Intermediate Accounting Question
Bank
Course Introduction
Intermediate Accounting is a comprehensive course that builds on foundational accounting principles and delves deeper into the preparation, analysis, and interpretation of financial statements in accordance with generally accepted accounting principles (GAAP). The course covers topics such as revenue recognition, inventories, long-term assets, current and long-term liabilities, and stockholders equity. Emphasis is placed on the conceptual framework underlying accounting standards, the measurement and reporting of financial information, and the impact of accounting choices on business decision-making. Students will engage with complex accounting scenarios and practice problem-solving skills through real-world examples and case studies.
Recommended Textbook
Advanced Accounting 12th Edition by Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Q1) On January 4, 2012, Trycker, Inc. acquired 40% of the outstanding common stock of Inkblot Co. for $2,400,000. This investment gave Trycker the ability to exercise significant influence over Inkblot. Inkblot's assets on that date were recorded at $8,000,000 with liabilities of $2,000,000. There were no other differences between book and fair values.
During 2012, Inkblot reported net income of $500,000 and paid dividends of $300,000. The fair value of Inkblot at December 31, 2012 is $7,000,000. Trycker elects the fair value option for its investment in Inkblot.
At what amount will Inkblot be reflected in Trycker's December 31, 2012 balance sheet?
A) $2,400,000.
B) $2,280,000.
C) $2,480,000.
D) $2,800,000.
E) $7,000,000.
Answer: D
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Chapter 2: Consolidation of Financial Information
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Q1) In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?
A) Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill.
B) Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill. C) Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values. Any excess is allocated to goodwill.
D) Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill.
Answer: A
Q2) What is the difference in consolidated results between a business combination whereby the acquired company is dissolved, and a business combination whereby separate incorporation is maintained?
Answer: There is no difference in consolidated results.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) Carnes Co. decided to use the partial equity method to account for its investment in Domino Corp. An unamortized trademark associated with the acquisition was $30,000, and Carnes decided to amortize the trademark over ten years. For 2013, Carnes' Equity in Subsidiary Earnings was $78,000.
Required:
What balance would have been in the Equity in Subsidiary Earnings account if Carnes had used the equity method?
Answer: 11ea8e0c_b176_8ee9_b636_b7f7e4fdce8e_TB2311_00_TB2311_00
Q2) From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?
Answer: The parent can choose from among the initial value method, equity method, and partial equity method.
Q3) Under the equity method of accounting for an investment,
A) The investment account remains at initial value.
B) Dividends received are recorded as revenue.
C) Goodwill is amortized over 20 years.
D) Income reported by the subsidiary increases the investment account.
E) Dividends received increase the investment account.
Answer: D
Page 5
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) Pennant Corp. owns 70% of the common stock of Scarvens Co. Scarvens' revenues for 2015 totaled $200,000.
Required:
What amount of Scarvens' revenues would be included in the consolidated revenues under the acquisition method of accounting for business combinations?
Q2) When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true?
A) Income from subsidiary is not recognized until there is an entire year of consolidated operations.
B) Income from subsidiary is recognized from date of acquisition to year-end.
C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.
D) No goodwill can be recognized.
E) Income from subsidiary is recognized for the entire year.
Q3) How is a non-controlling interest in the net income of an entity reported in the income statement?
Q4) How does a parent company account for the sale of a portion of an investment in a subsidiary?
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Q1) On January 1, 2013, Payton Co. sold equipment to its subsidiary, Starker Corp., for $115,000. The equipment had cost $125,000, and the balance in accumulated depreciation was $45,000. The equipment had an estimated remaining useful life of eight years and $0 salvage value. Both companies use straight-line depreciation. On their separate 2013 income statements, Payton and Starker reported depreciation expense of $84,000 and $60,000, respectively. The amount of depreciation expense on the consolidated income statement for 2013 would have been
A) $144,000.
B) $148,375.
C) $109,000.
D) $134,000.
E) $139,625.
Q2) Varton Corp. acquired all of the voting common stock of Caleb Co. on January 1, 2013. Varton owned some land with a book value of $84,000 that was sold to Caleb for its fair value of $120,000. How should this transaction be accounted for by the consolidated entity?
Q3) Why do intra-entity transfers between the component companies of a business combination occur so frequently?
Q4) When is the gain on an intra-entity transfer of land realized?
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Chapter 6: Variable
Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues
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Q1) On January 1, 2013, Parent Corporation acquired a controlling interest in the voting common stock of Foxboro Co. At the same time, Parent purchased sixty percent of Foxboro's outstanding preferred stock. In preparing consolidated financial statements, how should the acquisition of the preferred stock be accounted for?
Q2) Which one of the following characteristics of preferred stock would make the stock a dilutive security for earnings per share?
