Intermediate Accounting I
Final Exam Questions
Course Introduction
Intermediate Accounting I provides an in-depth exploration of the concepts, principles, and practices underlying the preparation and interpretation of financial statements. The course focuses on the development and application of generally accepted accounting principles (GAAP) related to assets, liabilities, equity, revenue recognition, and measurement issues. Students will analyze complex transactions, prepare comprehensive financial statements, and evaluate the impact of various accounting policies on financial reporting. Emphasis is placed on the conceptual framework of accounting, the preparation of balance sheets, income statements, and statements of cash flows, as well as the disclosure requirements and ethical considerations in contemporary accounting practice.
Recommended Textbook
Intermediate Accounting Reporting and Analysis 1st Edition by James M. Wahlen
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Page 2
Chapter 1: The Demand for and Supply of Financial
Accounting Information
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Q1) "Members should act in a way that will service the public interest, honor the public trust, and demonstrate commitment to professionalism." This is the Public Interest Principle of the AICPA's Code of Professional Conduct.
A)True
B)False
Answer: True
Q2) The mission of the Securities and Exchange Commission is to protect investors, maintain orderly, and efficient markets, and assist in the formation of capital.
A)True
B)False
Answer: True
Q3) Three major organizations in the private and public sector develop U.S. and international GAAP. They include all of the following except the A) EU (European Union)
B) SEC (Securities and Exchange Commission)
C) FASB (Financial Accounting Standards Board)
D) IASB (International Accounting Standards Board)
Answer: A
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Chapter 2: Financial Reporting: Its Conceptual Framework
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Q1) According to GAAP, which is not a specific objective?
A) to provide information about an enterprise's cash flows
B) to provide information that is useful to present to potential investors, creditors, and other users in making rational investment, credit, and similar decisions
C) to provide information about an enterprise's comprehensive income and its components
D) to provide information about an enterprise's economic resources, obligations, and owners' equity
Answer: B
Q2) The IASB and FASB joint boards have identified the primary user groups of financial information as all of the following except
A) equity investors
B) labor groups
C) lenders
D) other creditors (capital providers)
Answer: B
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Chapter 3: Review of a Companys Accounting System
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Q1) The Yellow Canoe Company made year-end adjusting entries affecting each of the following accounts: Interest Revenue (credited); Depreciation Expense (debited); Unearned Rental Revenue (debited); and Prepaid Insurance (credited). Which account is likely to appear in Yellow Canoe's reversing entries?
A) Prepaid Insurance
B) Interest Revenue
C) Depreciation Expense
D) None of these choices
Answer: B
Q2) The worksheet is not a substitute for accounting records or financial statements but it is a tool helpful for external users to see the detailed information behind the statements.
A)True
B)False
Answer: False
Q3) An advantage of using the general journal is to prevent errors.
A)True
B)False
Answer: True
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Chapter 4: The Balance Sheet and the Statement of
Shareholders Equity
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Q1) Trademarks or acquired brand names are not amortized but are reviewed annually for impairment.
A)True
B)False
Q2) The quantity of goods or services produced in a given period or the physical capacity of the operating assets used to produce goods or services are measures of
A) financial flexibility
B) liquidity
C) operating capability
D) leverage
Q3) A deficit occurs when a company's
A) retained earnings are less than its common stock
B) dividends distributed are greater than comprehensive income
C) dividends and cumulative losses are greater than cumulative net income
D) retained earnings are less than assets minus liabilities
Q4) What differences exist between IFRS and U.S. GAAP balance sheet presentation?
Q5) What is FASB's Statement of Financial Accounting Concepts No. 6 definition of investments by owners and distributions to owners?
Q6) What is FASB's definition of fair value?
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Chapter 5: The Income Statement and the Statement of Cash Flows
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Q1) What are the four items of other comprehensive income under U.S. GAAP?
Q2) A terrorist attack would be considered an extraordinary event because terrorist attacks are infrequent in nature.
