Intermediate Accounting
Midterm Exam
Course Introduction
Intermediate Accounting delves deeper into the principles and practices of financial accounting, building on foundational knowledge acquired in introductory courses. The course focuses on the development, analysis, and interpretation of financial statements in accordance with generally accepted accounting principles (GAAP). Key topics include revenue recognition, income measurement, asset and liability valuation, and equity accounting. Students will explore complex issues such as accounting for investments, leases, pensions, and income taxes, while applying critical thinking and problem-solving skills to real-world financial reporting scenarios. This course is essential for those aiming to pursue advanced studies in accounting or preparing for professional certifications.
Recommended Textbook
Horngrens Cost Accounting A Managerial Emphasis 8th Canadian Edition by Srikant M. Datar
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Page 2
Chapter 1: The Accountants Vital Role in Decision Making
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Sample Questions
Q1) The primary criterion when faced with a resource allocation decision is
A)cost minimization.
B)reduction in the amount of time required to perform a particular job.
C)achievement of organizational goals.
D)how well the alternative options help achieve organizational goals in relation to the costs incurred.
E)improving information flow.
Answer: D
Q2) The text identifies six ways to classify the major differences between management and financial accounting.The "managers of the organization" is an example of which of the following classes of differences?
A)purpose of information
B)primary users
C)focus and emphasis
D)rules of measurement and reporting
E)time span and type of reports
Answer: B
Q3) Conduct a consumer survey.
Answer: Answers: E
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Page 3
Chapter 2: An Introduction to Cost Terms
and Purposes
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Sample Questions
Q1) What is the amount of gross margin?
A)$1,475,000
B)$1,500,000
C)$1,047,250
D)$1,032,500
E)$1,007,425
Answer: D
Q2) When should the overtime premium of direct manufacturing labour be considered an indirect manufacturing cost? A direct manufacturing cost?
Answer: The overtime premium of direct manufacturing labour should be considered an indirect manufacturing cost when it is attributable to the overall volume of work, and a direct manufacturing cost when a "rush job" is the sole source of the overtime.
Q3) idle time wages
Answer: Answers: C
Q4) Fixed costs do not have cost drivers, at least in the short-run.
A)True
B)False
Answer: True
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4
Chapter 3: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Janets's Custom Golf sells special clubs.Janet is able to purchase equipment from a manufacturing company for $90 each.The equipment is sold for $170 each.Required:
a.What is the break-even in units assuming Janet incurred $4,500 in selling expenses, and there were no other expenses?
b.What would be the break-even in units assuming Janet incurred $4,500 in selling expenses and had $9,000 in other fixed expenses?
Answer: a.Contribution margin = $170 - $90 = $80 per unit
11ea82f3_8b85_3d4b_971a_ed113d323b51_TB3086_00 b.Contribution margin = $170$90 = $80 per unit
11ea82f3_8b85_645c_971a_d3415cb3d2bb_TB3086_00
Q2) What is the dollar amount of sales required for Brian to earn an after-tax profit of $7,000 if fixed costs are $10,000?
A)$17,000
B)$50,000
C)$70,588
D)$85,000
E)$100,000
Answer: E
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Chapter 4: Job Costing
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Sample Questions
Q1) finished goods control
Q2) direct materials purchased
Q3) Frankenreid Corporation uses a job costing system.Record the following transactions in Frankenreid Corporation's general journal for the current month:
a.Purchased raw materials on account, $15,000.
b.Requisitioned $19,700 of direct materials and $8,800 of indirect materials for use in production.
c.Factory payroll incurred, $142,000; 90% direct labour, 10% indirect labour.
d.Recorded depreciation expense factory equipment $19,000, and other manufacturing overhead of $28,600 (credit accounts payable).
e.Allocated manufacturing overhead costs based on 120% of direct labour cost.
f.Cost of completed production for the current month, $205,000.
g.Cost of finished goods sold, $190,000; selling price, $225,000 (all sales on account).
Q4) Cost pools are defined as groupings of individual cost items which can range from broad, company-wide categories to very narrow categories.
A)True B)False
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6
Chapter 5: Activity-Based Costing and Management
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Sample Questions
Q1) Which of the following statements about activity-based costing is TRUE?
A)It does not affect cost control.
B)Indirect cost allocation bases are unlikely to be cost drivers.
C)It provides less information than traditional cost systems.
D)It provides similar results to traditional costing when one activity creates a substantial amount of total cost.
E)It provides similar results to traditional costing when different products use resources from different activities in different proportions.
Q2) In an activity-cost pool
A)a measure of the activity performed serves as the cost allocation base.
B)the costs have a cause-and-effect relationship with the cost-allocation base for that activity.
