Intermediate Accounting
Final Test Solutions
Course Introduction
Intermediate Accounting delves deeper into financial accounting concepts, building on foundational principles to enhance understanding and application of accounting standards. The course covers topics such as revenue recognition, income measurement, inventory valuation, fixed assets, intangible assets, and the preparation and analysis of complex financial statements. Emphasis is placed on the application of generally accepted accounting principles (GAAP), critical thinking, and ethical decision-making. Through theoretical learning and practical case studies, students acquire the skills needed to interpret financial information, solve accounting problems, and prepare for advanced coursework or professional certifications.
Recommended Textbook
Financial Accounting and Reporting A Global Perspective 5th Edition by Herv Stolowy
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Chapter 1: Accounting: the Language of Business
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Sample Questions
Q1) Each category of capital providers has specific reporting needs.
A)True
B)False
Answer: True
Q2) Accounting is a specialized language.It needs to be specific enough to:
A) Describe a state or a result
B) Provide a rank ordering of results
C) Describe the events that led to a result
D) All of these.
Answer: D
Q3) The type of accounting which deals with a detailed account of how resources are acquired,managed,and used by the firm is known as.
A) Regulated accounting.
B) Managerial accounting.
C) Financial accounting.
D) None of the above.
Answer: B
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Chapter 2: Introduction to Financial Statements
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Sample Questions
Q1) Acquired equipment is valued at its historical cost.
A)True
B)False
Answer: True
Q2) Retained earnings represent that part of the firm's value created that:
A) Shareholders have chosen not to take out of the firm.
B) Lenders have chosen not to take out of the firm.
C) Shareholders have chosen to take out of the firm.
D) Lenders have chosen to take out of the firm.
Answer: A
Q3) An asset is a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.
A)True
B)False
Answer: True
Q4) It is common for the cash balance and profit to be the same.
A)True
B)False Answer: False
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Chapter 3: Financial Statements: Interrelations and Construction
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Sample Questions
Q1) Proponents of using national standardized charts of accounts argue that:
A) It facilitates the mobility of qualified accountants since all firms use the same basic structure.
B) It facilitates inter-company comparability of published accounts.
C) It reduces the cost of designing accounting software packages.
D) All of these.
Answer: D
Q2) Which of the following statements is true?
A) If you decrease an asset account,you could decrease a liability account.
B) If you increase a liability account,you could increase a shareholders' equity account.
C) If you increase an asset account,you could increase another asset account.
D) All of these.
Answer: A
Q3) The income statement offers a dynamic vision of the financial position of the firm.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Accounting Principles and End-Of-Period Adjustments
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Sample Questions
Q1) What are the four critical requirements or constraints which information users place on accounting?
A) Objectivity,Prudence,Accuracy,Periodicity
B) Objectivity,Prudence,Quality of information,Timeliness
C) Subjectivity,Prudence,Quality of information,Periodicity
D) Objectivity,Prudence,Quality of information,Periodicity
Q2) Why is it necessary to know the income generated by the managers' decisions and actions?
A) In order to know the performance potential of the firm and evaluate the quality of the management and of their decisions as agents of the shareholders.
B) In order to provide a basis for the state to levy taxes based on income.
C) In order to share the income between partners or shareholders.
D) All of these
Q3) Financial accounting only records transactions expressed in financial units.
A)True
B)False
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Chapter 5: Regulation of Accounting and Financial Reporting
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Sample Questions
Q1) Which of the following is not a fixed asset?
A) Machinery and equipment
B) Inventories
C) Building
D) Land
Q2) In 2001,the IASB replaced the IASC.What does IASC stand for?
A) International Accounting Standards Council
B) Internationally Accepted Standards Committee
C) International Accounting Standards Committee
D) Internationally Accepted Standards Council
Q3) Which of the following is a financial liability?
A) Bank overdraft
B) Debt to tax authorities
C) Advance payment received from customers
D) Accounts payable
Q4) The IASB imposes the use of the classification by function.
A)True
B)False
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Chapter 6: Revenue Recognition Issues
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Sample Questions
Q1) Total comprehensive income is defined as the 'change in equity during a period resulting from transactions and other events,other than those changes resulting from transactions with owners in their capacity as owners'.
A)True
B)False
Q2) There are two kinds of differences between income tax rules and accounting rules.What are these called?
A) Permanent and impermanent differences
B) Permanent and temporary differences
C) Persistent and temporary differences
D) Present and future differences
Q3) In which country a loss carry-forward allows the entity to offset future taxable income against the accumulated losses for up to 20 years?