A)True
B)False
Q3) The accounting profession has developed three alternatives for matching expenses: association of cause and effect, systematic and rational allocation, and immediate recognition. Discuss the conceptual merits of each alternative and give two examples for each expense matching alternative.
Q4) Expenses that affect the operating activities of more than one interim period are allocated among the periods based on an estimate of
A) time expired
B) benefit received
C) activity associated with the periods
D) all of these
Q5) What three tests are used to evaluate an operating segment in order to determine if it is a reportable segment?
Q6) List five purposes of the income statement.
Page 7
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Chapter 6: Cash and Receivables
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Q1) Which of the following is not considered cash for financial statement reporting
A) cash, coins, and currency
B) travelers checks
C) sinking fund
D) negotiable instruments
Q2) Nontrade receivables, such as deposits with utility companies or advances to subsidiary companies, should be
A) recorded in separate accounts and reported as noncurrent assets on the balance sheet
B) recorded along with trade receivables in one account and included as part of the total receivables balance on the balance sheet
C) recorded in separate accounts and separately reported on the balance sheet
D) recorded in separate accounts and reported as an offset to retained earnings on the balance sheet
Q3) In the case of a non-interest-bearing note,
A) the amount borrowed is listed as the face value
B) the amount to be collected is listed as the face value
C) the present value is listed as the face value
D) the present value is listed as the face value.
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Chapter 7: Inventories: Cost Measurement and Flow
Assumptions
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Q1) A manufacturing firm would not normally have an account titled
A) goods in process inventory
B) raw materials inventory
C) merchandise inventory
D) finished goods inventory
Q2) Which of the following is included in the work in process account?
A) manufacturing overhead
B) direct labor
C) raw materials
D) all of these
Q3) For the year in which prices rise, adoption of a "just-in-time" inventory system will most likely result in
A) a permanent increase in the size of the inventory
B) a reduction in income taxes
C) an increase in total assets
D) an increase in income
Q4) What three difficulties does dollar-value LIFO overcome compared to applying simple LIFO?
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Q5) What are the cost flow assumptions available to record costs associated with inventory?
Chapter 8: Inventories: Special Valuation Issues
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Q1) Refer to Exhibit 8-1. The selling price of this unit must be
A) $49.30
B) $53.00
C) $52.90
D) $49.10
Q2) The accountant for Lee Company made the following errors related to merchandise inventory in 2014:
1.The beginning inventory for 2014 was overstated by $750 due to an error in the physical count.
2.A $1,300 purchase of merchandise on credit was not recorded or included in the ending inventory.
Assuming a periodic inventory system, Lee Company's 2014 cost of goods sold will be
A) understated by $550
B) understated by $1,850
C) overstated by $1,850
D) overstated by $750
Q3) What are the four alternative valuations used in the application of the Retail Inventory Method?
Q4) What is dollar value LIFO retail method?
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Chapter 9: Current Liabilities and Contingencies
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Q1) Mr. Luigi, the plant supervisor of Super Brothers Corp. is allowed a bonus of 4% of income after bonus and tax. For 2014, the tax rate is 30% and income before bonus and tax amounts to $1,200,000.
Required:
Compute the amount of Mr. Luigi's 2014 bonus.
Q2) All of the following are examples of legal liabilities except
A) notes payable
B) sales tax payable
C) sick pay payable (may be taken as time off)
D) property taxes payable
Q3) In considering contingencies, IFRS and GAAP define the term "probable" as
A) IFRS - likely; GAAP - likely
B) IFRS - likely; GAAP - more likely than not
C) IFRS - more likely than not; GAAP - likely
D) IFRS - more likely than not; GAAP - more likely than not
Q4) Liabilities are defined as probable future sacrifices of economic benefits arising from present obligations. Explain what FASB means by probable and obligations.
Q5) How are current liabilities classified? Provide an example of each.
Q6) List and describe the three characteristics of a liability.
