Intermediate Accounting II
Exam Questions
Course Introduction
Intermediate Accounting II focuses on advanced financial accounting topics, building on foundational principles covered in earlier courses. This course examines complex concepts such as revenue recognition, accounting for income taxes, pensions and other post-employment benefits, leases, and the statement of cash flows. Students will also analyze and interpret financial statements, navigate evolving accounting standards, and apply theoretical frameworks to real-world case studies. Through hands-on exercises and problem-solving, the course prepares students for professional accounting roles and further specialized study in the field.
Recommended Textbook
Intermediate Accounting 18th Edition by Earl K. Stice
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Page 2
Chapter 1: Financial Reporting
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Q1) The process of establishing financial accounting standards is
A)a democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented.
B)a legislative process based on rules promulgated by government agencies.
C)based solely on economic analysis of the effects each standard will have if it is implemented.
D)a social process which incorporates political actions of various interested user groups as well as professional research and logic.
Answer: D
Q2) The journal Accounting Horizons is published by which of the following organizations?
A)American Institute of Certified Public Accountants (AICPA)
B)American Accounting Association (AAA)
C)Securities and Exchange Commission (SEC)
D)Financial Accounting Standards Board (FASB)
Answer: B
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Chapter 2: A Review of the Accounting Cycle
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Q1) Richards Company,a calendar-year company,sells magazine subscriptions to subscribers.The magazine is published semiannually and is shipped to subscribers on April 15 and October 15.Only one-year subscriptions for two issues are accepted.Subscriptions received after the March 31 and September 30 cutoff dates are held for the following publication.Cash is received evenly during the year and is credited to deferred subscription revenue.During 2013,$3,600,000 of cash was received from customers.The beginning balance for 2013 of the deferred subscription revenue account was $750,000.What is Richards' December 31,2013,deferred subscription revenue balance?
A)$2,700,000.
B)$1,800,000.
C)$1,650,000.
D)$900,000.
Answer: D
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Chapter 3: The Balance Sheet and Notes to the Financial Statements
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Q1) Barron Co.'s current ratio is 2:1.Which of the following transactions would normally increase Barney's current ratio?
A)Purchasing inventory on account
B)Borrowing money by signing a long-term note
C)Collecting an account receivable
D)Purchasing land for cash
Answer: B
Q2) Hondo Co.has total debt of $252,000 and stockholders' equity of $420,000.Hondo is seeking capital to fund an expansion.Hondo is planning to issue an additional $180,000 in common stock,and is negotiating with a bank to borrow additional funds.The bank requires a maximum debt ratio of .75.What is the maximum additional amount Hondo will be able to borrow after the common stock is issued?
A)$639,000
B)$852,000
C)$1,236,000
D)$1,548,000
Answer: D
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Chapter 4: The Income Statement
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Q1) All of the following would appear on a single-step income statement except A)cost of goods sold.
B)extraordinary items.
C)gross profit.
D)discontinued operations.
Q2) Which of the following is NOT an acceptable basis for the recognition of expenses?
A)Cash disbursement
B)Direct matching
C)Immediate recognition
D)Systematic and rational allocation
Q3) An earthquake destroyed the home office building of a company located in an inland city.This should be reported as a(n)
A)extraordinary loss.
B)prior period adjustment.
C)loss from continuing operations.
D)loss from discontinued operations.
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6
Chapter 5: Statement of Cash Flows and Articulation
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Q1) Net income for the Hot Springs Company for the most recent year was $150,000,consisting of $865,000 of revenues,$360,000 of cost of goods sold,and $365,000 of operating expenses.The following changes in current assets and current liabilities have been identified:
1.Accounts receivable increased by $85,000.
2.Inventory decreased by $37,500.
3.Accounts payable increased by $82,500.
4.Accrued operating expenses payable decreased by $45,000. Required:
Calculate the cash flows from operating activities for the year,applying the direct method.Identify the individual amounts that would be disclosed in the statement of cash flows where possible.
Q2) In a statement of cash flows (indirect method),depreciation is treated as an adjustment to reported net income because depreciation
A)is an inflow of cash to a reserve account for asset replacement.
B)reduces the reported net income and involves an inflow of cash.
C)reduces the reported net income but does not involve an outflow of cash.
D)usually represents a significant portion of operating expenses.
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7
Chapter 6: Earnings Management
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Q1) The GAAP Oval best represents the
A)fact that only one true earnings number exists.
B)flexibility managers have within GAAP to report one earnings number from among many possibilities.
C)philosophy that earnings management within limits is ethical.
D)fact that GAAP is not subject to interpretation.
Q2) Deferring the recognition of revenue for which the earnings process is complete is an example of
A)"big bath" accounting.