C)the cost pools are homogeneous over time.
D)costs in a cost pool can always be traced directly to products.
E)each pool pertains to a narrow and focused set of costs.
Q3) Activity-based costing relies heavily on broad averages to assign costs to jobs, products, and services.
A)True
B)False
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Page 7
Chapter 6: Master Budget and Responsibility Accounting
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Sample Questions
Q1) What is the ending cash balance for March after borrowing, if required?
A)$4,000
B)$3,800
C)$3,200
D)$2,800
E)$3,000
Q2) On the 2018 budgeted income statement, what amount will be reported for cost of goods sold?
A)$91,500
B)$105,000
C)$90,000
D)$88,500
E)$72,000
Q3) A rolling budget is a budget or plan that
A)rolls several budgets together for forecasting purposes.
B)has one budget category roll into the next category.
C)rolls all budget categories together into a master budget.
D)is always available for a specified future period by replacing time periods as the lapse.
E)is not used to guide operations.
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Page 8
Chapter 7: Flexible Budgets, Variances, and Management
Control: I
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Sample Questions
Q1) Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals.Item A contains hard-to-get material Y.Currently, the standard cost of material Y is $2.00 per gram.During February, 22,000 grams were purchased for $2.10 per gram, while only 20,000 grams were used in production.There was no beginning inventory of material Y.Required:
a.Determine the direct materials rate variance, assuming that all materials costs are the responsibility of the materials purchasing manager so rate variances are based on purchase quantities.
b.Determine the direct materials rate variance, assuming that all materials costs are the responsibility of the production manager so rate variances are determined as quantities are placed into production.
c.Discuss the issues involved in determining the rate variance at the point of purchase versus the point of consumption.
Q2) A static budget is a budget that can be changed or altered after it is developed.
A)True
B)False
Q3) Direct labour efficiency variance
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Chapter 8: Flexible Budgets, Variances, and Management
Control: II
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Sample Questions
Q1) Kelly's Pillow Company manufactures pillows.The current year operating budget is based on production of 40,000 pillows with 0.5 machine-hour allowed per pillow.Variable manufacturing overhead is anticipated to be $440,000.Actual production was 36,000 pillows using 19,000 machine-hours.Actual variable costs were $20 per machine-hour.Required: Calculate the variable overhead rate and efficiency variances.
Q2) What is Moeller Electric's variable manufacturing overhead static-budget variance?
A)$2,750 favourable
B)$2,750 unfavourable
C)$40,375 favourable
D)$40,375 unfavourable
E)$44,000 unfavourable
Q3) Decisions about capacity are considered to be
A)operating decisions.
B)best done by plant supervisors.
C)best done during production.
D)more relevant for variable costs.
E)strategic decisions.
Q4) How can a standard costing system be useful in negotiating new sales?
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Chapter 9: Income Effects of Denominator Level on Inventory Valuation
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Sample Questions
Q1) Wallace's Wrench Company manufactures socket wrenches.For next month the vice-president of production plans on producing 4,400 wrenches per day.The company can produce as many as 5,000 wrenches per day, but are more likely to produce 4,500 per day.The demand for wrenches for the next three years is expected to average 4,250 wrenches per day.Fixed manufacturing costs per month total $336,600.The company works 20 days a month due to local zoning restrictions.Fixed manufacturing overhead is charged on a per wrench basis.Required:
a.What is the theoretical fixed manufacturing overhead rate per wrench?
b.What is the practical fixed manufacturing overhead rate per wrench?
c.What is the normal fixed manufacturing overhead rate per wrench?
d.What is the master-budget fixed manufacturing overhead rate per wrench?
Q2) What would Urban Body Products Ltd.operating income (loss)be for January and February, respectively, using the absorption costing approach?
A)$103,800
B)$144,800
C)$50,500
D)$102,500
E)$(11,000)
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Chapter 10: Analysis of Cost Behaviour
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Sample Questions
Q1) Which of the following describes the intercept in a linear cost function?
A)the component of fixed costs that, within the relevant range, does not vary with changes in the level of the cost driver
B)the component of fixed costs that, within the relevant range, does vary with changes in the level of the cost driver
C)the component of variable costs that, within the relevant range, does not vary with changes in the level of the cost driver
D)the component of variable costs that, within the relevant range, does vary with changes in the level of the cost driver
E)the sum of the components of both fixed and variable costs that, within the relevant range, do not vary with changes in the level of the cost driver
Q2) Plant utilities in the inspection area
Q3) Expediting work to meet delivery schedule
Q4) A corporation can measure its quality performance by using financial or nonfinancial measures of quality.Discuss the merits of each method and whether the use of one precludes the use of the other.
