Intermediate Accounting I
Exam Answer Key
Course Introduction
Intermediate Accounting I delves into the foundational principles and standards governing the preparation and analysis of financial statements. This course expands on introductory accounting concepts, focusing on the recognition, measurement, and disclosure of assets, liabilities, shareholders' equity, and related revenue and expense accounts. Through examination of Generally Accepted Accounting Principles (GAAP) and real-world scenarios, students develop a thorough understanding of topics such as income recognition, inventory valuation, long-term assets, and internal controls. The course aims to equip students with skills necessary for professional accounting roles and to prepare them for more advanced accounting studies.
Recommended Textbook
Intermediate Accounting 9th Edition by J. David Spiceland
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21 Chapters
4034 Verified Questions
4034 Flashcards
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Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Sample Questions
Q1) The FASB's due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed.
A)True
B)False
Answer: True
Q2) An important historical reason for the FASB reversing its positions when political pressures occur is:
A) The cost of gathering data was prohibitive.
B) The difficulties in measurement were too great.
C) Companies withdraw financial support for the FASB.
D) The SEC did not support the FASB position.
Answer: D
Q3) The monetary unit assumption requires that items in financial statements be measured in a particular monetary unit.
A)True
B)False
Answer: True
Q4) Compute the cash balance at the end of the first year for Tri Fecta.
Answer: 11ee8885_a80a_ecd4_91cb_4bd94c97ce97_TB2599_11
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Chapter 2: Review of the Accounting Process
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Sample Questions
Q1) Prepare the closing entries for China Tea Company for the year ended December 31, 2018.
Answer: 11ea937b_366c_02b4_a419_e76a0cfa01ec_TB2599_00
Q2) Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?
A) $1,600,000.
B) $1,800,000.
C) $2,200,000.
D) $2,400,000.
Answer: B
Q3) Assuming no income taxes, compute the following, and place your answer in the space provided.
Kline's 12/31/18 total current liabilities:
Answer: Kline's 12/31/18 total current liabilities = $158,000
Computation: 90,000 + 60,000 + 8,000
Q4) Prepare an income statement for China Tea Company for the year ended December 31, 2018.
Answer: 11ea937b_366c_29c5_a419_99cf3ccaa5cf_TB2599_00
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Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) Compute the times interest earned ratio for Marjoram Company. Round your answer to two decimal places.
Answer: ($73,080 + 31,320 + 11,000) /$11,000 = 10.49 Times interest earned ratio
Q2) The criteria for determining which items comprise cash equivalents often is disclosed in the summary of significant accounting policies.
A)True
B)False
Answer: True
Q3) Cash equivalents would include:
A) Highly liquid investments that can be quickly converted to cash.
B) Accounts receivable from customers.
C) Cash restricted for special purposes such as to repay debt in the future.
D) Prepaid expenses that were purchased with cash.
Answer: A
Q4) The acid-test ratio is also known as the:
A) Current ratio.
B) Debt to equity ratio.
C) Times interest earned ratio.
D) Quick ratio.
Answer: D
5
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Chapter 4: The Income Statement, Comprehensive Income, and
the Statement of Cash Flows
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Sample Questions
Q1) On October 28, 2018, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2018, the end of the company's fiscal year. The division's loss from operations for 2018 was $2,000,000. The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2018 income statement?
A) $2,000,000 loss.
B) $2,500,000 loss.
C) No loss would be reported.
D) $500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations.
Q2) Its return on stockholders' equity for 2018. Round your answer to one decimal place, e.g., 0.1234 as 12.3%.
Q3) The FASB's stated preference for reporting operating cash flows is the:
A) Indirect method.
B) Direct method.
C) Working capital method.
D) All financial resources method.
Page 6
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Chapter 5: Revenue Recognition
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Sample Questions
Q1) A rationale for recognizing revenue over the life of a contract rather than at a single point in time is that:
A) Results are more conservative.
B) It provides a better measure of periodic accomplishment.
C) It is a better match with legal ownership.
D) It results in a lower income tax.
Q2) Assume that Steffi paid the $50,000 in cash when she signed the agreement. RS can recognize revenue associated with the $50,000:
A) When Steffi signs the agreement and pays the cash.
B) As soon as RS has assisted Steffi in setting up the store.
C) Gradually as RS provides advertising and administration services.
D) Only after the store has operated long enough for the chance of business failure to be remote.
Q3) Prepare Portelli's June 30 and July 2 journal entries to record additional service revenue earned, as well as any necessary adjustments to revenue and receipt of payment from Silvia.
