Intermediate Accounting I
Pre-Test Questions
Course Introduction
Intermediate Accounting I provides an in-depth examination of financial accounting principles and their application to complex business transactions. This course covers the preparation and analysis of financial statements, explores the conceptual framework of accounting, and addresses topics such as revenue recognition, asset valuation, and measurement of liabilities and equity. Students develop a thorough understanding of generally accepted accounting principles (GAAP), learn to analyze and interpret financial information, and gain skills essential for upper-level accounting coursework and professional practice.
Recommended Textbook
Intermediate Accounting 2nd Edition Volume I by Kin Lo George Fisher
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10 Chapters
1107 Verified Questions
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Page 2
Chapter 1: Fundamentals of Financial Accounting Theory
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Sample Questions
Q1) Which statement best explains the semi-strong form of the efficient securities market hypothesis?
A)A market in which the prices of securities traded in that market at all times properly reflect all information that is publicly known about those securities.
B)A market in which the prices of securities traded in that market reflect all information, whether publicly or privately known.
C)A market in which the prices of debt securities traded in that market reflect all information that is privately known about those securities.
D)A market in which the prices of equity securities traded in that market reflect all information that is privately known about those securities.
Answer: A
Q2) Explain the meaning of generally accepted accounting principles (GAAP). Answer: GAAP refers to broad principles and conventions of general application as well as rules and procedures that determine accepted accounting practices.
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3
Chapter 2: Conceptual Frameworks for Financial Reporting
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Sample Questions
Q1) Which qualitative characteristic of financial information alleviates "moral hazard"?
A)Neutrality.
B)Predictive value.
C)Timeliness.
D)Comparability.
Answer: A
Q2) Which statement best explains the meaning of "comparability" in financial reporting?
A)Financial information that is available quickly to financial statement users.
B)Financial information that can be objectively confirmed by another person.
C)Financial reports that are comprehendible to the users of such reports.
D)Financial statement preparers using consistent accounting policies year over year.
Answer: D
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4
Chapter 3: Accrual Accounting
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159 Flashcards
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Sample Questions
Q1) Which statement is correct about the difference between IFRS and ASPE?
A)The concept of "comprehensive income" exists under both IFRS and ASPE.
B)A statement of compliance with ASPE is required in note disclosures.
C)A combined statement of comprehensive income can be provided under IFRS.
D)The concept of "comprehensive income" does not exist under ASPE.
Answer: D
Q2) What are biased accruals?
A)Accruals based on applying GAAP.
B)Accruals based on overly optimistic estimates.
C)Accruals based on ethical considerations.
D)Accruals based on applying professional judgment.
Answer: B
Q3) Explain what is meant by "quality of earnings."
Answer: Quality of earnings conceptually refers to how close the reported earnings are to an unbiased amount. Since we cannot observe unbiased earnings, quality of earnings is difficult to measure in practice.
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Chapter 4: Revenue Recognition
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Sample Questions
Q1) Explain how revenue should be allocated to the components in a multiple deliverable sales arrangement.
Q2) Which statement best explains the cost recovery method?
A)An accounting method that recognizes revenue and expenses on a contract only after it is completed.
B)An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress.
C)An accounting method that recognizes contract costs as incurred and an amount of revenue equal to the costs that are expected to be recovered on the contract.
D)An accounting method that recognizes revenue and expenses based on the fair value of the contract.
Q3) What are some exceptions to the use of the percentage of completion method for construction contracts?
Q4) You are an accountant working at Phantastic Pharmaceutical Inc. and have been asked to explain to your controller the possible points at which revenue could be recognized by your organization. Identify two alternatives that are conceptually valid for recognizing revenue at Phantastic.
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Chapter 5: Cash and Receivables
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Sample Questions
Q1) Which statement about "cash and cash equivalents" is correct?
A)The definition for "cash and cash equivalents" used on the balance sheet differs from the definition for "cash and cash equivalents" used on the cash flow statement.
B)A change in the composition of "cash and cash equivalents" is considered an operating activity on the cash flow statement.
C)A change in the composition of "cash and cash equivalents" is not considered a cash flow for purposes of the cash flow statement.
D)"Cash and cash equivalents" are short term liquid investments that can be converted to cash within a short time frame.
Q2) Explain what is meant by "channel stuffing" and how this can be used to manipulate earnings.
Q3) Which statement is not correct?
A)Factoring with recourse creates a liability on the balance sheet.
B)Factoring with recourse creates a liability and receivable on the balance sheet.
C)Factoring without recourse negatively impacts the working capital ratio.
D)Factoring without recourse means that the seller takes the collection risk.
Q4) Identify the two criteria for classifying an investment as a cash equivalent.
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Chapter 6: Inventories
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Sample Questions
Q1) Which statement is not correct about the perpetual inventory system for inventory management?
A)This system keeps track of additions to and withdrawals from inventory.
