Intermediate Accounting II
Chapter Exam Questions
Course Introduction
Intermediate Accounting II builds upon foundational accounting principles introduced in previous coursework, delving deeper into the preparation and analysis of financial statements in accordance with generally accepted accounting principles (GAAP). The course focuses on more complex areas such as liabilities, equity, investments, revenue recognition, and accounting for income taxes, pensions, and leases. Emphasis is placed on understanding theoretical frameworks, applying accounting standards, and analyzing the impact of financial transactions on stakeholders. By the end of the course, students will be equipped to tackle sophisticated accounting challenges and contribute effectively to financial reporting and decision-making processes.
Recommended Textbook Fundamentals of Advanced Accounting 7th Edition by Joe Ben Hoyle
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Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) What is the amount of excess amortization expense for Jackie Corp's investment in Rob Co.for year 2018?
A)$ 0.
B)$30,000.
C)$40,000.
D)$55,000.
E)$60,000.
Answer: D
Q2) What amount of gross profit on 2018 intra-entity sales should Steven defer at December 31,2018?
Answer: [($75,000 - $54,000)× .10 × .40] = $840
Q3) How would a change be made from the equity method to the fair value method of accounting for investments?
Answer: A change to the fair value method is appropriate when the investor can no longer exercise significant influence over the operations of the investee.No retrospective adjustment of previous years' financial statements or the balance in the investment account is required.The balance in the investment account at the time of the change would be treated prospectively as the cost of the investment.
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Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Compute the consolidated equipment (net)account at December 31,2018.
A)$2,100.
B)$3,500.
C)$3,300.
D)$3,000.
E)$3,200.
Answer: B
Q2) Required:
Determine consolidated net income for the year ended December 31,2017.
Answer: Consolidated Net Income
\(\begin{array}{cc}
\text { Jode's Revenues } & \$ 1,300,000 \\
\text { Jode's Expenses } & (1,214,000) \\
\text { Consolidated net incom } & \$ 86,000 \\
\end{array}\)
Note: The subsidiary's revenues and expenses prior to the date of acquisition are not consolidated.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Sample Questions
Q1) If Goehler applies the partial equity method in accounting for Kenneth,what is the consolidated balance for the Equipment account as of December 31,2018?
A)$1,080,000.
B)$1,104,000.
C)$1,100,000.
D)$1,468,000.
E)$1,475,000.
Answer: B
Q2) Compute the December 31,2020,consolidated land.
A)$220,000.
B)$180,000.
C)$670,000.
D)$630,000.
E)$450,000.
Answer: C
Q3) If the parent's net income reflected use of the initial value method,what were the consolidated retained earnings on December 31,2018?
Answer: 11ea86f8_4aa6_10e3_8084_f9d43053c89a_TB4173_00
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) How does a parent company account for the sale of a portion of an investment in a subsidiary?
Q2) McLaughlin,Inc.acquires 70 percent of Ellis Corporation on September 1,2019,and an additional 10 percent on November 1,2020.Annual amortization of $12,000 relates to the first acquisition.Ellis reports the following figures for 2020: \(\begin{array}{lr}
\text { Revenues } & \$ 500,000 \\
\text { Expenses } & 350,000 \\
\text { Retained earnings, 1/1/20 } & 3,500,000 \\
\text { Dividends paid } & 40,000 \\
\text { Common stock } & 400,000 \end{array}\)
Without regard for this investment,McLaughlin earns $480,000 in net income ($840,000 revenues less $360,000 expenses;incurred evenly through the year)during 2020. Required: Prepare a schedule of consolidated net income and apportionment to noncontrolling and controlling interests for 2020.
Q3) What is the noncontrolling interest balance as of December 31,2020?
Q4) Determine the amount of goodwill to be recognized in this acquisition.
Page 6
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Q1) How is the gain on an intra-entity transfer of a depreciable asset recognized?
Q2) Tara Company owns 80 percent of the common stock of Stodd Inc.In the current year,Tara reports sales of $5,000,000 and cost of goods sold of $3,500,000.For the same period,Stodd has sales of $500,000 and cost of goods sold of $400,000.During the year,Stodd sold merchandise to Tara for $40,000 at a price based on the normal markup.At the end of the year,Tara still possesses 20 percent of this inventory.Prepare the consolidation entry to defer intra-entity gross profit.
Q3) Why do intra-entity transfers between the component companies of a business combination occur so frequently?
Q4) Compute the amortization of gain through a depreciation adjustment for 2018 for consolidation purposes.
A)$1,950.
B)$1,825.
C)$2,000.
D)$1,500.
E)$7,000.
Q5) Prepare any 2018 consolidation worksheet entries that would be required regarding the 2017 inventory transfer.
Q6) Prepare the consolidation entries that should be made at the end of 2017.
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Q1) Prepare Panton's journal entry to recognize the impact of this transaction.
Q2) Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?
A)Recognition of any gain or loss is deferred until the debt is extinguished for purposes of reporting such debt on consolidated financial statements.
B)Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
C)Interest revenue generated from the debt of an affiliate is recognized on a consolidated income statement.
D)Interest expense recognized from carrying debt instruments is recognized on a consolidated income statement.
E)Consolidated retained earnings is adjusted to take into account the difference between the purchase price and carrying value of the debt.
Q3) What is the amount of goodwill resulting from this acquisition?
Q4) What is the controlling interest share of Thomas' net income for the year ended December 31,2018?
Q5) Prepare Panton's journal entry to recognize the impact of this transaction.