Q4) What is the objective of disclosures about revenue recognition? Indicate at least two common types of important revenue recognition disclosures.
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Page 7
Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) White & Decker Corporation's 2018 financial statements included the following information in the long-term debt disclosure note: \(\begin{array}{c}
\text { (\$ in millions) } \\ \frac{2018}{\$ 275} \end{array}\)
Zero-coupon subordinated debentures, due 2033: $275
The disclosure note stated the debenture bonds were issued late in 2013 and have a maturity value of $500 million. The maturity value indicates the amount that White & Decker will pay bondholders in 2033. Each individual bond has a maturity value (face amount) of $1,000. Zero-coupon bonds pay no cash interest during the term to maturity. The company is "accreting" (gradually increasing) the issue price to maturity value using the bonds' effective interest rate computed on an annual basis.
Required:
1. Determine the effective interest rate on the bonds.
2. Determine the issue price in late 2013 of a single, $1,000 maturity-value bond.
Q2) Briefly describe the difference between simple interest and compound interest.
Q3) Provide two examples of the use of present value techniques in accounting.
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) On December 31, 2017, Central Freight reported an allowance for uncollectible accounts of $15,300. During 2018, Central wrote off $17,000 in accounts receivable. Included in the write-off was Roskoff Corp.'s account in the amount of $750. Roskoff subsequently paid this balance. At December 31, 2018, an analysis of the accounts receivable aging schedule indicated the need for an allowance for uncollectible accounts of $14,900.
Required:
Prepare all implied journal entries relative to bad debt expense and the allowance for uncollectible accounts.
Q2) Accounting for the pledging of accounts receivable as collateral for a loan requires:
A) Reporting the receivables net of the borrowed amount.
B) Removal of the pledged receivables from current assets and including them with noncurrent investments.
C) Disclosure of the arrangement in notes to the financial statements.
D) None of these answer choices are correct.
Q3) Briefly explain the accounting treatment for estimated sales returns at the end of an accounting period for which accounts receivable remain outstanding.
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Page 9
Chapter 8: Inventories: Measurement
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Sample Questions
Q1) Purchases equal the invoice amount:
A) Plus freight-in, plus discounts lost.
B) Less purchase returns, plus purchase allowances.
C) Plus freight-in, less purchase discounts.
D) Plus discounts, less purchase returns.
Q2) During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:
A) Higher under FIFO than LIFO.
B) Higher under FIFO than average cost.
C) Lower under average cost than LIFO.
D) Lower under LIFO than FIFO.
Q3) Work-in-process
A)Most recent purchases will be included in ending inventory.
B)1 - (Cost of goods sold Net sales).
C)Purchase discounts not taken are included in inventory.
D)Products that are not yet complete.
E)Purchase discounts not taken are considered interest expense.
Q4) Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses FIFO.
Q5) Briefly explain the advantages of dollar-value LIFO (DVL).
Page 10
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards (IFRS) in the application of the lower of cost or net realizable value rule for valuing inventory.
Q2) Required: Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to categories of feeds.
Q3) The market value for purposes of using the lower of cost or market (LCM) method is defined as replacement cost, subject to a ceiling and a floor.
A)True
B)False
Q4) Estimated ending inventory at retail is:
A) $65,000.
B) $169,600.
C) $25,000.
D) $129,000.
Q5) Required: Determine the reported inventory value assuming the lower of cost or market rule is applied to individual tree products.
Q6) Determine the inventory book value for Products A, B, and C.
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Page 11
Chapter 10: Property, Plant, and Equipment and Intangible Assets: Acquisition
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Sample Questions
Q1) In computing the capitalized interest for 2018, Crocus' average accumulated expenditures are:
A) $46.30 million.
B) $103.54 million.
C) $122.30 million.
D) $124.25 million.
Q2) When one company acquires another company, any acquired "developed technology" is recorded as:
A) Finite-life intangible asset.
B) Property, plant, and equipment.
C) Research and development expense.
D) Indefinite-life intangible asset.
Q3) Sales tax paid on equipment acquired for use in the business is not capitalized.
A)True
B)False
Q4) The exclusive right to benefit from a creative work, such as a film, is a:
A) Patent.
B) Copyright.
C) Trademark.
D) Franchise.
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Chapter 11: Property, Plant, and Equipment and Intangible
Assets: Utilization and Disposition
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Sample Questions
Q1) Canliss Mining uses the retirement method to determine depreciation on its office equipment. During 2016, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages four years and no salvage value is anticipated. In 2018, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2018 depreciation of:
A) $3,500.