Page 11
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Chapter 10: Property, Plant, and Equipment: Acquisition and
Subsequent Investments
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Q1) Under IFRS, the costs of relocating or reorganizing property, plant, and equipment can be capitalized as assets and depreciated over the period of expected benefit.
A)True
B)False
Q2) Property acquired through donation is recorded at
A) its book value
B) its fair market value
C) its cost
D) zero
Q3) An improvement made to a machine increased its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be A) recorded as an expense
B) debited to Accumulated Depreciation
C) capitalized in the machine account
D) allocated between Accumulated Depreciation and the machine account
Q4) What three characteristics must an asset have in order for it to be classified as property, plant and equipment?
Q5) How can the future economic benefit of a capital expenditure be increased?
Page 12
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Chapter 11: Depreciation, Depletion, Impairment, and Disposal
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Q1) ......
Q2) Redeau Company has been depreciating certain assets using the straight-line method. At the beginning of the current year, the company changed to the sum-of-the-years'-digits method to depreciate these assets. Which of the following statements regarding this change is true?
A) The change should be accounted for prospectively.
B) The change should be accounted for with an adjustment of the accumulated depreciation and the retained earnings balances.
C) The change should be accounted for by including the cumulative effect of the change in the current year's income statement.
D) The accounting impact of the change is limited to the difference in current-year depreciation on the affected assets.
Q3) Which one of the following statements is not true?
A) Straight-line depreciation may be used instead of MACRS for income tax reporting.
B) If MACRS is used for tax purposes, it must be used for book purposes.
C) Salvage value is not considered when the MACRS system is in use.
D) Economic lives may be different from MACRS lives.
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Chapter 12: Intangibles
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Q1) The Shane Company began business early in 2013, when Shane paid an initial fee of $100,000 to purchase a franchise. In forming the company, Shane also spent $11,000 on legal fees and $4,500 on accounting fees. During the year, Shane spent $7,500 on product development and paid $10,000 in continuing franchise fees. What amount should Shane capitalize for intangible assets in 2013?
A) $100,000
B) $115,500
C) $123,000
D) $133,000
Q2) On January 1, 2013, Moose Co. purchased for $360,000 a patent that had been granted two years earlier. On January 1, 2015, legal costs of $64,000 were incurred in a successful defense of the patent. Assuming the maximum period allowable is used for patent amortization, what is Moose's patent amortization expense for 2015?
A) $18,000
B) $20,000
C) $21,555
D) $24,000
Q3) What characteristics do Intangible and tangible noncurrent assets have in common?
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Chapter 13: Investments and Long-Term Receivables
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Q1) What are the four components necessary to account for investments in trading securities?
Q2) On January 1, 2014, Old World Company purchased $300,000 of ten-year 10% bonds of New Company for $326,840. Interest is payable annually. The effective yield on the investment is 8%. What is the balance in Old World's investment in held-to-maturity debt securities account (rounded to the nearest dollar, if necessary) at December 31, 2015?
A) $330,693
B) $326,840
C) $322,987
D) $318,826
Q3) On January 1, 2014, Lightner bought 20,000 shares (5% ownership) of Winter Corp. common stock for $360,000. On May 3, 2014, Winter declared and distributed a 50% stock dividend. On September 1, 2014, Lightner sold 2,000 shares of its investment in Winter stock for $21,400.
Required:
Compute the amount of gain (loss) on the sale of this stock.
Q4) What three steps are necessary to evaluate whether or not an investment is impaired?
Q5) List 3 investments in debt securities and 3 investments in equity securities.
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Chapter 14: Financing Liabilities: Bonds and Notes Payable
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Q1) How do the classification requirements of IFRS for instruments as financial liabilities versus equity differ from those of GAAP?
Q2) The bond interest expense reflected on the income statement should reflect an amount based on the
A) effective interest rate
B) stated interest rate
C) nominal interest rate
D) face interest rate
Q3) The assumption of a stable interest expense per year is inherent under which of the following amortization methods?