Q5) Describe the two assumptions upon which managers often estimate cost functions.
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Page 12
Chapter 11: Decision Making and Relevant Information
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Q1) Which of the following costs are never relevant in the decision-making process?
A)fixed costs
B)historical costs
C)relevant costs
D)variable costs
E)opportunity costs
Q2) Explain what revenues and costs are relevant when choosing among alternatives.
Q3) For one-time-only special orders, variable costs may be relevant but not fixed costs.
A)True
B)False
Q4) Managers tend to favour the alternative that makes their performance look best.This leads to conflicts between which of the following?
A)the status quo and the chosen alternative
B)the decision model and the performance evaluation model
C)the constraining factor and the performance evaluation model
D)gathering the required information and the performance evaluation model
E)the accrual accounting model and the performance evaluation model
Q5) Explain why sunk costs are not considered relevant when choosing among alternatives.
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Chapter 12: Pricing Decisions, Product Profitability Decisions, and Cost Management
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Sample Questions
Q1) What is the change in operating income if marketing is correct and only the sales price is changed?
A)$1,421,250
B)$(204,000)
C)$(352,500)
D)$(435,000)
E)$18,750
Q2) If the European customer wanted a long-term commitment for supplying this product, what price would most likely be quoted?
A)$66
B)$180
C)$155
D)$217
E)$198
Q3) Describe the five steps in developing target pricing and target costs.
Q4) Profit margins are often set to earn a reasonable return on investment for short-term pricing decisions, but not long-term pricing decisions.
A)True
B)False
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Chapter 13: Strategy, Balanced Scorecard, and Profitability Analysis
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Sample Questions
Q1) ________ has/have been classified in many ways, but what is common is to set the business within its external environment.
A)Strategies
B)Planning
C)Competitors
D)Bargaining power of input suppliers
E)Cost Leadership
Q2) The accounting scorecard translates an organization's mission and strategy into a comprehensive set of performance measures that provides the framework for implementing its strategy.
A)True
B)False
Q3) What is the Merrill Company's cost effect of the growth component for direct materials?
A)$15,000 U
B)$10,000 U
C)$10,000 F
D)$16,500 F
E)$7,500 F
Q4) What are the four key perspectives in the balanced scorecard?
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Chapter 14: Period Cost Allocation
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Sample Questions
Q1) AAA Fence Company manufactures wireless and aluminium fences in a common manufacturing facility.The company has become aware of unusual discrepancies in the costs of its products which management cannot explain.It seems that the sales and related production of wireless fences are in a very consistent growth market and are easily predicted.However, the sales and related production of aluminium fences are very erratic.Management does not understand why the costs per unit of wireless fences change when the production level seldom changes.Required:
a.After some investigation you determine that for the last two quarters, the common fixed cost of the manufacturing operation has been $800,000.For the first quarter 12,000 wireless and 13,000 aluminium units were produced, respectively.For the second quarter, 12,000 wireless and 8,000 aluminium units were produced, respectively.What were the total cost per product and the cost per unit of each product in each quarter when production units is the allocation basis?
b.After studying the results of the above computations you decide to use the company's average quarterly production of 12,000 wireless and 10,500 aluminium units as the allocation base, respectively.What are the total cost per product and the cost per unit per quarter for each product when average production is used?
c.Which allocation base do you recommend, and why?
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Page 16
Chapter 15: Cost Allocation: Joint Products and Byproducts
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Q1) One problem with the physical measure method of allocation is that the physical weights used for allocating joint costs may have no relation to the product's ability to produce revenue.
A)True
B)False
Q2) What are separable costs?
Q3) Sawdust from a sawmill
Q4) Using estimated net realizable value, what amount of the $72,240 of joint costs would be allocated Xyla and the skim goat ice cream?
A)$41,971 and $30,269
B)$44,471 and $27,769
C)$32,796 and $39,444
D)$36,120 and $36,120
E)$39,444 and $32,796
Q5) Byproduct revenues appear in the income statement as a cost increase to the main product and as a separate item of expense.
A)True
B)False
Q6) Cost of processing timber (trees)at a sawmill.
Page 17
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Chapter 16: Revenue and Customer Profitability Analysis
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Q1) What is the market-share variance?
A)$360,000 U
B)$1,260,000 F
C)$1,152,000 F
D)$108,000 F
E)$1,024,000 F
Q2) Fresh Bread Company sells a special mix of wheat bread.If the expected output equals the actual output, the sales-volume variance
A)will be negative.
B)will be positive.
C)will be favourable.
D)will be unfavourable.
E)will be zero.
Q3) What is the STP total sales-quantity variance for revenues?
