Intermediate Accounting II
Exam Materials
Course Introduction
Intermediate Accounting II is a continuation of the principles and concepts introduced in earlier accounting courses, focusing on the recognition, measurement, and reporting of complex financial transactions. This course delves into financial accounting topics such as long-term liabilities, stockholders' equity, earnings per share, pensions, leases, accounting for income taxes, revenue recognition, and the preparation and analysis of the statement of cash flows. Emphasis is placed on the application of Generally Accepted Accounting Principles (GAAP), critical thinking, and problem-solving skills necessary for interpreting and preparing financial statements for external users. The course is designed to equip students with a deeper understanding of financial reporting and the analytical skills needed for advanced accounting studies and professional practice.
Recommended Textbook
Modern Advanced Accounting in Canada9th Edition by Darrell Herauf
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12 Chapters
713 Verified Questions
713 Flashcards
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Page 2
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting
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Sample Questions
Q1) What disclosure requirements must be met when a Canadian company adopts IFRS for the first time?
Answer: 1. The company must reconcile its equity reported under the previous GAAP to its equity in accordance with IFRS for both the date of transition to IFRS and the end of the latest period reported under the previous GAAP.
2. The company must reconcile its total comprehensive income in accordance with IFRS to that reported in the latest statements prepared under the previous GAAP.
3. The company must provide sufficient detail to enable users to understand the material adjustments to the statement of financial position, the statement of comprehensive income and the statement of cash flows.
Q2) For which of the following types of organizations does the CPA Canada Handbook not provide specific accounting standards?
A) Publicly accountable enterprises.
B) Private enterprises.
C) Not-for-profit organizations.
D) Proprietorships.
Answer: D
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Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) The difference between the investor's cost and the investor's percentage of the carrying value of the net identifiable assets of the associate is known as:
A) Goodwill.
B) the Acquisition Differential.
C) the Fair Value Increment.
D) the Excess Book Value.
Answer: B
Q2) What percentage of ownership is used as a guideline to determine that significant influence exists under IAS 28 Investments in Associates and Joint Ventures?
A) 20% or more.
B) Less than 20%.
C) Between 20% and 50%.
D) 25% or more.
Answer: C
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Chapter 3: Business Combinations
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Sample Questions
Q1) A Corporation had net income of $50,000 in 2019 and $60,000 in 2020, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2019 and $40,000 in 2020. On January 1, 2020, A Corporation acquired all of the outstanding common shares of B Company for a cash payment of $300,000. Assume that there was no acquisition differential on this business combination. What net income would A Corporation report for 2019 in its comparative consolidated financial statements at the end of 2020?
A) $30,000
B) $50,000
C) $80,000
D) $100,000
Answer: B
Q2) How should intangible assets which are readily identifiable but not accurately measured be accounted for?
A) They should be ignored since they can't be accurately measured.
B) They should be independently appraised and accounted for at their appraised value.
C) They should be included in Goodwill.
D) They should be accounted for at an amount deemed reasonable by management.
Answer: C
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Page 5
Chapter 4: Consolidation of Non-Wholly Owned
Subsidiaries
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Q1) A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, what liability should be recorded for the contingent consideration on the acquisition date?
A) $285,704
B) $350,000
C) $408,149
D) $500,000
Q2) Which statement about the differences between consolidation methods permitted under ASPE and IFRS is true?
A) IFRS and ASPE both require the use of the fair value enterprise method or the identifiable net assets method.
B) IFRS and ASPE both require the use of the identifiable net assets method.
C) IFRS permits either the fair value enterprise method or identifiable net assets method; ASPE requires the fair value enterprise method.
D) IFRS permits either the fair value enterprise method or the identifiable net assets method; ASPE requires the identifiable net assets method.
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Page 6
Chapter 5: Consolidation Subsequent to Acquisition Date
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Q1) GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?
A) An increase of $24,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.
Q2) GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NMX instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method?
A) An increase of $24,000
B) An increase of $30,000
C) An increase of $40,000
D) No effect
Q3) Prepare a consolidated balance sheet for Par Inc. as at June 30, 2021.
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Chapter 6: Intercompany Inventory and Land Profits
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Q1) On June 30, 2018, Parent Company sold some land to its subsidiary for $240,000. The land had cost Parent Company $120,000 when it was acquired three years previously. The transaction was subject to income tax at a rate of 20%. On June 30, 2020, the subsidiary sold the land to an outside party for $275,000. This transaction was also subject to income tax at a 20% rate. Parent Company owns 75% of the outstanding shares of its subsidiary and accounts for its investment using the cost method. What effect will the adjustment for the realization of the intercompany gain (in the preparation of the consolidated income statement) have on the non-controlling interest in income for 2020?
A) It will have no effect on the non-controlling interest in income.
B) It will decrease the non-controlling interest in income by $24,000.
C) It will increase the non-controlling interest in income by $24,000.
D) It will increase the non-controlling interest in income by $30,000.
Q2) When are profits from intercompany land sales realized?
A) They are realized only when sold to outsiders.