A) present-value method
B) effective interest method
C) stated-interest method
D) straight-line method
Q4) A company could decide to call its bonds because it will eliminate any restrictions on operations from certain debt covenants.
A)True
B)False
Q5) How can a company restructure their debt in the event of financial difficulties?
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Chapter 15: Contributed Capital
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Q1) Fully participating preferred shareholder's receive extra dividends equally with the common shareholder's.
A)True
B)False
Q2) Refer to Exhibit 15-6. In 2015, the company determined that the actual annual average increase was 16%. The compensation expense for 2015 will be
A) $123,750
B) $247,500
C) $ 82,500
D) $ 55,000
Q3) Budget Leasing issued 500 shares of $20 par value convertible preferred stock at $22 per share. Each preferred share is converted to 7 shares of $4 par value common stock.
The entry to record this conversion would include a
A) debit to Additional Paid-in Capital on Preferred Stock for $11,000
B) credit to Common Stock for $11,000
C) debit to Retained Earnings for $3,000
D) credit to Additional Paid-in Capital from Preferred Stock Conversion for $3,000
Q4) List four transactions that comprise a corporation's contributed capital.
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Chapter 16: Retained Earnings and Earnings Per Share
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Q1) For which one of the following components is earnings per share information required to be presented on the income statement?
A) discontinued operations
B) extraordinary items
C) income from continuing operations
D) cumulative effect of a change in accounting principle
Q2) Graham, Inc. began 2015 with 25,000 common shares outstanding and issued a 20% stock dividend on August 1. The company issued 6,000 shares on December 1. Graham also has 18,000 shares of 9%, $20 par, cumulative preferred stock outstanding on which no dividends have been paid during either 2014 or 2015. Net income for 2015 was $175,600.
Required:
Compute Graham, Inc.'s basic earnings per share for 2015.
Q3) Reporting diluted earnings per share is required for which type of corporate capital structure?
A) simple
B) complex
C) diluted
D) complicated
Q4) What are the steps necessary to compute diluted earnings per share?
Page 18
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Chapter 17: Advanced Issues in Revenue Recognition
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Q1) The QD Company sells franchises. The company charges $50,000 for the initial franchise fee. A down payment of $10,000 is required as part of the franchise agreement. A note payable for the remaining balance is issued at a 10% interest rate payable in four equal annual installments.
Required:
For each of the following independent situations prepare the necessary journal entries for QD to record the initial franchise fee.
Q2) Refer to Exhibit 17-1. Under the percentage-of-completion method of revenue recognition, gross profit in 2014 would be
A) $102,000
B) $260,000
C) $255,000
D) $425,000
Q3) Refer to Exhibit 17-3. What net income (loss) should be recognized by Dundee in 2014?
A) $2,590 loss
B) $1,160 income
C) $1,210 income
D) $2,640 loss
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Chapter 18: Accounting for Income Taxes
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Q1) Revenue from installment sales is recognized in the period received for tax purposes and recognized in the period earned for accounting purposes. If these periods are different, this is an example of a
A) permanent difference that gives rise to interperiod tax allocation
B) permanent difference that does not give rise to interperiod tax allocation
C) temporary difference that gives rise to interperiod tax allocation
D) temporary difference that does not give rise to interperiod tax allocation
Q2) Which of the following would not result in a permanent difference between pretax financial income and taxable income?
A) product warranty costs
B) premiums paid for life insurance policies on officers of the company
C) interest revenue received from investments in municipal bonds
D) percentage depletion in excess of cost depletion on wasting assets
Q3) Discuss both interperiod and intraperiod tax allocation methods.
Q4) The intraperiod tax allocation is used to provide a faithful representation of the matching of income tax expense against the components of its pretax income which shows the after-tax impact of each of these items.