A) Australia
B) France
C) United States
D) None of these
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Chapter 7: Tangible Fixed Assets
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Q1) What is the term used for the specific depreciation of lands purchased as natural resources for a productive activity?
A) Depreciation
B) Depletion
C) Amortization
D) Impairment
Q2) At the time of capitalization of the costs incurred in the construction of the asset,expenses pertaining to the new asset must go through the income statement.
A)True
B)False
Q3) Under certain circumstances,the interest costs must be included in the cost of construction.What is this known as?
A) Inclusion of interest costs
B) Capitalization of interest costs
C) Recognition of interest costs
D) Computation of interest costs
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Chapter 8: Intangible Assets
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Sample Questions
Q1) Under the IASB standards,which of the following criteria is not required for R&D capitalization?
A) Intention to complete the intangible asset and use or sell it.
B) Technical feasibility of completing the intangible asset so that it will be available for use or sale.
C) Availability of adequate technical,financial and other resources to complete the development and to use or sell the intangible asset.
D) Ability to measure reliably future economic benefits generated by the intangible asset.
Q2) The R&D intensity can also be computed as R&D expenses/operating expenses.
A)True
B)False
Q3) For each type of intangible assets,local GAAPs indicate precisely the duration of amortization.
A)True
B)False
Q4) The acquisition value of soccer players is always expensed.
A)True
B)False
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Chapter 9: Inventories
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Sample Questions
Q1) In a perpetual inventory system,the fundamental inventory equation is: Beginning inventory + Purchases or additions - Withdrawals = Ending inventory.What is the unknown in this equation?
A) Beginning inventory
B) Purchases or additions
C) Withdrawals
D) Ending inventory
Q2) Which of the following procedures does not exist for the valuation of inventory outflows?
A) First-In,First-Out (FIFO)
B) Weighted average cost method (WAC)
C) First-In,Last-Out (FILO)
D) Specific identification method
Q3) Which of the following equations is correct?
A) Beginning inventory - Purchases - Cost of goods sold = Ending inventory
B) Beginning inventory - Purchases + Cost of goods sold = Ending inventory
C) Beginning inventory + Purchases + Cost of goods sold = Ending inventory
D) Beginning inventory + Purchases - Cost of goods sold = Ending inventory
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Chapter 10: Financial Instruments in the Statement of
Financial Position and Fair Value Accounting
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Sample Questions
Q1) Notes can be discounted;the accounts receivable represented by notes are taken out of the assets at the time of discounting.However,this can still represent:
A) A potential gain
B) A latent liability
C) A fictive asset
D) None of these
Q2) What is the term used for doubtful or disputed accounts,which are partly or totally uncollectible?
A) Bad debts
B) Valuation allowance
C) Provision expense
D) Debtor accounts
Q3) Which of the following statements is false?
A) Uncollectible accounts must be written off.
B) A claim is considered as uncollectible when the debtor is not solvent.
C) Uncollectible accounts are not reported in the financial statements.
D) The write off of the uncollectible accounts generates a bad debt expense in the income statement.
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Chapter 11: Shareholders Equity
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Sample Questions
Q1) Which right(s)is (are)held by each shareholder?
A) Influence management decision making by participating in and voting in general assembly meetings
B) Receive dividends and a proportionate share of any eventual liquidation surplus
C) First pass at acquiring additional shares (proportionately to the current holding)in the case of a new issue of shares
D) All of these
Q2) What are investors in a corporation called?
A) Partners
B) Shareholders
C) Associates
D) Proprietors
Q3) How is the debt/equity ratio calculated?
A) Shareholders' equity/Total assets
B) Shareholders' equity/Long-term debts
C) Total assets/Shareholders' equity
D) Long-term debts/Shareholders' equity
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Page 13
Chapter 12: Liabilities and Provisions
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Sample Questions
Q1) What is the term used for the types of bonds which are all repaid in fine?
A) Term bonds
B) Serial bonds
C) Maturity bonds
D) Installment bonds
Q2) Which of the following items is not considered to be payroll taxes?
A) Employer's portion of social security
B) Unemployment taxes
C) Employer's portion of employees' life insurance premiums
D) Workers' compensation taxes
Q3) If the discount is 'with recourse',the discount mechanism for notes creates:
A) A provision
B) A contingent liability
C) An accrued liability
D) None of these
Q4) In accounting terms,wages and salaries are handled differently.
A)True
B)False
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Page 14
Chapter 13: Business Combinations
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Sample Questions
Q1) Given the following data:
P owns directly 43% of C2; P owns directly 30% of C1; C1 owns directly 40% of C2; What is the percentage of interest of the parent P over C2?