B) $4,400.
C) $5,400.
D) None of these answer choices are correct.
Q2) Change in useful life
A)Allocation of cost for plant and equipment.
B)Is a change in accounting estimate.
C)Results from subsequent year correction of a material error.
D)Expenditures made to maintain a given level of benefits from an asset.
E)Generate declining amounts of depreciation over time.
Q3) Prepare the journal entry to record Plank's disposal of the property, plant, and equipment during 2018.
Q4) Briefly explain the following statement. Depreciation is a process of cost allocation, not valuation.
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Chapter 12: Investments
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Sample Questions
Q1) Under the equity method of accounting for a stock investment, cash dividends received are considered a reduction of the investee's net assets.
A)True
B)False
Q2) Under IFRS No. 9, a debt investment can be accounted for at amortized cost if the debt agreement includes only interest and principal and the investor intends to hold it to collect contractual cash flows.
A)True
B)False
Q3) Prepare appropriate entry(s) at December 31, 2020, and indicate how the scenario will affect net income, OCI, and comprehensive income.
Q4) Under IFRS No. 9, which is not a category for accounting for investments?
A) Fair value through profit and loss.
B) Fair value through other comprehensive income.
C) Held-to-maturity.
D) Amortized cost.
Q5) Prepare appropriate entry(s) at December 31, 2019, and indicate how the scenario will affect net income, OCI, and comprehensive income.
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Chapter 13: Current Liabilities and Contingencies
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Sample Questions
Q1) Carpenter Inc. had a balance of $80,000 in its quality-assurance warranty liability account as of December 31, 2017. In 2018, Carpenter's warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2018 were $40 million. What was the balance in the warranty liability account as of December 31, 2018?
A) $35,000.
B) $425,000.
C) $125,000.
D) $480,000.
Q2) In May of 2018, Raymond Financial Services became involved in a penalty dispute with the EPA. At December 31, 2018, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2018 financial statements were issued, Raymond accepted an EPA settlement offer of $900,000. Raymond should have reported an accrued liability on its December 31, 2018, balance sheet of:
A) $770,000.
B) $900,000.
C) $970,000.
D) $1,170,000.
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Page 15
Chapter 14: Bonds and Long-Term Notes
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Sample Questions
Q1) Required: How much interest will Morton Sales Co. pay on these bonds in 2018?
Q2) Promises made to bondholders
A)No specific assets pledged
B)Legal, accounting, printing
C)Protection against falling rates
D)Bond price
E)Backed by a lien
F)May become stock
G)Interest expense
H)Checks are mailed directly
I)Name of owner not registered
J)Premium
K)Discount
L)Periodic cash payments
M)Straight-line method
N)Liquidation payments after other claims satisfied
O)Bond indenture
Q3) Required: Why did the book amount of the debentures increase during fiscal year 2018?
Q4) A zero-coupon bond pays no interest. Explain.
Page 16
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Chapter 15: Leases
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Q1) On January 1, 2018, Park Industrial leased equipment from Rochester Leasing for a four-year period ending December 31, 2018, at which time possession of the leased asset will revert back to Rochester. The equipment cost Rochester $412,184 and has an expected economic life of five years. Rochester expects the residual value at December 31, 2018, will be $50,000. Negotiations led to the lessee guaranteeing a $70,000 residual value.
Equal payments under the lease are $100,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Park is aware that Rochester used a 5% interest rate when calculating lease payments.
Required:
Round your answers to the nearest whole dollar amounts.
1. Prepare the appropriate journal entries for both Park and Rochester on January 1, 2018, to record the lease.
2. Prepare all appropriate journal entries for both Park and Rochester on December 31, 2018, related to the lease.
Q2) Differentiate between guaranteed and unguaranteed residual value of leased property. Does the difference affect the lessor's accounting for the lease?
Q3) What is a purchase option? How does it affect accounting for a lease?
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Chapter 16: Accounting for Income Taxes
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Sample Questions
Q1) Estimate the effective tax rate for Black Inc. in 2018. Why is it different from the 35% federal statutory rate?
Q2) Of the following temporary differences, which one ordinarily creates a deferred tax asset?
A) Intangible drilling costs.
B) MACRS depreciation.
C) Rent received in advance.
D) Installment sales.
Q3) How are deferred tax assets and deferred tax liabilities reported in a classified balance sheet?
Q4) What should Tringali report as its deferred income tax liability as of the end of its first year of operations?
A) $35,000.
B) $20,000.
C) $14,000.
D) $8,000.
