Intermediate Accounting
Exam Questions
Course Introduction
Intermediate Accounting delves deeper into the principles and standards of financial accounting beyond the introductory level, emphasizing the preparation, analysis, and interpretation of financial statements in accordance with Generally Accepted Accounting Principles (GAAP). Students explore complex accounting topics such as revenue recognition, asset and liability valuation, income measurement, and equity accounting. The course also covers the regulatory framework governing financial reporting, disclosure requirements, and the impact of recent developments in accounting standards. By engaging with real-world examples and practical exercises, students strengthen their analytical and critical thinking skills necessary for professional advancement in accounting and finance.
Recommended Textbook
Advanced Accounting 12th Edition by Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Q1) Which of the following results in a decrease in the investment account when applying the equity method?
A) Dividends paid by the investor.
B) Net income of the investee.
C) Net income of the investor.
D) Unrealized gain on intra-entity inventory transfers for the current year.
E) Purchase of additional common stock by the investor during the current year.
Answer: D
Q2) A company should always use the equity method to account for an investment if:
A) It has the ability to exercise significant influence over the operating policies of the investee.
B) It owns 30% of another company's stock.
C) It has a controlling interest (more than 50%) of another company's stock.
D) The investment was made primarily to earn a return on excess cash.
E) It does not have the ability to exercise significant influence over the operating policies of the investee.
Answer: A
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Chapter 2: Consolidation of Financial Information
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Q1) How are bargain purchases accounted for in an acquisition business transaction?
Answer: A bargain purchase results when the collective fair values of the net identified assets acquired and liabilities assumed exceed the fair value of consideration transferred. The assets and liabilities acquired are recorded at their fair values and the bargain purchase is recorded as a Gain on Bargain Purchase.
Q2) Which of the following is a not a reason for a business combination to take place?
A) Cost savings through elimination of duplicate facilities.
B) Quick entry for new and existing products into domestic and foreign markets.
C) Diversification of business risk.
D) Vertical integration.
E) Increase in stock price of the acquired company.
Answer: E
Q3) Describe the accounting for direct costs, indirect costs, and issuance costs under the acquisition method of accounting for a business combination.
Answer: Direct and indirect combination costs are expensed and issuance costs reduce the otherwise fair value of the consideration issued under the acquisition method of accounting for business combinations.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) Why is push-down accounting a popular internal reporting technique?
Answer: Push-down accounting has become popular for the parent's internal reporting purposes for two reasons. First, this method simplifies the consolidation process each year. If acquisition value allocations and subsequent amortization are recorded by the subsidiary, they do not need to be repeated each year on a consolidation worksheet. Second, recording of amortization by the subsidiary enables that company's information to provide a good representation of the impact that the acquisition has on the earnings of the business combination. For example, if the subsidiary earns $100,000 each year but annual amortization is $80,000, the acquisition is only adding $20,000 to the income of the combination each year rather than the $100,000 that is reported by the subsidiary unless push-down accounting is used.
Q2) Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?
A) the amount of consolidated net income.
B) total assets on the consolidated balance sheet.
C) total liabilities on the consolidated balance sheet.
D) the balance in the investment account on the parent's books.
E) the amount of consolidated cost of goods sold.
Answer: D
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true?
A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement.
B) U.S. GAAP and IFRS both require acquisition-date fair value measurement.
C) U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement.
D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement.
E) U.S. GAAP and IFRS both apportion goodwill to the parent only.
Q2) How is a non-controlling interest in the net income of an entity reported in the income statement?
Q3) Where may a non-controlling interest be presented in a consolidated balance sheet?
Q4) Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under what conditions will Beta be required to prepare consolidated financial statements?
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Sample Questions
Q1) On January 1, 2012, Smeder Company, an 80% owned subsidiary of Collins, Inc. transferred equipment with a 10-year life (six of which remain with no salvage value) to Collins in exchange for $84,000 cash. At the date of transfer, Smeder's records carried the equipment at a cost of $120,000 less accumulated depreciation of $48,000. Straight-line depreciation is used. Smeder reported net income of $28,000 and $32,000 for 2012 and 2013, respectively. All net income effects of the intra-entity transfer are attributed to the seller for consolidation purposes. Compute Collins' share of Smeder's net income for 2013.
A) $27,600.
B) $23,600.
C) $27,200.
D) $24,000.
E) $34,000.
Q2) How do upstream and downstream inventory transfers differ in their effect in a year-end consolidation?
Q3) What is the purpose of the adjustments to depreciation expense within the consolidation process when there has been an intra-entity transfer of a depreciable asset?
Q4) When is the gain on an intra-entity transfer of land realized?
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Q1) The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company.
(1)) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
How is the loss on sale of land reported on the consolidated statement of cash flows?
A) $20,000 added to net income as an operating activity.
B) $20,000 deducted from net income as an operating activity.