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) When a U.S.company purchases parts from a foreign company,which of the following will result in zero foreign exchange gain or loss?
A)The transaction is denominated in U.S.dollars.
B)The option strike price to sell foreign currency is less than the spot rate of the currency.
C)The option strike price to buy foreign currency is less than the spot rate of the currency.
D)The foreign currency appreciated in value relative to the U.S.dollar.
E)The foreign currency depreciated in value relative to the U.S.dollar.
Q2) Assuming a forward contract was entered into on December 16,at what amount should the forward contract be recorded at December 31,2018? Assume an annual interest rate of 12% and a fair value hedge.The present value for one month at 12% is .9901.
A)$ 200.
B)$ 295.
C)$ 495.
D)$ 500.
E)$ 9,300.
Q3) What is the purpose of a hedge of foreign exchange risk?
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Chapter 8: Translation of Foreign Currency Financial
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Q1) What exchange rate would be used to translate the asset and liability account balances of a foreign subsidiary when the local currency is the functional currency? What justification can be given for using this exchange rate?
Q2) Compute the December 31,2018,inventory balance using the current rate method.
A)$454,400.
B)$457,600.
C)$596,400.
D)$419,000.
E)$321,000.
Q3) Assume the functional currency is the U.S.Dollar;compute the U.S.balance sheet amount for inventory,at cost,for 2018.
A)$18,800.
B)$19,600.
C)$18,000.
D)$20,200.
E)$19,000.
Q4) Assume that Boerkian was a foreign subsidiary of a U.S.multinational company and the U.S.dollar is the functional currency.On the December 31,2018 balance sheet,what was the remeasured value of the Land account?
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) What was Nolan's capital balance at the end of 2018?
A)$139,420.
B)$246,000.
C)$276,540.
D)$279,440.
E)$304,040.
Q2) Reed,Sharp,and Tucker were partners with capital account balances of $80,000,$100,000,and $70,000,respectively.They agreed to admit Upton to the partnership.Upton purchased 30% of each partner's interest,with payments directly to Reed,Sharp,and Tucker of $32,000,$40,000,and $28,000,respectively.Before the admission of Upton,the profit and loss sharing ratio was 2:3:2.The partners agreed to use the book value method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.
Q3) Why are the terms of the Articles of Partnership important to partners?
Q4) What is the dissolution of a partnership?
Q5) Determine the amount of net income allocated to each partner for 2017.
Q6) Prepare the journal entries for the dissolution of Howell's partnership interest,assuming the goodwill method is to be applied.
Page 11
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Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) How would $90,000 be distributed?
\(\begin{array}{ccc}
& \text { White } &&& \text { Sands } & \text { Luke } \\\end{array}\)
A) \(\begin{array}{ccc} & \$ 15,000 & \$ 25,000 & \$ 50,000 \\\end{array}\)
B) \(\begin{array}{ccc} & \$ 0&&&&\$ 18,947 & \$ 71,053 \\\end{array}\)
C) \(\begin{array}{ccc} & \$0&&&& \$ 40,000 & \$ 50,000 \\\end{array}\)
D) \(\begin{array}{ccc} & \$0&&& & \$ 10,588 & \$ 79,412 \\\end{array}\)
E)\(\begin{array}{ccc} & \$ 27,000 && \$ 18,000 & \$ 45,000 \\ \end{array}\)
Q2) Prepare the schedule to compute the cash payments to the partners.
Q3) How much of the existing cash balance could be distributed safely to partners at this time?
Q4) Compute safe cash payments after the noncash assets have been sold and the liquidation expenses have been paid.
Q5) Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of February.
Q6) Record the journal entry for the cash distribution to the partners.
Q7) Prepare a schedule to calculate the safe payments to be made to the partners at the end of March.
Page 12
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Chapter 11: Accounting for State and Local Governments, part
I
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Q1) On January 1,2018,Wakefield City purchased office supplies for $40,000.During the year,$35,000 of these supplies were used.
Required:
Record the journal entries for these transactions using the consumption method.(Disregard the encumbrance entries. )
Q2) Which organization is responsible for establishing accounting principles for governmental entities? By whom was this organization established?
Q3) In governmental accounting,what term is used for a decrease in financial resources?
Q4) What are the five types of governmental funds?
Q5) A city operates a central data processing facility.The expenses of this facility would be accounted for using
A)The general fund.
B)An enterprise fund.
C)A capital projects fund.
D)An agency fund.
E)An internal service fund.
Q6) What are the two proprietary fund types?
Page 13
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Chapter 12: Accounting for State and Local Governments, part II
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Q1) The city operates a public swimming pool where each person is assessed a $2 entrance fee.Which financial statement is most appropriate to report these revenues?
A)Statement of Net Position.
B)Statement of Revenue,Expenditures,and Other Changes in Fund Balance.
C)Statement of Revenue,Expenses,and Other Changes in Fund Balance.
D)Statement of Net Revenue and Expenses.
E)Statement of Revenue,Expenses,and Other Changes in Net Position.
Q2) Which one of the following is a criterion for identifying a primary government?
A)it has an appointed board of directors.
B)it is fiscally dependent.
C)it is a local government.
D)it has a separately elected governing board.
E)it must prepare financial statements.
Q3) Assuming the landfill is recorded within the General fund,how would the landfill information be represented in the governmental fund financial statements at December 31,2018?
Q4) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Q5) Prepare a Statement of Activities for the year ended December 31,2018.
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