B) They are realized once legal ownership of the land has been transferred.
C) They are realized when consideration has been received for the land.
D) They are realized when an agreement is signed with respect to ownership of the land.
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Chapter 7: A Intercompany Profits in Depreciable Assets B
Intercompany
Bondholdings
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Q1) Duff Inc. owns 75% of Paddy Corp. and uses the Equity Method to account for its investment. Paddy purchased $120,000 face value of Duff's 12% par value bonds on January 1, 2020 for $100,000, when Duff's bond liability consisted of $240,000 par of 12% bonds maturing on January 1, 2030.
There was an unamortized bond discount of $20,000 attached to the bonds on that date. Interest payment dates are June 30 and December 31 each year. Straight line amortization is used.
Both companies have a December 31 year end. Intercompany bond gains and losses are to be allocated to each company. During 2020, Paddy earned a net income of $80,000 and paid dividends of $20,000.
What was the pre-tax gain or loss to Duff Inc. on the intercompany sale of the bonds?
A) $20,000 loss
B) $10,000 loss
C) Nil
D) $10,000 gain
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Page 9
Chapter 8: Consolidated Cash Flows and Changes in Ownership
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Sample Questions
Q1) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of goodwill arising from this business combination?
A) ($5,000)
B) Nil
C) $5,000
D) $150,000
Q2) X owns 70% of Y, which in turn owns 25% of Z. X, also owns 20% of Z. Which of the following statements is correct?
A) X has direct control over Z.
B) X has indirect control over Z.
C) X has no control over Z.
D) X has contingent control over Z.
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Chapter 9: Other Consolidation Reporting Issues
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Q1) JNG Corp has 4 segments, the details of which are shown below. All figures are in thousands of dollars. \(\begin{array}{|l|r|r|r|}
\hline \text { Segment } & \text { Revenues } & \text { Profits } & \text { Assets } \\
\hline \mathrm{A} & \$ 12 & \$ 6 & \$ 40 \\
\hline \mathrm{B} & \$ 60 & \$ 2 & \$ 80 \\
\hline \mathrm{C} & \$ 35 & \$ 10 & \$ 80 \\
\hline \mathrm{D} & \$ 200 & \$ 80 & \$ 20\\\hline \end{array}\) Using only the Assets test, which of the following segment(s) would be reportable?
A) A
B) A, B and C
C) A, B, C and D
D) B, C and D
Q2) How are intercompany transactions handled in a joint venture?
A) They are ignored.
B) They are completely eliminated.
C) Only the venturer's share of any after tax profit is eliminated.
D) Intercompany profits are treated as an adjustment to the acquisition differential.
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Chapter 10: Foreign Currency Transactions
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Q1) Which of the following would NOT be considered a foreign exchange hedge?
A) The placement of large amounts of Canadian funds with a bank in Zurich, Switzerland.
B) A foreign currency futures contract.
C) A foreign currency option contract.
D) A forward exchange contract.
Q2) Which of the following statements is NOT correct?
A) In a fair value hedge, the entity uses a hedging instrument to hedge against the fluctuation in the fair value of the hedged item. This method will be used when the hedged item will be valued at fair value.
B) In a cash flow hedge, the entity uses a hedging instrument to hedge against the fluctuation in the Canadian dollar value of future cash flows.
C) The gain or loss on the hedging instrument in a cash flow hedge is initially reported in other comprehensive income and reclassified to profit and loss when the hedged item affects profit.
D) The gain or loss on the hedging instrument in a fair value hedge is initially recognized in other comprehensive income and transferred to profit and loss when the hedged item has been revalued for accounting purposes in accordance with IFRS.
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Page 12
Chapter 11: Translation and Consolidation of Foreign Operations
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Sample Questions
Q1) The exposure resulting from the translation of foreign-currency-denominated financial statements into Canadian dollars is referred to as:
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk exposure.
Q2) According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-inflationary" means:
A) an annual inflation rate of 50%.
B) an annual inflation rate of 100%.
C) a cumulative inflation rate of 100% over a 3-5 year period.
D) it does not establish an absolute rate which is deemed to be hyper-inflation.
Q3) Under the functional currency translation (FCT) method, which of the following statements is correct?
A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D) Historic rates are used to translate most non-monetary items.
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Chapter 12: Accounting for Not-For-Profit and Public Sector Organizations
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Q1) How should that portion of investment income earned from the investment of endowment contributions that is required to be used to maintain the purchasing power of the endowment be accounted for if the not-for-profit organization uses the restricted fund method of reporting and has an endowment fund?
A) As investment income in the general fund.
B) As investment income in the endowment fund.
C) As a direct increase in net assets in the general fund.
D) As a direct increase in net assets in the endowment fund.
Q2) A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What will the net asset balance in the restricted fund be at the end of the year if the organization uses the restricted fund method for reporting and had a fund for this project?
A) $20,000
B) $6,000
C) $14,000
D) Nil
Q3) Describe what fund accounting is and why is it used for not-for-profit organizations.
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