beginning of this year and $350,000 at the end of this year. Prepare the journal entry to record this year's revaluation adjustment.
Q2) On December 31, 2021, CA Inc. had a machine with an original cost of $20,000 and accumulated depreciation of $5,000. An impairment test on that date indicated that the machine had a value in use of $12,000 and a fair value of $10,000 (no disposal costs). What impairment loss is recorded for fiscal 2021?
A)$3,000
B)$5,000
C)$8,000
D)$10,000
Q3) Explain the accounting under the revaluation model available under IFRS.
Q4) When does agricultural activity end?
A)To the point just before harvest.
B)To the point of harvest.
C)To the point of sale to wholesaler.
D)To the point of sale to final customer.
Q5) Explain the accounting for assets related to the agricultural industry.
Q6) Explain when a non-current asset is impaired.
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