B)It is not necessary to conduct an inventory count if the perpetual system is used.
C)This method produces timely information for management.
D)With this method, the company knows the inventory on hand and the related cost of goods sold at any point in time.
Q2) Which statement is correct about variable costing?
A)Under this method, fixed overhead is considered a product cost because production cannot take place without these costs.
B)Under this method, fixed overhead is considered a period cost because such costs do not vary according to production level.
C)Under this method, variable overhead is considered a period cost because production cannot take place without these costs.
D)Under this method, selling costs are considered a product cost because production cannot take place without these costs.
Q3) Explain why the absorption costing method is appropriate under GAAP.
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Chapter 7: Financial Assets
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Sample Questions
Q1) On January 1, 2011, Anny Marine Supplies purchased a Government of Canada bond at par for $12,000. The bond has an interest rate of 7% and matures in three years. By December 31, 2011, market interest rates had increased such that the fair value of the bond decreased to $11,600. The fair value of the bond decreased further to $11,200 on December 31, 2012 (two years after purchase).
Required:
Assume that Anny classifies the investment as held to maturity.
a. At what value should Anny report the bond on its December 31, 2011 balance sheet?
b. How much income or loss should Anny report in 2011 in relation to this bond?
c. How much other comprehensive income (OCI)should Anny report in 2011 in relation to this bond?
Q2) Which statement is not correct?
A)Held-for-trading investments are carried at amortized cost.
B)Loans and receivables are carried at amortized cost.
C)Held-to-maturity investments are carried at amortized cost.
D)Available-for-sale investments are carried at fair value.
Q3) Describe the single most important characteristic of a financial asset that distinguishes it from a real asset.
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Chapter 8: Property, Plant, and Equipment
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Sample Questions
Q1) A machine was acquired on January 1, 2012 for $4,000,000. At that time it was estimated the machine would last eight years and have a residual value of $560,000. Due to reduced levels of activity during 2014, management revised the estimate of useful life to 10 more years (i.e., the machine was to be operational until December 31, 2023, 12 years in total)and its residual value would be $410,000. The company has a December 31 year-end.
Required:
Case A: Prepare the journal entries to record depreciation for 2012 and 2014. The company uses straight-line depreciation.
Case B: Same as Case A except the company uses the double-declining balance method. The rate used will be 25% for the first two years and then 20% thereafter. Prepare the journal entries to record depreciation for 2012 and 2014.
Q2) What is the meaning of "historical cost"?
A)The cost required to replace the productive capacity of an asset.
B)The value of an asset in an input market or output market on the date of measurement.
C)The value expected from the sale of an asset, net of any costs of disposal.
D)The actual cost of an asset at the time it was purchased.
Q3) Explain how non-monetary transactions are accounted for.
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Page 10
Chapter 9: Intangible Assets, Goodwill, Mineral Resources, and
Government Grants
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Sample Questions
Q1) What are the unique features that lead to the differing accounting treatment between research and development costs?
Q2) Below are several intangible assets. For each case suggest whether the item should be amortized. If amortization is recommended, what is the useful life that it should be amortized over? Provide justification for your recommendation.
a. Aye Corp purchased a brand name for $1,000,000. The firm has the exclusive right to use this name forever.
b. Bee Corp has developed a strong corporate reputation and its products are highly sought-after in the luxury goods market. Last year, $40,000,000 was spent on advertising its brand in top-tier fashion magazines and at the top fashion shows around the world.
c. Cee Corp paid $25,000,000 for the five-year exclusive privilege to have a famous celebrity endorse and use the company's sports equipment. This contract entitles Cee to renew the contract for a further two-year exclusive endorsement arrangement for a fixed fee of $10,000,000, due midway through the last year of the current contract.
Q3) Explain how goodwill arises in a business. Give an example in your response.
Q4) Explain the accounting for internally developed intangible assets.
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Page 11
Chapter 10: Applications of Fair Value to Non-Current Assets
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Sample Questions
Q1) Which statement is correct?
A)The revaluation model is required for non-current assets under IFRS.
B)The revaluation model is required for non-current assets under ASPE.
C)The revaluation model is optional for non-current assets under IFRS.
D)The revaluation model is optional for non-current assets under ASPE.
Q2) How is an impairment loss allocated to the non-current asset(s)?
A)Allocate the impairment loss in proportion to the gross amounts of the assets in the cash generating unit.
B)Allocate the impairment loss to assets with the highest carrying amounts in the cash generating unit.
C)Allocate the impairment loss in proportion to the net carrying amounts of the assets in the cash generating unit.
D)Allocate the impairment loss to assets with the lowest carrying amounts in the cash generating unit.
Q3) Explain how non-current assets such as definite lived intangibles, indefinite lived intangibles and goodwill are tested for impairment under IFRS.
Q4) Explain how non-current assets that are part of a discontinued operation should be accounted for.
Page 12
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