Intermediate Accounting for Business Students
Study Guide Questions
Course Introduction
Intermediate Accounting for Business Students builds upon foundational accounting principles to deepen students understanding of the preparation, analysis, and interpretation of financial statements. This course covers key topics such as revenue recognition, inventory valuation, long-lived assets, earnings per share, investments, income taxes, pensions, and leases, with a focus on relevant accounting standards and regulations. Students will engage in the critical examination of complex transactions and their treatment according to Generally Accepted Accounting Principles (GAAP), and will develop analytical and problem-solving skills essential for effective decision-making in a business context.
Recommended Textbook
Intermediate Accounting Volume 1 12th Canadian Edition by Donald E. Kieso
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Chapter 1: The Canadian Financial Reporting Environment
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Q1) In a principles-based standard-setting system (such as Canadian GAAP), compared to a rules-based approach (such as U.S. GAAP),
A) which is more prescriptive, it may be easier to defend how to account for a particular item.
B) there is a rule for every situation.
C) accountants either apply specific standards based on the conceptual framework, or, professional judgement consistent with the framework.
D) it is expected that professional accountants might encounter situations where they are unable to apply the principles appropriately.
Answer: C
Q2) In Canada, the body that is NOT instrumental in the development of financial reporting standards is the
A) Accounting Standards Board (AcSB).
B) Financial Accounting Standards Board (FASB).
C) International Accounting Standards Board (IASB).
D) American Institute of Certified Public Accountants.
Answer: D
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Chapter 2: Conceptual Framework Underlying Financial Reporting
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Q1) Principles- vs. rules-based GAAP
There has been much discussion about principles-based standards versus rules-based standards. Discuss the advantages and disadvantages of a principles-based approach.
Answer: Advantages of a principles-based approach:
1. Decisions are based on the conceptual framework - so they should be consistent.
2. Flexibility - allows for making decisions about new or unusual transactions based on principles.
3. Allows accountants to use their professional expertise and professional judgement. Disadvantages of a principles-based approach:
1. Flexibility may result in reduced comparability between different firms.
2. Flexibility may be abused and bias may creep into decisions.
Q2) Which of the following does NOT relate to the concept of relevance?
A) The information must be capable of making a difference in a decision.
B) Both material and immaterial information is important.
C) The information has predictive value.
D) The information has feedback/confirmatory value.
Answer: B
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Chapter 3: Measurement
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Q1) The main difference in the accounting for measurement issues between IFRS and ASPE is that
A) IFRS has a well-developed framework for measuring fair values (IFRS13), whereas ASPE does not.
B) there is no difference between accounting for measurement issues between these standards.
C) guidance under ASPE is concentrated in a single area of the ASPE body of knowledge.
D) IFRS requires explicit disclosure of fair value amounts, whereas these disclosures under ASPE are optional.
Answer: A
Q2) In order to measure fair value under IFRS13, an entity must determine
A) the item being measured, and how the item could or would be used.
B) the market the item would be (or is) bought and sold in.
C) which fair value model is being used to value the item.
D) all of the above
Answer: D
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Chapter 4: Reporting Financial Performance
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Q1) Which of the following is a change in accounting principle?
A) a change in the estimated service life of machinery
B) a change from FIFO to weighted average for inventory costing
C) a change in the estimated allowance for bad debts
D) a change in estimated future warranty expense
Q2) Statement of retained earnings
Mondial Corporation prepares financial statements in accordance with ASPE. At January 1, 2020, the company had retained earnings of $420,000. In 2020, net income was $1,737,000, and cash dividends of $360,000 were declared and paid. Prepare a 2020 statement of retained earnings for Mondial Corporation.
Q3) The concept of representational faithfulness requires that the financial statements
A) reflect the economic reality of running a business.
B) reflect everything no matter how small.
C) reflect the biases of management.
D) identify all risks that the entity faces.
Q4) Cash Basis
Explain the theoretical weaknesses of the cash basis approach. Isn't cash management the most important part of a business?