B)a "cookie jar" reserve.
C)a change in an accounting estimate.
D)strategic matching.
Q3) Recognizing more bad debt expense in a year than is necessary in order to have flexibility in recognizing bad debt expense in a future year is an example of A)a big bath charge.
B)creative acquisition accounting.
C)a cookie jar reserve.
D)premature recognition of revenue.
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8
Chapter 7: The Revenuereceivablescash Cycle
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Q1) Accounts receivable usually are factored
A)with recourse on a notification basis.
B)with recourse on a no-notification basis.
C)without recourse on a notification basis.
D)without recourse on a no-notification basis.
Q2) In calculating a company's accounts receivable turnover,which of the following sets of factors would be used?
A)Net income and average accounts receivable
B)Average accounts receivable and average total assets
C)Average accounts receivable and net credit sales
D)Net credit sales and average stockholders' equity
Q3) What is the accounting principle underlying the recognition of an estimated liability for warranties in the period of product sale?
A)Matching
B)Materiality
C)Full Disclosure
D)Conservatism
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Chapter 8: Revenue Recognition
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Q1) On January 3,2014,Continental Services,Inc.,signed an agreement authorizing Peen Company to operate as a franchisee over a 20-year period for an initial franchise fee of $200,000 received when the agreement was signed.Peen commenced operations on July 1,2014,at which date all of the initial services required of Continental had been performed.The agreement also provides that Peen must pay a continuing franchise fee equal to 6% of the revenue from the franchise annually to Continental.Peen's franchise revenue for 2014 was $900,000.For the year ended December 31,2014,how much should Continental record as revenue from franchise fees from the Peen franchise?
A)$100,000
B)$106,000
C)$254,000
D)$266,000
Q2) Which of the following types of service transactions is most likely to require the proportional performance method of revenue recognition based on the seller's direct costs to perform each act?
A)Processing of monthly mortgage payments by a mortgage banker
B)Providing lessons, examinations, and grading by a correspondence school
C)Providing maintenance services on equipment for a fixed periodic fee
D)Delivering freight (by a trucking firm)
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Page 10
Chapter 9: Inventory and Cost of Goods Sold
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Q1) See information regarding the four products above.Using the lower-of-cost-or-market procedure,what is the reported inventory value at December 31 for one unit of Product I?
A)$90
B)$80
C)$70
D)$60
Q2) See information for Paper Depot above.If Paper Depot uses a LIFO periodic inventory system,the ending inventory of Model III calculators at August 31 is reported as
A)$146,400.
B)$150,080.
C)$150,160.
D)$152,960.
Q3) An example of an inventory accounting policy that should be disclosed is the A)effect of inventory profits caused by inflation.
B)classification of inventory into raw materials, work in process, and finished goods.
C)identification of major suppliers.
D)method used for inventory costing.
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11
Chapter 10: Investments in Noncurrent Operating
Assets-Acquisition
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Q1) Order backlogs are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?
A)Marketing-related
B)Customer-related
C)Artistic-related
D)Contract-based
Q2) Which of the following concepts is often given as justification not to value noncurrent operating assets at their current values?
A)The revenue principle
B)Verifiability
C)Relevance
D)Predictive value
Q3) Which of the following best describes the approach prescribed in IAS 38,"Intangible Assets"?
A)Expense all research and development costs.
B)Capitalize all research and development costs.
C)Expense all research costs and capitalize all development costs.
D)Capitalize all research costs and expense all development costs.
Page 12
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Chapter 11: Investments in Noncurrent Operating
Assets-Utilization and Retirement
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Q1) Which of the following assets generally is required to be tested at least annually for impairment?
A)Machinery
B)Patent
C)Goodwill
D)Copyright
Q2) On December 2,2014,Loofa Company,which operates a furniture rental business,traded in a used delivery truck with a carrying amount of $5,400 for a new delivery truck having a list price of $16,000 and paid a cash difference of $7,500 to the dealer.The used truck had a fair value of $6,000 on the date of the exchange.The exchange has commercial substance.At what amount should the new truck be recorded on Loofa's books?
A)$10,600
B)$12,900
C)$13,500
D)$16,000
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Chapter 12: Debt Financing
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Q1) If a $1,000,9 percent,10-year bond was issued at 103 plus accrued interest one month after the authorization date,how much cash did the issuer receive?
A)$1,037.50
B)$1,030.00
C)$1,007.50
D)$992.50
Q2) On January 1,2014,Yearly Corporation issued $500,000 of 10 percent,10-year bonds at 88.5.Interest is payable on December 31.If the market rate of interest was 12 percent at the time the bonds were issued,how much cash was paid for interest in 2014?
