Intermediate Accounting II
Study Guide Questions
Course Introduction
Intermediate Accounting II builds on foundational accounting principles by exploring complex financial reporting topics such as revenue recognition, accounting for long-term assets and liabilities, pensions, leases, income taxes, and shareholders equity. Through examining Generally Accepted Accounting Principles (GAAP) and relevant International Financial Reporting Standards (IFRS), students develop a deeper understanding of financial statement preparation and analysis. The course emphasizes analytical thinking, problem-solving in real-world business scenarios, and ethical considerations in financial reporting, preparing students for advanced studies or professional careers in accounting.
Recommended Textbook
Intermediate Accounting Volume 2 3rd Edition by Kin Lo
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10 Chapters
1033 Verified Questions
1033 Flashcards
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Page 2
Chapter 1: Current Liabilities and Contingencies
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101 Flashcards
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Sample Questions
Q1) For a $200,000 trade payable with terms of 2/15,net 50,how much would be reported as "purchase discount lost" under the net method if a payment was made after 60 days?
A) $0
B) $4,000
C) $5,000
D) $30,000
Answer: B
Q2) Indemnities and letters of credit are examples of?
A) Commitments.
B) Provisions.
C) Contingencies.
D) Guarantees.
Answer: D
Q3) Which statement is correct?
A) Trade payables are supported by a written promise to pay.
B) Trade payables with no discount terms are expected to be paid in full.
C) Notes payable are legally enforceable and can only be interest bearing.
D) Notes payables are recognized at the face value or transaction price.
Answer: B
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Chapter 2: Non-Current Financial Liabilities
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) A $100,000 5-year 6% bond is issued on January 1,2017.The bond pays interest annually.The market rate is 8%.What is the selling price of the bonds,rounded to nearest dollar?
A) $91,575
B) $92,014
C) $107,985
D) $108,425
Answer: B
Q2) Which statement best explains a "leveraged buyout"?
A) A purchase where a small portion of the purchase price is raised by borrowing against the acquired assets.
B) A purchase where a significant portion of the purchase price is raised by borrowing against the acquired assets.
C) A purchase that is deemed too risky from a solvency perspective for the shareholders.
D) A purchase that is deemed too risky from a solvency perspective for the bondholders.
Answer: B
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Chapter 3: Equities
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Practice Inc.issued a $10 million bond due in five years,and the bond indenture specifies that the company must set aside $2 million per year in a sinking fund so that the company will have funds to repay the bondholders at the end of 5 years.Assuming that the Practice Inc.complies with the contractual requirements,what would be the journal entries for each of the 5 years?
Answer:
11ea7ef7_db13_ef35_92e1_65a463895cce_TB1321_00_TB1321_00_TB1321_00_TB1321_00
Q2) Which statement best describes the accounting when a company cancels its own shares at an amount higher than the average share value?
A) Contributed surplus and retained earnings will be credited.
B) Contributed surplus and retained earnings will be debited.
C) Contributed surplus will be credited, thereby increasing equity.
D) Contributed surplus will be debited, thereby decreasing equity.
Answer: B
Q3) Briefly describe the difference between issued and outstanding shares.
Answer: Issued shares are the net number of shares that the corporation has issued; outstanding shares are issued shares that are not held by the company as treasury shares.
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Chapter 4: Complex Financial Instruments
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Sample Questions
Q1) What is an option?
A) A contract that gives the holder the right to sell an instrument at a pre-specified price.
B) A contract that is derived from some other underlying quantity, index, asset or event.
C) A contract that gives the holder the right to acquire an instrument at a pre-specified price.
D) A contract that gives the holder the right to buy or sell something at a specified price.
Q2) Which step is not required for hedge accounting under IFRS?
A) Demonstration of hedge's effectiveness.
B) Identification of the risk exposure.
C) Payment of fees to the counterparty.
D) Designation of the hedging instrument.
Q3) Explain how convertible bonds alleviate moral hazard.
Q4) Which statement is correct about the accounting for employee stock options?
A) The expense is recorded over the period of vesting.
B) The expense is recorded over the period to expiry.
C) The expense is recorded immediately upon grant date.
D) No expense is recorded for accounting purposes.
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6
Chapter 5: Earnings Per Share
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113 Flashcards
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Sample Questions
Q1) Explain how the dividends on cumulative preferred shares are adjusted in the EPS calculation.What is the underlying logic for this adjustment?
Q2) For the year ended December 31,2017,Jovial Productions Inc.earned $13,000,000.Outstanding preferred shares included $1,500,000 in 9% cumulative preferred shares issued on January 1,2014 and 32,000 $160 non-cumulative preferred shares issued on January 1,2016 that are each entitled to dividends of $7 per annum.Dividends were neither declared nor paid on either class of the preferred shares in 2015 or 2016.On December 15,2017,the company declared and paid $140,000 of the dividends in arrears on the 9% cumulative preferred shares.
Required:
Determine the net income available to ordinary shareholders for the year ended December 31,2017.
Q3) What is the formula for diluted EPS? What are dilutive and antidilutive potential ordinary shares and how do they each impact the computation of dilutes EPS?
Q4) Explain why private companies are not required to report EPS under according to ASPE.
Q5) Briefly explain the main the difference in the requirements of IFRS and ASPE in regards to EPS information.