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Chapter 5: Financial Position and Cash Flows
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Q1) Significant changes to the presentation of financial statements (Primary Financial Statements Project) are currently being developed by the IASB. Which of the following best describes the focus of the changes?
A) to better highlight the company's assets, liabilities and equity
B) to segregate the company's operating, financing and investing activities
C) to highlight the company's major business and financing activities
D) to increase the number of notes to be attached to financial statements
Q2) Creditworthiness; debt to total assets
Explain why a high debt to total assets ratio means a company has a higher risk of bankruptcy.
Q3) The operating cycle is the time between
A) selling products to customers and the realization of cash.
B) purchase of inventory and selling to customers.
C) manufacture of products and receiving cash from customers.
D) acquisition of assets for processing and the realization in cash or cash equivalents.
Q4) Current assets
Define current assets without using the word "asset."
Q5) Current liabilities
Define current liabilities without using the word "liability."
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Chapter 6: Revenue Recognition
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Q1) Losses in a current period on a profitable contract
A) are generally deferred until the contract is complete.
B) are only recognized immediately under the completed-contract method.
C) are only recognized immediately under the percentage-of-completion method.
D) are recognized immediately under both the completed-contract method and the percentage-of-completion method.
Q2) Under the earnings approach, revenue from selling products is generally recognized
A) at the point of delivery.
B) at the completion of production.
C) after costs are recovered.
D) as cash is collected.
Q3) The actions a company takes to add value are referred to as the A) critical event.
B) earnings approach.
C) earnings process.
D) risks and rewards of ownership.
Q4) Explain the advantages and disadvantages of the completed-contract method.
Q5) Explain what a bill-and-hold sale is and why a customer might engage in such an arrangement.
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Chapter 7: Cash and Receivables
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Q1) The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach
A) gives a reasonably correct valuation of the receivables in the statement of financial position.
B) best relates bad debts expense to the period of sale.
C) is the only generally accepted method for valuing accounts receivable.
D) makes estimates of uncollectible accounts unnecessary.
Q2) A Cash Over and Short account is
A) not generally acceptable under Canadian GAAP.
B) debited when the sum of the receipts and the cash in the fund is more than the imprest amount.
C) debited when the sum of the receipts and the cash in the fund is less than the imprest amount.
D) a contra account to Cash.
Q3) Reporting of cash and cash equivalents
Lawrence Company has cash in bank of $22,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. How much cash should Lawrence report on their statement of financial position? Explain.
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Chapter 8: Inventory
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Q1) If the ending inventory is to be estimated using the retail method, the calculation of the cost-to-retail ratio should be based on cost and retail of
A) $450,000 and $645,000.
B) $567,000 and $828,000.
C) $559,000 and $795,000.
D) $567,000 and $798,000.
Q2) Lower of cost and net realizable value (NRV)
Determine the unit value that should be used for inventory costing, using the "lower of cost and NRV" rule.
\[\begin{array} { l l l l l l l }
& \mathbf { A } & \mathrm { B } & \mathrm { C } & \mathbf { D } & \mathbf { E } &\mathbf { F } \\
\text { Cost } & \mathbf { \$ 2 . 4 0 } & \mathbf { \$ 2 . 4 0 } & \mathbf { \$ 2 . 3 0 } &
\mathbf { \$ 2 . 5 4 } & \mathbf { \$ 2 . 4 4 } & \mathbf { \$ 2 . 6 5 } \\
\text { Replacement cost } & 2.20 & 2.60 & 2.20 & 2.50 & 2.42 & 2.36 \\
\text { Net realizbble } \text { value } & 2.50 & 2.50 & 2.25 & 2.45 & 2.50 & 2.50
\end{array}\]
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Chapter 9: Investments
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Q1) A bond is purchased at a discount and will be accounted for under the amortized cost model. The entry to record the amortization of the discount includes a
A) debit to the investment account.
B) debit to "Gain from Discount."
C) debit to Interest Income.
D) credit to the investment account.