A) 82%
B) 55%
C) 43%
D) 40%
Q2) What is the term used for the power to govern the financial and operating policies of an entity alone so as to obtain benefits from its activities?
A) Significant influence
B) Control
C) Joint control
D) None of the previous answers
Q3) In IFRS 10,non-controlling [minority] interests are defined as the equity in a subsidiary not attributable,directly or indirectly,to a parent.
A)True
B)False
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Page 15
Chapter 14: Income Statement Analysis
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Sample Questions
Q1) How is the EBITDA calculated?
A) EBITDA = Value Added + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowances
B) EBITDA = Commercial margin + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowances
C) EBITDA = Total production for the period + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowances
D) EBITDA = Value Added + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowancesDepreciation expenses
Q2) Which of the following items is not a key intermediate balance?
A) Market value added
B) Value added
C) Gross operating profit
D) Commercial margin
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Chapter 15: Balance Sheet Analysis
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Q1) A positive working capital need is typical of a firm operating in the distribution sector. A)True
B)False
Q2) Acme Company sells manufactured products for a price of 10 CU per unit.The credit terms received from suppliers of materials are 90 days.It grants credit to its customers for 30 days.Its inventory of finished products turnover is 6;its raw material inventory turnover is 12.Its transformation process takes a week (5 working days;the work is distributed evenly over the five days but all materials consumed are put in production on the first day).Its manufacturing value added to raw materials purchased is 50%.Its gross margin is 40%.Its net margin before tax is 10%.All costs other than materials are paid cash.The working capital need to sell one unit is likely to be:
A) 1,282.5 CU
B) 1,522.5 CU
C) 1,273.5 CU
D) - 912.5 CU
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Chapter 16: Statement of Cash Flows Construction
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Sample Questions
Q1) Which of the following equations is correct?
A) Purchases + Change in inventory (ending - beginning)= Cost of merchandise sold
B) Purchases = Change in inventory (ending - beginning)+ Cost of merchandise sold
C) Purchases = Change in inventory (ending - beginning)- Cost of merchandise sold
D) Purchases = Change in inventory (ending - beginning)/Cost of merchandise sold
Q2) Activities that involve obtaining resources as a borrower or issuer of shares and repaying creditors and shareholders are included in which section of the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Managing activities
Q3) Which of the following transactions decreases cash?
A) Charging depreciation.
B) Accruing taxes.
C) Purchasing equipment for cash.
D) Purchasing goods on credit.
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18
Chapter 17: Statement of Cash Flows Analysis and Earnings
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Q1) Which of the following patterns of cash flow best describes that of a fast growing dynamic firm in a high technology,fast changing industrial sector:
Cash flow from operations Cash flow from investing Cash flow from financing
A) Generates cash Consumes cash Generates cash
B) Consume cash Generates cash Consumes cash
C) Generates cash Generates cash Consumes cash
D) Consumes cash Consumes cash Generates cash
Q2) Which of the four definitions offered best represents 'Free cash flow' for a business entity:
A) Cash flow from operations minus absolute value of cash flow from investing.
B) Cash flow from operations minus absolute value of dividends paid minus interest payments.
C) Cash flow from operations minus investments for the maintenance of the competitive position minus absolute value of average dividends paid minus interest payments.
D) Cash flow from operations minus debt reimbursements.
Q3) Generally,the operating cash flow is expected to be positive.
A)True B)False
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Chapter 18: Ratio Analysis, financial Analysis and Beyond
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Q1) Firms A and B have the same number of shares outstanding.Relative to firm A,firm B is less capital intensive,has a lower debt to asset ratio and pays a larger proportion of its earnings as dividends.On the basis of these facts,would you say that:
A) Firm A offers a higher level of risk to shareholders than firm B.
B) Firm A offers a lower level of profitability than firm B.
C) Firm A has more fixed assets as a proportion of its total assets than firm B.
D) Firm A book value per share is smaller than that of firm B.
Q2) In order to calculate diluted earnings per share,the net profit attributable to ordinary shareholders and the weighted average number of shares outstanding should be adjusted for the effects of all dilutive potential ordinary shares.
A)True
B)False
Q3) Which of the following situations represents an effective use of assets
A) Earning a larger amount of profit per currency unit of sales revenue.
B) Increasing sales revenue faster than gross asset growth.
C) Depreciating tangible assets using an accelerated depreciation method.
D) Divesting assets when sales revenue declines to keep the ratio of sales to assets constant.
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