A)$0
B)$150.00 unfavourable
C)$150.00 favourable
D)$300.00 unfavourable
E)$450.00 favourable
Q4) What actions might be taken with an unprofitable customer?
Page 18
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Chapter 17: Process Costing
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Q1) The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation.The direct materials are added at the start of the production process while conversion costs are added uniformly throughout the production process.June is Zygon's first month of operations, and therefore, there was no beginning inventory.Direct materials cost for the month totaled $895,000, while conversion costs equaled $4,225,000.Accounting records indicate that 475,000 chips were started in June and 425,000 chips were completed.Ending inventory was 50% complete as to conversion costs.Required:
a.What is the total manufacturing cost per chip for June?
b.Allocate the total costs between the completed chips and the chips in ending inventory.
Q2) Regardless of whether previous departments used the weighted-average or the FIFO method, all transferred-in costs during a given period are carried at
A)the cost at which it was transferred in.
B)the previous period's costs.
C)multiple unit-cost figures.
D)the final cost.
E)one average unit-cost.
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Page 19
Chapter 18: Spoilage, Rework, and Scrap
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Q1) There are two alternative points in time for recognizing scrap in the accounting records.What are these two points in time? Explain why a company might choose one over the other.
Q2) What is the total cost per equivalent unit using the weighted-average method of process costing?
A)$4.00
B)$1.74
C)$2.10
D)$3.84
E)$3.74
Q3) When abnormal rework is distinguished from normal rework, and charged to a separate loss account, which of the following is a likely result?
A)Prices will have to increase on the company's products accordingly.
B)The amount of normal spoilage unfavourable efficiency variances will be less.
C)The amount of normal spoilage unfavourable efficiency variances will be more.
D)The amount of normal spoilage unfavourable efficiency variances will be unchanged.
E)The abnormal spoilage variance will be closed to cost of goods manufactured.
Q4) Rock extracted as a result of mining processing
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Page 20
Chapter 19: Inventory Cost Management Strategies
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Sample Questions
Q1) The Economic Order Quantity increases with demand and ordering costs and decreases with carrying costs.
A)True
B)False
Q2) A firm using a backflush costing system will always use actual costs rather than standard costs.
A)True B)False
Q3) An inventory item of XYZ Manufacturing has an average daily demand of 10 units with a maximum daily demand of 12 units.The economic order quantity is 200 units.The reorder point is 50 units.Safety stocks are set at 94 units.Required:
a.Determine the inventory level at the time of reordering.
b.Determine the purchase order lead time.
d.Determine the maximum purchase order lead time that the company can experience before it has a stockout.
Q4) What are the principles of lean accounting? Are there any limitations? Discuss.
Q5) All inventory costs are available in financial accounting systems.
A)True B)False
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Chapter 20: Capital Budgeting: Methods of Investment Analysis
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Q1) Which of the following are not considered in capital-budgeting?
A)initial machine investment
B)depreciation
C)cash flow from current disposal of old machine
D)cash flow from terminal disposal of new machine
E)recurring after-tax operating flows
Q2) What is the net present value for the investment Saturn Ltd.is considering?
A)$(45,056.36)
B)$(31,556.36)
C)$(25,246.29)
D)$(38,746.29)
E)$45,056.36
Q3) The net present value method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time using the hurdle rate.
A)True
B)False
Q4) Projects with shorter paybacks always generate more cash flows.
A)True
B)False
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Chapter 21: Transfer Pricing and Multinational Management
Control
Systems
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Q1) Bargaining between selling and buying units
Q2) Internal product transfers are required if goods are available internally
Q3) What is the transfer price per litre from production to refining if the market price method of pricing is used?
A)$24
B)$32
C)$36
D)$40
E)$38
Q4) The Production Division has no alternative use for the facilities used to manufacture the stuffing.What is the monthly operating income advantage (disadvantage)if the goods are purchased internally?
A)$400,000
B)$640,000
C)$240,000
D)$(240,000)
E)$(400,000)
Q5) Manufacturing plus marketing plus distribution plus customer service costs
Q6) Prices listed in a trade journal
Q7) What is the purpose of the internal control system within an organization? Page 23
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Chapter 22: Multinational Performance Measurement and Compensation
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Q1) There are three basic ingredients in profitability: investment, revenue, and debt.
A)True
B)False
Q2) The DuPont method of profitability analysis is
A)TA - CL/operating income.
B)ROI × WACC.
C)[revenue/investment] × [income/revenue].
D)ROI/WACC.
E)ROI × RI.
Q3) What is the return on investment for the Sarnia division?
A)0.21
B)0.27
C)0.48
D)2.06
E)0.25
Q4) Return on investment is also called the accrual accounting rate of return.
A)True
B)False
25
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