A)$44,250
B)$50,000
C)$53,100
D)$60,000
Q3) Which of the following does NOT meet the FASB's definition of a liability?
A)The signing of a three-year employment contract at a fixed annual salary
B)An obligation to provide goods or services in the future
C)A note payable with no specified maturity date
D)An obligation that is estimated in amount
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Page 14
Chapter 13: Equity Financing
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Q1) An adjustment to retained earnings as a result of a conversion of preferred stock to common stock most likely would occur when
A)par value of the preferred stock is high relative to fair value of the common stock.
B)par value of the common stock is less than the book value of the preferred stock.
C)par value of the common stock exceeds the book value of the preferred stock.
D)par value of the preferred stock is low relative to fair value of the common.
Q2) When a dividend is declared and paid in stock,
A)total stockholders' equity does not change.
B)total stockholders' equity decreases.
C)the current ratio increases.
D)the amount of working capital decreases.
Q3) Undistributed stock dividends should be reported as
A)a current liability.
B)an addition to capital stock outstanding.
C)a reduction in total stockholders' equity.
D)a note to the financial statements.
Q4) Prepare a statement of comprehensive income in a one-statement format.
Q5) Prepare a statement of comprehensive income in a two-statement format.
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Chapter 14: Investments in Debt and Equity Securities
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Q1) In June 2015,the enterprise decided to reclassify the Mingo stock as trading securities.The stock had a market value of $41,000 at the time of the reclassification. What amount of holding gain or loss is immediately recognized in 2015 earnings?
A)$2,000 gain
B)$1,000 gain
C)$3,000 gain
D)$1,000 loss
Q2) FASB Statement No.115 generally applies when the level of ownership of another company is at what percentage?
A)More than 50%
B)20%-30%
C)30%-50%
D)Less than 20%
Q3) The market rate of interest for a bond issue that sells for more than its par value is
A)less than the rate stated on the bond.
B)equal to the rate stated on the bond.
C)higher than the rate stated on the bond.
D)independent of the rate stated on the bond.
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Page 16
Chapter 15: Leases
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Q1) From the standpoint of the lessee,the minimum lease payment includes all of the following except
A)the guaranteed residual value.
B)the lessee's obligation to pay executory costs.
C)the bargain purchase option.
D)any payment that the lessee must make upon failure to extend or renew the lease.
Q2) Tammy Corporation leased used equipment to Waller,Inc.The equipment originally had a 10-year life and the lease to Waller is for the last two of the ten-year life of the asset.The lease calls for four semiannual lease payments of $2,000 to be made at the end of each year in the life of the lease.The lease agreement contains no transfer of title or bargain purchase option provisions.
What is the amount of the leased asset that should be recorded on Waller's books at the beginning of the lease?
A)$2,000
B)$7,092
C)$4,000
D)$-0-
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Chapter 16: Income Taxes
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Q1) For the current year,Eastern Atlantic Company reported income tax expense of $21,000.Income taxes payable at the end of the prior year were $19,000 and at the end of the current year were $20,000.The deferred tax liability classified as noncurrent that resulted from the use of MACRS for tax purposes and straight-line depreciation for financial reporting purposes increased from $21,000 at the beginning of the current year to $23,000 at the end of the current year.How much cash was paid for income taxes during the year?
A)$18,000
B)$20,000
C)$21,000
D)$19,000
Q2) Pretax accounting income is $100,000 and the tax rate is 40%.Included in income is a $20,000 fine levied for pollution violations and other infractions during the year.In the reconciliation of the statutory and effective rate (beginning with the statutory rate),which one of the following amounts would appear?
A)(.08)
B).08
C)(.20)
D)(.04)
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Q1) The projected benefit obligation is the actuarial present value of the benefits attributed to employee service rendered to date.The projected benefit obligation is based on the present value of vested and nonvested benefits accrued to date using employees' future salary levels.
Identify arguments that can be advanced for and against the use of the projected benefit obligation concept in accounting for pensions.
Q2) The amount of the expected return on plan assets is computed by multiplying the A)beginning market-related value of the plan assets by the expected long-term rate of return on plan assets.
B)ending market-related value of the plan assets by the expected long-term rate of return.
C)average carrying value of the plan assets by the expected long-term rate of return on plan assets.
D)beginning carrying value of the plan assets by the actuary's interest rate.
Q3) Pension-related estimates (not funding data)are provided by the A)employer company.
B)independent actuary.
C)pension fund trustees.
D)employee union.
Page 19
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Chapter 18: Earnings Per Share
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Q1) The if-converted method of computing EPS data assumes conversion of convertible securities at the
A)beginning of the earliest period reported (or at time of issuance, if later).
B)beginning of the earliest period reported (regardless of time of issuance).