A)True
B)False
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Chapter 19: Accounting for Postretirement Benefits
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Q1) The attribution period ends at A) the expected retirement date
B) the actual retirement date
C) the full eligibility date
D) either a or b
Q2) If a pension plan amendment is adopted and retroactive benefits are granted to employees, the amount of the prior service cost at the date of grant is accounted for
A) as an intangible asset and liability that are recognized on the plan amendment date
B) as a prior period adjustment for the total amount of the prior service cost that is reported on the statement of retained earnings
C) as the total amount of the prior service cost that is recognized as an expense on the current period's income statement
D) initially as an unamortized amount to be included in the computation of pension expense over future periods
Q3) What estimates are necessary to account for a defined benefit pension plan?
Q4) What five components comprise pension expense?
Q5) What are the advantages of qualified pension plans?
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Chapter 20: Accounting for Leases
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Q1) (This problem requires use of PV tables with an 11% rate, a financial calculator or the formulas.)
Taquito Company leased equipment to Baja Company on January 1, 2014. The lease was for five years and required annual payments of $24,500 on January 1 of each year with the first payment due January 1, 2014. The equipment had a cost to Taquito of $85,000 and no expected residual value at the end of the lease term. The lease was appropriately accounted for as a sales-type lease by Taquito. Taquito used a 11% rate of return to establish the lease payments.
Required: Required:
a.Prepare all 2014 journal entries for Taquito related to the lease.
b.What amount of interest revenue would Taquito recognize for the year ended December 31, 2015?
Q2) When a lessor receives cash on a sales-type lease, which of the following accounts is decreased?
A) Interest Revenue: Leases
B) Lease Rental Revenue
C) Lease Receivable
D) Unearned Interest: Leases
Q3) What are the disclosure requirements of direct financing and sales-type leases?
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Chapter 21: The Statement of Cash Flows
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Q1) What is the primary purpose of a company's statement of cash flows?
A) to provide information about the company's operations
B) to provide information about the company's dividend policy
C) to provide information about the company's financing and investing activities
D) to provide information about the company's cash receipts and cash payments during the period
Q2) Which of the following statements is true regarding GAAP and reporting operating activities on the statement of cash flows?
A) The direct method is required of large companies.
B) The GAAP prefers the indirect method.
C) The GAAP prefers the direct method.
D) The GAAP did not express a preference for either the direct or indirect method.
Q3) In a statement of cash flows prepared by the indirect method, an increase in accounts receivable should be
A) deducted from net income in the operating activities section
B) added to net income in the operating activities section
C) reported as an inflow in the investing activities section
D) reported as an inflow in the financing activities section
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Chapter 22: Accounting for Changes and Errors
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Q1) Explain the direct and indirect effects of a change in accounting principles.
Q2) Refer to Exhibit 22-6. By how much was North's 2014 net income overstated or understated?
A) $21,000 overstated
B) $17,000 overstated
C) $17,000 understated
D) $21,000 understated
Q3) Refer to Exhibit 22-1. Assuming an income tax rate of 35%, the cumulative effect change reported in Chrissy's 2016 income statement would be
A) $ 0
B) $ 77,000
C) $ 93,333
D) $110,000
Q4) Sometimes a change in estimate and a change in accounting principle are undistinguishable therefore a company should account for the change as a change in accounting principle.
A)True
B)False
Q5) When is a retrospective adjustment considered impractical to make?
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Chapter 23: Time Value of Money Module
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Q1) On January 2, 2014, Christopher inherited a trust fund that he could use for college tuition. Christopher hopes to make five equal withdrawals of $40,000 from the fund that will earn 10% compounded annually. The first withdrawal will be made on January 2, 2015. How much does he need to have invested in the fund on January 2, 2014, to be able to withdraw the needed amounts each year?
A) $151,631
B) $200,000
C) $244,204
D) $268,624
Q2) The formula to calculate a present value of a deferred annuity is: PV<sub>deferred</sub> = C x (Converted Factor for Present Value of Deferred Annuity of 1)
A)True B)False
Q3) The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest. A)True B)False
Q4) What is the formula to compute the present value of a single sum?
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