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Chapter 6: Accounting for Income Taxes
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Which statement best describes the "deferral method"?
A) This method focuses on the balance sheet.
B) This method is an example of a "tax allocation" approach.
C) This is the same as the "accrual method" of tax accounting.
D) This method is used by companies reporting using IFRS.
Q2) During its first year of operations,Karol Corp.reported the following information:
Income before income taxes for the year was $550,000 and the tax rate was 35%.
Depreciation expense was $100,000 and CCA was $50,000.
Warranty expense was reported at $20,000,while actual cash paid out was $10,000.
$25,000 of expenses included in income were not deductible for tax purposes. No other items affected deferred tax amounts besides these transactions.
Required:
Prepare the journal entries to record income tax expense for the year.
Q3) Why does Capital Cost Allowance (CCA)usually exceed the amount of depreciation for tax purposes?
Q4) What is the accepted method of accounting for taxes under IFRS and ASPE? Accrual method or taxes payable method?
Q5) Describe what is meant by a permanent difference.
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Chapter 7: Pensions and Other Employee Future Benefits
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Sample Questions
Q1) Peter is currently 30 years old and he plans to retire early,in 20 years' time.He would like to have an income of $50,000 per year during his retirement,which he anticipates will last for another 40 years.Assume that Peter receives the retirement income at the end of each of the 40 years.
Required:
Determine the amount of money Peter will need to have accumulated by the time he starts his retirement.Assume a discount rate of 9%.
Q2) What are the components of the pension expense in a defined benefit plan? Briefly explain the meaning of each component.
Q3) A company has a defined benefit pension asset of $1,050,000 at the beginning of the year.The company contributes $5,500,000 to the pension during the year and records a pension expense of $8,200,000.
Required:
Determine the value of the defined benefit pension liability at year-end.
Q4) Prepare the Summarized Pension Trustee's Report on Pension Plan Assets (without numbers)in good form.
Q5) Prepare the Summarized Pension Actuary's Report on Pension Plan Obligations (without numbers)in good form.
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Chapter 8: Accounting for Leases
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Sample Questions
Q1) On January 1,2017,Teddy Company sold a building to Breezy Bank for $40,000,000 and immediately leased it back under a 25-year non-cancellable lease at $3,208,000 per year,payable at the beginning of each year.Breezy used an implicit rate of 7% to determine the lease payments,and this rate is known to Teddy.The building had a carrying value of $12,000,000 on Teddy's books.
Required:
Assume that the lease is a finance lease for both the lessee and lessor,and there is no profit margin for the lessor.Prepare all necessary journal entries for 2017 for Teddy (the seller-lessee)and Breezy (the buyer-lessor).Teddy will continue to depreciate the building on a straight-line basis over the lease term.Explain the implications to Teddy's depreciation expense of this transaction.
Q2) Why do the supporting indicators for lease classification use "major part" and "substantially all" rather than "all" in reference to the amount of time and value contained in the lease?
Q3) Why are there special rules for sale-leaseback transactions?
Q4) Why do lessors prefer financing lease treatment over operating lease treatment?
Q5) What is meant by the agency cost of leasing?
Q6) Why do lessors generally prefer finance lease treatment? Explain.
Q7) List four examples of the risks and four examples of rewards of ownership.
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Chapter 9: Statement of Cash Flows
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Sample Questions
Q1) Select transactions of June Bowen Inc.(JBI)are listed below.JBI uses the indirect method to determine cash flows from operating activities.
1.JBI amortizes $12,000 of the discount on bonds payable.
2.At year-end JBI increases its allowance for bad debts by $18,000.
3.JBI's income tax expense totaled $50,000.Its income tax payable account increased $5,000,while its deferred income tax liability account decreased $8,000.
4.JBI makes payments of $25,000 on an operating lease.
5.JBI declares and distributes a stock dividend valued at $33,000.
6.JBI declares a cash dividend of $30,000.The dividends payable account increases $10,000.
7.JBI sells a held-to-maturity investment for $28,000.The investment's amortized cost is $20,000.
Required:
Discuss how the activities listed above would be reported in the statement of cash flows.For items with multiple reporting options,identify all available options.For items not reported on the statement of cash flows,indicate the disclosure requirements,if any.
Q2) What are the two distinct components to investing activities?
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Chapter 10: Accounting Changes
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Sample Questions
Q1) Which of the following is a change in an estimate?
A) A company changes the presentation of operating expenses from "by function" to "by nature."
B) An enterprise switches from the gross method to the net method of presenting government grants.
C) A temporary difference was treated as a permanent difference.
D) The useful life on a building was originally estimated to be 20 years but the estimated useful life of the building is changed to only 15 years as at the beginning of the year.
Q2) What are two reasons why an accounting change may be permitted to give modified retrospective or prospective treatment?
Q3) A company changes the depreciation for a piece of equipment from 20% decliningbalance to units-of-production.Describe a plausible circumstance that would support this change as one of the following: (i)an error,(ii)a change in estimate,or (iii)a change in accounting policy.
Q4) How should enterprises reflect changes in accounting standards?
Q5) Define the term "prospective adjustment." Which type of accounting changes is it applied to?
Q6) Define "a retrospective adjustment."
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