C) $15,000 deducted from net income as an operating activity.
D) $5,000 added to net income as an operating activity.
E) $5,000 deducted from net income as an operating activity.
Q2) How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?
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Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Q1) Paris, Inc. owns 80 percent of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Stance holds 10 percent of the voting stock of Paris. The payment for that investment was in excess of book value and fair value by $15,000. Any excess fair value is assigned to trademarks to be amortized over a 10-year period. During the current year, Paris reported operating income of $200,000 and dividend income from Stance of $20,000. At the same time, Stance reported operating income of $40,000 and dividend income from Paris of $5,000.
What will be reported as the non-controlling interest in Stance's net income?
A) $6,500.
B) $8,000.
C) $9,000.
D) $7,700.
E) $1,000.
Q2) Under what conditions must a deferred income tax asset be recorded?
Q3) Gamma Co. owns 80% of Delta Corp., and Delta Corp. owns 15% of Gamma Co. The two companies use the treasury stock approach to account for mutual ownership. How should Delta Corp.'s ownership interest in Gamma Co. be accounted for in the consolidation?
Q4) What are the benefits or advantages of filing a consolidated income tax return?
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Chapter 8: Segment and Interim Reporting
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Q1) According to U.S. GAAP, what general information about an operating segment needs to be disclosed?
Q2) According to U.S. GAAP, how should common costs be allocated to individual segments to determine segment profit or loss?
Q3) For companies that provide quarterly reports, how is the fourth quarter reported?
A) Every company that reports for the first three quarters must also publish a fourth-quarter report.
B) No fourth-quarter report is required.
C) No company may publish a fourth-quarter report.
D) The SEC requires selected quarterly financial data to be reported separately as a fourth-quarter report.
E) When fourth-quarter financial statements are provided, special accounting items should be disclosed in the annual financial statements.
Q4) Faru Co. identified five industry segments: (1) plastics, (2) metals, (3) lumber, (4) paper, and (5) finance. Each of these segments had been consolidated appropriately by the company in producing its annual financial statements. Information describing each segment is presented below (in thousands).
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) Winston Corp., a U.S. company, had the following foreign currency transactions during 2013:
(1)) Purchased merchandise from a foreign supplier on July 16, 2013 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2013 at the U.S. dollar equivalent of $54,000.
(2)) On October 15, 2013 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2013. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2013, and $299,000 on October 15, 2014.
What amount should be included as a foreign exchange gain or loss from the two transactions for 2014?
A) $1,000 loss.
B) $1,000 gain.
C) $2,000 loss.
D) $4,000 gain.
E) $4,000 loss.
Q2) What is the purpose of a hedge of foreign exchange risk?
Q3) What is the major assumption underlying the one-transaction perspective?
Q4) What is meant by the spot rate?
Page 11
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Chapter 10: Translation of Foreign Currency Financial Statements
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Q1) For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?
A) Current/Noncurrent Method.
B) Monetary/Nonmonetary Method.
C) Current Rate Method.
D) Temporal Method.
E) Indirect Method.
Q2) Under the current rate method, property, plant & equipment would be translated at what rate?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) Historical rate.
E) Composite amount.
Q3) Farley Brothers, a U.S. company, had a subsidiary in Italy. Under what conditions would the U.S. dollar be the functional currency for this subsidiary?
Q4) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) A company incurs research and development costs of $200,000 in 2013 of which $50,000 of these costs relate to development activities because certain criteria have been met which suggest that an intangible asset has been created. What amount should be recognized as research and development expense in 2013 using U.S. GAAP?
A) $50,000.
B) $150,000.
C) $200,000.
D) $0.
E) $250,000.
Q2) The major providers of financing in some countries are stockholders, while other countries predominantly use banks as the main financing source. What difference does it make to accounting disclosures in comparing a company from one of each of those countries?
Q3) What are recognition differences in international reporting and what would be an example of a difference?
Q4) What accounting topics were covered under the FASB short-term convergence project?
Q5) Which two EU directives have helped harmonize accounting standards?
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Q1) What information is required in proxy statements?
Q2) How are the operations of the SEC funded?
Q3) Which one of the following Federal laws was enacted in 1935?
A) Securities Act.
B) Securities Exchange Act.
C) Trust Indenture Act.
D) Investment Company Act.
E) Public Utility Holding Company Act.
Q4) Filings with the SEC are divided generally into two broad categories:
A) Registration statements and perpetual filings.
B) Reconciliation statements and periodic filings.
C) Registration statements and periodic filings.
D) Registration filings and reconciliation statements.
E) Reconciliation filings and perpetual filings.
Q5) Which of the following is not a security as defined by the SEC?
A) Accounts receivable.
B) Notes receivable.
C) Treasury stock.
D) Debenture.
E) Investment contract.
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Q1) What term is used for a bankruptcy forced upon a debtor by its creditors?
Q2) During a reorganization, how should interest expense be reported on the financial statements?
