Intermediate Accounting II
Exam Solutions
Course Introduction
Intermediate Accounting II is a continuation of the study of financial accounting concepts introduced in earlier coursework, focusing on the application and analysis of generally accepted accounting principles (GAAP) in more complex accounting areas. The course delves into topics such as long-term liabilities, stockholders equity, revenue recognition, pensions, leases, income taxes, and accounting changes and error analysis. Through rigorous problem-solving and case studies, students learn to prepare, interpret, and analyze financial statements while gaining a deeper understanding of the ethical and professional responsibilities of accountants. This course is essential for those pursuing a career in accounting or finance, building skills necessary for advanced study and professional certification.
Recommended Textbook
Modern Advanced Accounting in Canada 6th Edition by Murray Hilton
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12 Chapters
691 Verified Questions
691 Flashcards
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Page 2
Chapter 1: A Survey of International Accounting
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Sample Questions
Q1) Income-smoothing has been applied to a German subsidiary of Company Inc,as it had an abnormally high operating income last year.The accountants working for the subsidiary would likely have:
A)debited an expense account and credited an equity account.
B)credited an expense account and debited an equity account.
C)credited an expense account and debited a Provision account appearing under the Liabilities section.
D)debited an expense account and credited a Provision account appearing under the Liabilities section.
Answer: D
Q2) The SEC made a monumental decision to change the requirements for foreign registrants and their reporting in the US under certain circumstances in 2007:
A)Foreign registrants could use IFRSs in preparing their financial statements
B)Foreign registrants must report under US GAAAP.
C)Foreign registrants may report under IFRS as long as they provide a reconciliation to US GAAP.
D)The SEC has no jurisdiction under foreign registrants..
Answer: A
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Page 3
Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) Which of the following statements is correct?
A)Under the Cost Method,Consolidated Net Income is equal to the sum of the income of the parent and it's pro rata share of the net incomes of each of its subsidiaries.
B)Under the Cost Method,Consolidated Net Income is equal to the sum of the income of the parent and the total of the net incomes of each of its subsidiaries.
C)Under the Equity Method,Consolidated Net Income is equal to the sum of the income of the parent and it's pro rata share of the net incomes of each of its subsidiaries.
D)Consolidated Net Income should be equal to the Investor's total income when the Equity method is used.
Answer: D
Q2) What is the amount of after-tax profit realized from downstream sales during 2002?
A)$8,000
B)$5,000
C)$3,000
D)$4,000
Answer: C
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Chapter 3: Business Combinations
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Sample Questions
Q1) Which of the following would NOT be included in the Acquisition Cost?
A)Share issue costs.
B)The Fair Market Value of any Shares Issued)
C)Contingent Consideration.
D)Direct expenses arising from a Business Combination.
Answer: A
Q2) Which of the following regarding the preparation of Consolidated Financial Statement(s)is/are correct?
A)Once the parent company prepares Consolidated Financial Statements,it no longer needs to prepare financial statements for its own activities.
B)Only the subsidiaries are required to prepare Financial Statements.
C)Consolidated Financial Statements are required by the Parent Company for reporting purposes only;each company must continue to prepare its own Financial Statements.
D)Consolidated Financial Statements are required only when both companies are publicly traded)
Answer: C
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5
Chapter 4: Consolidated Statements on Date of Acquisition
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Sample Questions
Q1) Section 1625 of the CICA Handbook states that a Parent can only require Push-Down accounting when it owns at least what percentage of the Subsidiary?
A)80%
B)75%
C)90%
D)95%
Q2) Assuming once again that the Proprietary Theory was applied,what would be the amount of Goodwill appearing on the Consolidated Balance Sheet on the Date of acquisition,assuming once again that Parent purchased 80% of Sub Inc.for $180,000?
A)$26,000
B)$130,000
C)Nil
D)Cannot be determined from the information given.
Q3) Under "push-down" accounting,a subsidiary's assets and liabilities are revalued using:
A)fair market values.
B)Lower of Cost and Market principles.
C)the parent's acquisition cost.
D)the net asset values (NAV).
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Sample Questions
Q1) The amount of non-controlling interest appearing on Big Guy's July 1,2004 Consolidated Income Statement would be:
A)Nil.
B)$3,600.
C)$2,000.
D)$2,120.
Q2) Assuming that GNR Inc uses the Cost Method,what effect would the above information have on GNR's investment in NMX account?
A)An increase of $30,000.
B)An increase of $40,000.
C)An increase of $10,000
D)No effect.
Q3) How much Goodwill will be carried on Grub's Balance Sheet on December 31,2007?
A)Nil
B)($24,000)
C)$24,000
D)$20,000
Q4) Explain how the amount was derived for Remburn's investment in Stanton account on December 31,2002.
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Chapter 6: Intercompany Inventory and Land Profits
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Sample Questions
Q1) What would be the amount of the acquisition differential amortized during 2008?
A)$80,000
B)$82,000
C)$78,000
D)$120,000
Q2) What effect (if any)would the unrealized profits in beginning inventory have on income tax expense for 2009?
A)They would cause a $1,240 reduction in income tax expense.
B)They would cause a $1,200 reduction in income tax expense.
C)They would cause a $1,240 increase in income tax expense.
D)They would cause a $1,200 increase in income tax expense.