Q2) On October 1, 2020, Moray Ltd. purchased 500 of the $ 1,000 face value, 8% bonds of Eel Ltd. for $ 585,000, including accrued interest of $ 10,000. The bonds, which mature on January 1, 2027, pay interest semi-annually on January 1 and July 1. Moray used the straight-line method of amortization and appropriately recorded the bonds as long-term. On Moray's December 31, 2021 balance sheet, the carrying value of the bonds would be
A) $ 575,000.
B) $ 570,000.
C) $ 568,000.
D) $ 560,000.
Q3) Shares acquired on margin
What does it mean when an investment in shares is acquired on margin and how is the asset recorded?
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Chapter 10: Property, Plant, and Equipment: Accounting
Model Basics
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Q1) Nigeria Ltd. acquires a new machine. It is comprised of two different components (A and B) that are expected to be overhauled at different times. The acquisition costs of the components are as follows: \(\begin{array}{llcc}
\text { Comportent A: } &\$198,000 \\
\text {Component B: } &\$240,000\\ \end{array}\)
Component A is expected to have a useful life of 5 years and a residual value of $ 20,000 before the first major overhaul is required. Component B is expected to have a useful life of 7 years and a residual value of $ 15,000 before its first overhaul. Nigeria uses straight-line depreciation for all its equipment. What is the net book value of component A after 5 years?
A) $ 0
B) $ 19,000
C) $ 20,000
D) $ 55,600
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Chapter 11: Depreciation, Impairment, and Disposition
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Q1) Which of the following best describes the concept of cash-generating units (CGU)?
A) Their cash flows are dependent on those of other CGU's.
B) The individual assets that are included in the CGU do not generate cash flows on their own.
C) A CGU is the largest identifiable group of assets that generates cash inflows predominantly independent from other CGUs.
D) IFRS does not recognize the concept of cash-generating units (CGU).
Q2) The most common method of recording depletion for accounting purposes is the A) single-declining method.
B) double-declining method.
C) straight-line method.
D) units of production method.
Q3) Factors to consider in the depreciation process do NOT include
A) the asset's depreciable amount.
B) the period over which to depreciate the asset.
C) the asset's fair market value.
D) which asset components should be depreciated separately.
Q4) Explain why assets that are held for sale are not depreciated while they are held.
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Chapter 12: Intangible Assets and Goodwill
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Q1) Calculating goodwill
Explain how the amount to be recognized as goodwill can be calculated. Can goodwill be sold? If so, how? Explain.
Q2) Determining impairment loss under ASPE
On September 1, 2020, Humble Corporation acquired Roots Media for a cash payment of $ 859,100. At the time of purchase, Roots' statement of financial position showed assets of $ 899,600, liabilities of $ 462,300, and owner's equity of $ 437,300. The fair value of Roots' assets is estimated to be $ 1,163,900.
Instructions
a) Assuming that Humble Corporation is a private entity, explain how goodwill will be tested for impairment.
b) If the unit's carrying amount (including goodwill) is $ 3,617,400 and its fair value is $ 3,553,200, what is the impairment loss, if any, under ASPE?
Q3) All of the following are specifically identifiable intangible assets EXCEPT
A) patents.
B) trademarks.
C) goodwill.
D) copyrights.
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Chapter 13: Accounting Information Systems and Adjusting
Entries: A Comprehensive Guide
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Q1) Type of ownership structure
Explain whether the financial statement excerpt below is from the financial statements of a corporation, a sole proprietorship, or a partnership: \(\begin{array}{llcc}
\text { Abhrams, Capital............................ } & \$20,000 \\
\text { Johnston, Capital............................ } &25,000\\
\text {Zinck, Capital.................................. } &\underline{20,000}\\
\text { Total ..............................................} &\$65,000\\
\end{array}\)
Q2) Which of the following is an internal event?
A) sale of goods or services
B) payment of dividends
C) using raw materials in production
D) purchase of materials
Q3) The accounting cycle
Summarize the steps in the accounting cycle.
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