Intermediate Accounting
Chapter Exam Questions
Course Introduction
Intermediate Accounting is an essential course designed to build upon foundational accounting principles by exploring more complex financial reporting concepts and standards. Students delve into topics such as revenue recognition, inventory valuation, fixed assets, liabilities, equity transactions, and the preparation and analysis of financial statements in accordance with generally accepted accounting principles (GAAP). The course emphasizes critical thinking and problem-solving skills applicable to real-world accounting scenarios, fostering the ability to analyze and interpret financial information for effective decision-making. Through case studies and practical exercises, students gain a deeper understanding of accounting systems, ethical considerations, and regulatory environments that shape professional accounting practice.
Recommended Textbook
Financial Accounting 11th Edition by Belverd E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Q1) What is the responsibility of the auditing firm? Who is responsible for the content of the financial statements?
Answer: The responsibility of the auditing firm is to express an opinion on the financial statements of the corporation being audited.The company's management is responsible for the content of the published financial statements.
Q2) An increase in revenue will result in an increase in stockholders' equity.
A)True
B)False
Answer: True
Q3) Dividends of a corporation are declared by its
A) board of directors.
B) officers.
C) stockholders.
D) creditors.
Answer: A
Q4) The title "wages payable" would appear on the income statement. A)True
B)False
Answer: False
Page 3
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Chapter 2: Analyzing Business Transactions
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Q1) Revenues have a normal debit balance.
A)True
B)False
Answer: False
Q2) Which of the following statements is not necessarily true about a journal entry?
A) Assets are indented.
B) The date of the journal entry is always recorded.
C) The Post.Ref.column is left blank until the entry is posted.
D) All debits must be recorded before any credits.
Answer: A
Q3) A dividend will reduce which of the following accounts?
A) Dividends
B) Retained Earnings
C) Common Stock
D) Accounts Payable
Answer: B
Q4) Unearned revenues are classified as assets on the balance sheet.
A)True
B)False
Answer: False
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) Failure to prepare formal closing entries will produce a misstated
A) Income Summary account balance.
B) Retained Earnings account balance.
C) Accounts Receivable account balance.
D) Accounts Payable account balance.
Answer: B
Q2) As the usefulness of a plant asset expires,
A) an amount is transferred from one asset account to another.
B) a related expense account is reduced.
C) a liability is created.
D) the cost of the asset is allocated to an expense account.
Answer: D
Q3) When there is a direct connection between revenues and costs,the costs are systematically allocated among the periods benefited from the costs.
A)True
B)False
Answer: False
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Chapter 4: Supplement - Closing Entries and the Work Sheet
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Q1) On the work sheet,account balances are "extended" from the
A) Income Statement and Balance Sheet columns to the financial statements.
B) Adjusted Trial Balance columns to the Income Statement or Balance Sheet columns.
C) Trial Balance columns to the Adjusted Trial Balance columns.
D) Trial Balance and Adjustments columns to the Adjusted Trial Balance columns.
Q2) Omitting key letters in the work sheet would make which of the following difficult?
A) The preparation of the trial balance columns
B) The preparation of the closing entries
C) The preparation of the adjusting entries
D) Crossfooting to the adjusted trial balance columns
Q3) When preparing the closing entry for all expense accounts,the Income Summary account should be debited for the amount of all expenses.
A)True
B)False
Q4) The work sheet is a type of source document.
A)True
B)False
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) Following is a list of descriptions of concepts or conventions of accounting.Write the name of the concept or convention that is described.
a.The relative importance of an item or event.
b.Once a company has adopted an accounting procedure,it must use it from one period to the next unless a note to the financial statements informs users of a change in procedure.
c.The benefits to be gained from providing accounting information should be greater than the costs of providing it.
d.When faced with choosing between two equally acceptable procedures or estimates,accountants should choose the one that is least likely to overstate assets and income.
e.Financial statements should present all the information relevant to users' understanding of the statements.
Q2) Asset turnover equals
A) net sales divided by average total assets.
B) average total assets divided by net income.
C) average total assets divided by total liabilities.
D) net income divided by average total assets.
Q3) State the definition of a current asset.
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Chapter 6: The Operating Cycle and Merchandising Operations
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Q1) Which of the following is not a goal of a system of internal control over merchandising transactions?
A) Prevent the theft of cash and inventory.
B) Keep enough cash on hand to take advantage of purchase discounts.
C) Keep the maximum amount of inventory on hand at all times.
D) Keep credit losses as low as possible.
Q2) Under the perpetual inventory system,the entry to record a purchase return would include a credit to which account?
A) Merchandise Inventory
B) Purchases Returns and Allowances
C) Accounts Receivable
D) Cash
Q3) A formal request for a purchase from the requesting department of a business is known as a purchase order.
A)True
B)False
Q4) Freight-in is not considered a cost of merchandise purchased. A)True
B)False
8
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Chapter 7: Inventories
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Q1) The higher the value assigned to ending inventory,the lower the gross margin.
A)True
B)False
Q2) In periods of rising inventory prices,the LIFO method will result in a higher inventory valuation than will the average-cost method.
A)True
B)False
Q3) Indirect materials and indirect labor are components of manufacturing overhead.
A)True
B)False
Q4) In a period of declining prices,which inventory method is best to use for tax purposes?
A) FIFO
B) Average-cost
C) Specific identification
D) LIFO
Q5) The computer has made the perpetual inventory system more popular and easier to apply.