C)middle of the earliest period reported (regardless of time of issuance).
D)ending of the earliest period reported (regardless of time of issuance).
Q2) Digistore,Inc.,had 400,000 shares of $20 par common stock and 40,000 shares of $100 par,6% cumulative,convertible preferred stock outstanding for the entire year ended December 31,2014.Each share of the preferred stock is convertible into 5 shares of common stock.Digistore's net income for 2014 was $1,680,000.For the year ended December 31,2014,the diluted earnings per share is
A)$2.40.
B)$2.80.
C)$3.60.
D)$4.20.
Q3) Earnings per share disclosures are required only for A)companies with complex capital structures.
B)companies that change their capital structures during the reporting period.
C)public companies.
D)private companies.
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Chapter 19: Derivatives, contingencies, business Segments, and Interim Reports
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Q1) Asolo Construction Co.carries $10,000,000 comprehensive public liability insurance with a $200,000 deductible clause.A suit for personal injury damages was brought against Asolo in 2014.Asolo's counsel believes it probable that the insurance company will settle out of court for an estimated amount of $550,000.At December 31,2014,Asolo should report an accrued liability of
A)$550,000.
B)$350,000.
C)$200,000.
D)$0.
Q2) Using the information above and assuming the exchange rate on September 30 is ¥115=$1,what amount will Stagger pay to,or receive from,the bank (rounded to the nearest dollar)?
A)$15,217 payment
B)$15,217 receipt
C)$16,667 payment
D)$16,667 receipt
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21
Chapter 20: Accounting Changes and Error Corrections
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Q1) For a company with a periodic inventory system,which of the following would cause income to be overstated in the period of occurrence?
A)Overestimating bad debt expense
B)Understating beginning inventory
C)Overstated purchases
D)Understated ending inventory
Q2) Mako's Distributing purchased equipment on January 1,2011.The equipment cost $214,000 with a salvage value of $14,000 and an estimated life of 8 years.Initially,Mako depreciated the equipment using the sum-of-the-years'-digits method.On January 1,2014,the company elected to change to the straight-line method of depreciation. Required:
Determine the depreciation expense for 2014 and prepare the appropriate journal entry.
Q3) Which of the following types of errors will NOT self-correct in the next year?
A)Accrued expenses not recognized at year-end
B)Accrued revenues that have not been collected not recognized at year-end
C)Depreciation expense overstated for the year
D)Prepaid expenses not recognized at year-end
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Chapter 21: Statement of Cash Flows Revisited
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Q1) Cash inflows from investing activities would include all of the following except A)interest collect on notes receivable.
B)proceeds from sale of investments accounted for by the equity method.
C)proceeds from sale of operating assets.
D)proceeds from sale of securities available for sale.
Q2) Amortization of the premium on bonds payable is subtracted from net income in the reconciliation of net income to cash flows from operations because A)interest expense understates the cash paid for interest by the amount of the premium amortization.
B)it reduces income without causing a cash outflow.
C)it increases income without causing a cash flow.
D)it is a financing cash outflow.
Q3) Under the direct method,which one of the following would represent cash paid?
A)Losses on sales of plant assets
B)Gains on sales of plant assets
C)Interest expense, adjusted for changes in interest payable and amortization of bond premium or discount
D)Depreciation expense, adjusted for changes in depreciation methods
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Chapter 22: Accounting in a Global Market
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Q1) Which of the following is true regarding the accounting for property,plant,and equipment under international accounting standards?
A)Upward revaluations of property, plant, and equipment are not allowed.
B)The option is available for an entity to adjust upward the carrying value of property, plant, and equipment to fair value.
C)All entities must adjust upward the carrying value of property, plant, and equipment to fair value.
D)An entity has the option to adjust upward the carrying value of property, plant, and equipment to fair value, with gains and losses being shown in other comprehensive income.
Q2) Under international accounting standards,which of the following methods of inventory costing is not acceptable?
A)Weighted-average
B)Moving-average
C)FIFO
D)LIFO
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Chapter 23: Analysis of Financial Statements
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Q1) Sinbad Company is expected to pay a $0.50 per share dividend at the end of the year.The dividend is expected to grow at a constant rate of 7 percent per year.The required rate of return on the stock is 15 percent.
Required:
What is the value per share of the company's stock?
Q2) Which of the following ratios measures short-term solvency?
A)Current ratio
B)Creditors' equity to total assets
C)Return on investment
D)Total asset turnover
Q3) The inventory of Regatta Company averages $1,315,500 at cost.During 2014,sales of $6,995,990 were made at 35 percent above cost.
Using the given data,compute the following:
(1)Inventory turnover rate for 2014.
(2)Number of days' sales in inventory.
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