A) on the income statement, but not classified as a reorganization item.
B) on the income statement as a separate reorganization item.
C) on the balance sheet as a prepaid expense.
D) as a debit directly to retained earnings.
E) on the balance sheet as an intangible asset.
Q3) What information is included on the statement of realization and liquidation?
Q4) What are some of the common elements that can be included in a reorganization proposal?
Q5) Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
Total payment on the bond is calculated to be what amount?
Q6) What is the difference between a liquidation and a reorganization?
Q8) To what does the term Chapter 7 bankruptcy refer? Page 15
Q7) What is the meaning of the phrase debtor in possession?
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Chapter 14: Partnerships: Formation and Operation
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Q1) What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of a partnership?
Q2) Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2012.
Q3) By what methods can a person gain admittance to a partnership?
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Chapter 15: Partnerships: Termination and Liquidation
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Q1) A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Harry receive in the final settlement?
A) $5,000.
B) $9,000.
C) $18,000.
D) $28,000.
E) $55,000.
Q2) What financial schedule would be prepared for a partnership that has begun liquidation but has not yet completed the process? What is the purpose of this schedule?
Q3) Which item is not shown on the schedule of partnership liquidation?
A) Current cash balances.
B) Property owned by the partnership.
C) Liabilities still to be paid.
D) Personal assets of the partners.
E) Current capital balances of the partners.
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Chapter 16: Accounting for State and Local Governments
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Q1) Which group of financial statements is prepared using the "modified accrual accounting" approach?
A) GAAP-Based Financial Statements.
B) Fund Financial Statements.
C) Cost-Based Financial Statements.
D) Government-Wide Financial Statements.
E) General Purpose Financial Statements.
Q2) What account is debited in the general fund when equipment is received by a governmental entity?
A) Expenditures.
B) Encumbrances.
C) Plant assets.
D) Accounts Payable.
E) Fund Balance-Reserve for Encumbrances.
Q3) For a government, what kinds of operations are accounted for using a proprietary fund? Give three examples.
Q4) What are the two proprietary fund types?
Q5) In governmental accounting, what term is used for a decrease in financial resources?
Q6) What is a special revenue fund used to account for?
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Chapter 17: Accounting for State and Local Governments
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Q1) Which statement is false regarding the government-wide Statement of Net Assets?
A) the purpose of the Statement of Net Assets is to report the economic resources of the government as a whole.
B) assets are reported excluding capital assets.
C) capital assets are reported net of depreciation.
D) investments are reported at fair value rather than historical cost.
E) Business-type activities include Enterprise Funds.
Q2) For the purpose of government-wide financial statements, the cost of cleaning up a government-owned landfill and closing the landfill
A) Is not recognized until the costs are actually incurred.
B) Is accrued and amortized over the expected useful life of the landfill.
C) Is accrued on a pro-rated basis each period based on how full the landfill is.
D) Is accrued in full at the time the costs become estimable.
E) Is treated as an encumbrance at the time it become estimable, and then as an expenditure when it is actually paid.
Q3) What information is required in the financial section of a state or local government's CAFR?
Q4) What is meant by the term legally independent?
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Chapter 18: Accounting and Reporting for Private
Not-For-Profit Organizations
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Q1) What term is used by voluntary health and welfare organizations for contributions?
Q2) For a voluntary health and welfare organization, what are supporting services expenses?
Q3) Wakefield Home is a private not-for-profit healthcare organization offering services for a fee. In the first quarter of 2013, Wakefield Home rendered services of $300,000 to patients. Of this amount 75% will be paid by patients, and $25,000 will be adjusted based on estimated insurance agreements. The remaining amount is to be paid by third party insurance providers.
The Home incurred the following liabilities: $110,000 salaries, $30,000 medical equipment, $10,000 utilities expense. Prepare the journal entries for these transactions.
Q4) The Yelton Center is a voluntary health and welfare organization. During 2012, unrestricted pledges of $780,000 were received by the center, sixty percent of which were payable in 2012, with the remainder payable in 2013 (for use in 2013). Officials estimated that fifteen percent of these pledges will be uncollectible.
Required:
How much should the Yelton Center report as revenue for 2012?
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Chapter 19: Accounting for Estates and Trusts
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Q1) What is the amount of the personal exemption on an estate income tax return?
A) $0.
B) $100.
C) $300.
D) $500.
E) $600.
Q2) What is meant by estate accounting?
Q3) For which type of trust is the income taxed in the grantor's individual income tax return?
A) Inter vivos trust.
B) Grantor trust.
C) Revocable living trust.
D) Family trust.
E) Irrevocable life insurance trust.
Q4) The trustor is the
A) income beneficiary of the trust.
B) ultimate recipient of the principal from the trust.
C) fiduciary who manages the assets in the trust.
D) person who funds the trust.
E) person who disposes of the assets in the trust.
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