Q3) Assuming that LEO uses the equity method to account for its investment in MARS,what would be the NET increase to the investment in MARS account during 2008?
A)$43,200
B)$12,000
C)($41,700)
D)($49,200)
Q4) Compute MAX's Goodwill at the Date of Acquisition.
Q5) Calculate Consolidated Retained Earnings as at December 31,2009.
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Chapter 7: Aintercompany Profits in Depreciable Assets
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Sample Questions
Q1) Ignoring taxes,what is the total amount of unrealized profits in inventory at the start of 2010?
A)$20,000
B)$5,000
C)$3,000
D)$2,500
Q2) Compute the Balance in Hot's Investment in Cold account as at December 31,2010
Q3) Compute the goodwill on the acquisition date.
Q4) What amount of sales revenue would appear on King's Consolidated Income Statement for the year ended December 31,2009?
A)$750,000
B)$790,000
C)$800,000
D)$810,000
Q5) Assuming that Plax uses the equity method,prepare a computation showing the balance in Plax's investment in Slate account on December 31,2009.
Q6) Prepare a Statement of Consolidated Retained Earnings for the year ended December 31,2003 for Plax Inc.
Q7) Calculate the goodwill as at December 31,2009.
Page 9
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Chapter 8: Consolidated Cash Flows and Ownership Issues
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Sample Questions
Q1) What would be the gain or loss arising from Dine's share issue to Chompster?
A)A loss of $4,000
B)A gain of $4,000
C)A gain of $2,400
D)A loss of $2,400
Q2) What is the amount of the acquisition differential amortization for 2009?
A)$6,250
B)$4,375
C)$5,625
D)$12,000
Q3) What percentage of the Investment in 123 was sold by ABC?
A)14%
B)21%
C)28%
D)40%
Q4) What was the amount of acquisition differential amortization for 2010?
A)$6,000
B)$8,000
C)$12,000
D)Nil.
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Chapter 9: Other Consolidated Reporting Issues
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Sample Questions
Q1) On December 31,2011,XYZ Inc.has an account receivable of $2,000 for consulting fees it earned during the year.Consulting revenues are only taxable when collected.XYZ normally receives payment for the services rendered one month after the client is invoiced.Assuming a 20% tax rate,these revenues shall result in:
A)a deferred tax asset of $400.
B)a deferred tax liability of $400.
C)a deferred tax asset of $2,000.
D)a deferred tax liability of $2,000.
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.
Q3) Prepare A Corp.'s equity method journal entries for 2010,assuming that the assets donated by B Corp did not include cash.
Q4) Compute the Consolidated Net Income for 2010.Do not prepare an Income Statement.
Q5) Compute Alcor's Consolidated Retained Earnings as at December 31,2010.
Q6) Prepare Alcor's Consolidated Balance Sheet as at December 31,2010.
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Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) Prepare any and all journal entries arising from this transaction.
Q2) What is the TOTAL amount of CMI's foreign exchange gain or loss on this transaction?
A)$360 Loss.
B)$120 Gain.
C)$360 Gain.
D)$480 Gain.
Q3) Prepare the December 31,2013 Balance Sheet Presentation of the Receivable from the American client and the accounts associated with the hedge.
Q4) What is the amount of the premium on the forward contract?
A)Nil
B)$11,000
C)$3,900
D)$6,000
Q5) What is the amount of the forward contract in Canadian dollars?
A)$72,000
B)$70,500
C)$70,950
D)$71,850
Q6) Prepare GRL's journal entries for each of 2011,2012 and 2013.
Page 12
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Chapter 11: Translation and Consolidation of the Financial
Statements of Foreign Operations
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Sample Questions
Q1) Which of the following rates would be used to translate the company's Income Statement items?
A)$1CDN=$0.815 U.S.
B)$1CDN=$0.8175 U.S.
C)$1CDN=$0.8250 U.S.
D)$1CDN=$0.83 U.S.
Q2) For the sake of simplicity,assume once again that US1's cost of sales was calculated to be $4,000,000 CDN.What is the amount (in Canadian dollars)of US1's retained earnings?
A)$665,750
B)$666,750
C)$682,500
D)$667,250
Q3) The risk exposure resulting from the translation of foreign currency denominated financial risks is referred to as:
A)Translation (Accounting)exposure.
B)Transaction exposure.
C)Economic exposure.
D)Business risk.
Q4) Compute Wilsen's exchange gain or loss for 2014.
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Chapter 12:
Accounting for Not-For-Profit Organizations and Governments
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Sample Questions
Q1) Bequests are normally not recorded until:
A)the person making the bequests dies.
B)10 years after the death of the person making the bequest after which period of time the other parties interested in the estate cannot legally challenge the bequest.
C)the beneficiaries of the estate decide to pay out the bequest.
D)the will has been probated.
Q2) What would be the balance in the General Fund on December 31,2012?
A)$8,000
B)$6,400
C)$6,000
D)Nil
Q3) In which fund would the purchase and amortization of the asset be recorded?
A)The General Fund
B)The Operating Fund
C)The Capital Fund
D)The Encumbrance Fund
Q4) Assuming that the assets were purchased from a restricted fund contribution in the amount of $11,000,prepare the required journal entries for 2014,indicating the fund or funds to be used.
Page 14
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