A)True
B)False
Page 9
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Chapter 8: Cash and Receivables
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Q1) Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $100,000.Allowance for Uncollectible Accounts has a credit balance of $2,000.Net sales for the year were $1,000,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $35,800 of uncollectible accounts.
Using the accounts receivable aging method,the Uncollectible Accounts Expense would be
A)$33,800.
B)$36,800.
C)$35,800.
D)$37,800.
Q2) The use of electronic funds transfers makes check writing necessary.
A)True
B)False
Q3) Which of the following would not be considered cash?
A) Postage stamps
B) Currency on hand
C) Money orders from customers
D) Bank deposits
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Chapter 9: Current Liabilities and Fair Value Accounting
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Q1) Days' payable is measured
A) in days.
B) as a percentage.
C) in dollars.
D) in times.
Q2) An ordinary annuity is a series of equal payments made at the end of equal intervals of time.
A)True
B)False
Q3) Unearned revenue is an example of a definitely determinable liability.
A)True
B)False
Q4) The annual interest earned on an amount deposited into a bank account will be the same each year when simple interest is used.
A)True
B)False
Q5) The higher the interest rate,the lower the future value factor.
A)True
B)False
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Chapter 10: Long Term Assets
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Q1) The exclusive right to use an identifying symbol is called a trademark.
A)True
B)False
Q2) Which of the following would be considered a capital expenditure?
A) Cost to acquire a printing press
B) Cost to lubricate a machine
C) Cost to replace some light bulbs
D) Cost to paint the factory wall
Q3) An expenditure for which of the following items would be considered a revenue expenditure?
A) Plant assets
B) Ordinary repair
C) Addition
D) Betterment
Q4) According to generally accepted accounting principles,goodwill is recorded as an asset
A) when favorable factors combine to create goodwill.
B) when a company has superior earning power.
C) when it is paid for as part of the purchase of a business.
D) under no circumstances.
Page 12
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Chapter 11: Long-Term Liabilities
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Q1) A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semi-annually,the entry to record the amount of bond interest expense (assuming the straight-line method of amortization)on any interest date is
A) Bond Interest Expense 12,000
Cash 12,000
B) Bond Interest Expense 24,300
Unamortized Bond Discount 300
Cash 24,000
C) Bond Interest Expense 23,700
Cash 23,700
D) Bond Interest Expense 12,300
Unamortized Bond Discount 300
Cash 12,000
Q2) Montgomery Corporation has a 7 percent,$300,000 bond issue that originally was issued five years ago.There are now ten years remaining on the bond issue,and the market interest rate is 12 percent.Interest is paid semi-annually.Calculate the current market value of the bond issue,using present value tables.
Q3) When determining the value of a bond using present value,what are the two components used in the calculation?
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Chapter 12: Stockholders Equity
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Q1) The preparation of a statement of stockholders' equity makes which other financial statement unnecessary?
A) Income statement
B) Statement of cash flows
C) Statement of retained earnings
D) Balance sheet
Q2) Which of the following is a correct statement relating to the concept of mutual agency and the corporate form of business?
A) There is no mutual agency with the corporate form of business.
B) Mutual agency may or may not exist in a corporation,depending on the individual state law.
C) Mutual agency always exists in the corporate form of business.
D) Mutual agency may or may not exist in a corporation,depending on a vote by the shareholders.
Q3) Draw two distinctions between accounting for a stock split and accounting for a stock dividend.
Q4) Retained earnings are a component of contributed capital.
A)True
B)False
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Chapter 13: The Statement of Cash Flows
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Q1) Why does the acquisition of land in exchange for common stock qualify as a noncash investing and financing transaction?
Q2) A cash flow yield of 2.0 times is considered better than one of 2.5 times.
A)True
B)False
Q3) The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations.
A)True
B)False
Q4) Give two explanations for why the amount of cash outflow for equipment for the year might not equal the increase in the Equipment account balance from one balance sheet date to the next.
Q5) When presenting decreases in long-term investments in the investing activities section of the statement of cash flows,the amount reflected equals the amount of the gain(s)or loss(es)from the transaction(s).
A)True
B)False
Q6) Provide the components for the calculation of free cash flow.
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Chapter 14: Financial Performance Measurement
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Q1) The nonoperating items that appear on the income statement include
A) discontinued operations.
B) gains or losses on the sale or disposal of these segments.
C) both discontinued operations and gains or losses on the sale or disposal of these segments.
D) neither discontinued operations nor gains or losses on the sale or disposal of these segments.
Q2) Most companies issue interim financial statements to the public on a monthly basis. A)True
B)False
Q3) The receivable turnover amount is needed to calculate the A) inventory turnover.
B) days' sales uncollected.
C) days' inventory on hand.
D) interest coverage ratio.
Q4) In a common-size income statement,each item is expressed as a percentage of net revenues.
A)True B)False
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Chapter 15: Investments
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Q1) Distinguish between the financial statement presentation of unrealized gains and losses related to trading securities and the financial statement presentation of unrealized gains and losses related to available-for-sale securities.
Q2) When bonds are purchased between interest dates,the buyer must pay (in addition to the bonds' cost)the amount of interest that has accrued since the last interest payment date.
A)True
B)False
Q3) Under the cost-adjusted-to-market method of accounting for an investment,
A) Dividend Income is credited when dividends are received.
B) the investment account is credited when dividends are received.
C) the investment account is credited when the investee reports a net income.
D) Investment Income is credited when the invested reports a net income.
Q4) Available-for-sale debt securities are valued on the balance sheet at
A) cost,adjusted for the effects of interest.
B) maturity value.
C) fair value.
D) original cost.
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