Q5) Some accountants believe that deferred taxes should not be recognized for certain temporary differences. What is the conceptual basis for this argument?
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Chapter 17: Pensions and Other Postretirement Benefits
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Sample Questions
Q1) The long-term expected rate of return on plan assets is 10%. Assuming no other data are relevant, what is the pension expense for the year?
A) $197,000.
B) $227,000.
C) $172,000.
D) $202,000.
Q2) An upward revision of inflation and compensation trends would likely cause a gain in the pension benefit obligation.
A)True
B)False
Q3) Amortizing prior service cost for pension plans will:
A) Decrease assets.
B) Increase liabilities.
C) Increase shareholders' equity.
D) Decrease retained earnings.
Q4) What is the theoretical and practical trade-off when measuring the pension liability using the projected benefit obligation compared to the accumulated benefit obligation?
Q5) How do U.S. GAAP and IFRS differ with regard to reporting prior service costs?
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Chapter 18: Shareholders Equity
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Sample Questions
Q1) Return on shareholders' equity
A)Similar to an S corporation, but no limit on number of owners.
B)Net income as a percentage of average book value.
C)Paid-in capital and/or retained earnings affected when sold.
D)Preferred practice is to disclose in the notes to the financial statements.
E)Used in evaluating stock performance.
Q2) Stock designated as preferred usually has preferential rights over other classes of stock relative to dividends and liquidating distributions.
A)True
B)False
Q3) Share issue costs refer to the costs of obtaining the legal, promotional, and accounting services necessary to effect the sale of shares. The costs reduce the net cash proceeds from selling the shares and thus paid-in capital-excess of par, and are:
A) Not recorded separately.
B) Recorded as an asset.
C) Recorded as a liability.
D) Amortized over time.
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) DJ Co. is a calendar-year firm with 120 million common shares outstanding throughout 2018. As part of its executive compensation plan, at January 1, 2017, the company had issued 12 million executive stock options permitting executives to buy 12 million shares of stock for $10 each within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $3 per option. The stock options qualify for tax purposes as an incentive plan. The company's net income was $480 million in 2018. Its income tax rate is 40%. The average market price of the stock during 2018 was $12 per share.
Required:
Determine basic and diluted earnings per share (rounded to two decimal places) for DJ in 2018.
Q2) If previous experience indicates that a material number of stock options will be forfeited before they vest, the fair value estimate of the options on the grant date should be adjusted to reflect that expectation.
A)True
B)False
Q3) The tax code differentiates between qualified and nonqualified incentive plans. What are the major differences in tax treatment between the two?
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Chapter 20: Accounting Changes and Error Corrections
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Q1) Annual depreciation expense on a building purchased a few years ago (using the straight-line method) is $5,000. The cost of the building was $100,000. The current book value of the equipment (January 1, 2018) is $85,000. At the time of purchase, the asset was estimated to have a zero salvage value. On January 1, 2018, the company decided to reduce the original useful life by 25% and to establish a salvage value of $5,000. The firm also decided double-declining-balance depreciation was more appropriate. Ignore tax effects.
Required:
(1.) Record the journal entry, if any, to report the accounting change.
(2.) Record the annual depreciation for 2018.
Q2) Due to an error in computing depreciation expense, Crote Corporation understated accumulated depreciation by $60 million as of December 31, 2018. Crote has a tax rate of 40%. Crote's retained earnings as of December 31, 2018, would be:
A) Overstated by $36 million.
B) Understated by $36 million.
C) Overstated by $24 million.
D) Understated by $24 million.
Q3) Describe the way we account for an error when that error is discovered in a subsequent reporting period.
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Page 22
Chapter 21: The Statement of Cash Flows Revisited
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Q1) Under U.S. GAAP, cash flows from investing activities do not include:
A) cash payments to acquire equipment.
B) cash received from selling investments in securities of another company.
C) investment revenue in cash.
D) cash paid to buy land.
Q2) Interest payments and interest received must be reported as operating cash flows using:
A) U.S. GAAP.
B) IFRS.
C) Both U.S. GAAP and IFRS.
D) Neither U.S. GAAP nor IFRS.
Q3) Investing cash inflow
A)Cash collection of a nontrade note receivable.
B)Cash collected on accounts receivable.
C)Issuance of a long-term note payable for cash.
D)Cash purchase of securities issued by another corporation.
E)Payment of a property dividend.
Q4) Do the statement of cash flows and its related disclosure note report only transactions that cause an increase or decrease in cash? Explain.
Q5) Did accounts receivable increase or decrease during 2018? Explain.
Page 23
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