A) The preferred stock is callable.
B) The preferred stock is convertible.
C) The preferred stock is cumulative.
D) The preferred stock is noncumulative.
E) The preferred stock is participating.
Q3) Parent Corporation acquired some of its subsidiary's bonds on the open bond market, paying a price $40,000 higher than the bonds' carrying value. How should the difference between the purchase price and the carrying value be accounted for?
Q4) How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?
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Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Q1) Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.
What is this pattern of ownership called?
A) pyramid ownership.
B) a connecting affiliation.
C) mutual ownership.
D) an indirect affiliation.
E) an affiliated group.
Q2) Why might a consolidated group file separate income tax returns?
A) There are no intra-entity transfers.
B) There are no unrealized gains in ending inventory.
C) One company is a foreign company.
D) Parent owns 68 percent of one company and 82 percent of another.
E) All of these.
Q3) What method is used in consolidation to account for a subsidiary's ownership of shares of its parent corporation?
Q4) What ownership structure is referred to as a connecting affiliation? Describe briefly or illustrate with a diagram.
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Q5) What are the benefits or advantages of filing a consolidated income tax return?
Chapter 8: Segment and Interim Reporting
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Q1) Why are quarterly financial statements required to be published for publicly traded companies in the U.S.?
Q2) Which of the following are required to be disclosed in interim reports?
A) Cash flows from investing activities.
B) Change in cash.
C) Total current liabilities.
D) Total assets.
E) Gross revenues.
Q3) Which of the following items of information are required to be included in interim reports for each operating segment?
(I)) Revenues from external customers
(II)) Segment profit or loss
(III.) Reconciliation of segment profit or loss to the enterprise's total income before taxes (IV)) Intersegment revenues
A) I and III only.
B) I and II only.
C) I, II and III.
D) II and III only.
E) I, II, III, and IV.
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) A forward contract may be used for which of the following?
1) A fair value hedge of an asset.
2) A cash flow hedge of an asset.
3) A fair value hedge of a liability.
4) A cash flow hedge of a liability.
A) 1 and 3
B) 2 and 4
C) 1 and 2
D) 1, 3, and 4
E) 1, 2, 3, and 4
Q2) What happens when a U.S. company sells goods denominated in a foreign currency and the foreign currency appreciates?
Q3) A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true?
A) If the foreign currency appreciates, a foreign exchange gain will result.
B) If the foreign currency depreciates, a foreign exchange gain will result.
C) No foreign exchange gain or loss will result.
D) If the foreign currency appreciates, a foreign exchange loss will result.
E) Any gain or loss will be included in comprehensive income.
Page 11
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Chapter 10: Translation of Foreign Currency Financial Statements
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Q1) Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?
A) first translate them, then remeasure them.
B) first remeasure them, then translate them.
C) state all of the subsidiary's accounts in U.S. dollars using the exchange rate in effect at the balance sheet date.
D) translate them.
E) remeasure them.
Q2) A foreign subsidiary of a U.S. corporation purchased equipment on January 4, 2010. (A.) How would depreciation expense on the equipment be translated for 2013? (B.) How would depreciation expense on the equipment be remeasured for 2013?
Q3) What exchange rate should be used to translate (a) revenues and expenses that occur throughout the year and (b) a gain or loss that occurs on a specific day?
Q4) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) A company incurs research and development costs of $200,000 in 2013 of which $50,000 of these costs relate to development activities because certain criteria have been met which suggest that an intangible asset has been created. What amount should be recognized as research and development expense in 2013 using IFRS?
A) $50,000.
B) $150,000.
C) $200,000.
D) $0.
E) $250,000.
Q2) Which of the following is not an IFRS pronouncement originally issued by the IASB?
A) Business Combinations.
B) First-Time Adoption of IFRS.
C) Financial Instruments: Disclosures.
D) Agriculture.
E) Operating Segments.
Q3) What is meant by harmonization of accounting standards?
Q4) Which two EU directives have helped harmonize accounting standards?
Q5) What are the four different ways IFRS can be used by a country?
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Q1) Which one of the following registration statement forms is used by large issuers that already have at least $75 million voting stock held by non-affiliates?
A) S-11.
B) S-3.
C) S-8.
D) S-4.
E) S-1.
Q2) Which one of the following forms is used in connection with registration of securities of a small reporting company with $25 million of annual revenues and of $25 million of voting securities held by non-affiliates?
A) S-8.
B) S-11.
C) S-4.
D) S-1.
E) S-3.
Q3) What is shelf registration?
Q4) What was the purpose of the Securities Act of 1933?
Q5) Who has the responsibility for the evaluation of the quality of an investment?
Q6) When is the SEC's Registration Form S-4 used?
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Q1) What information is included on the statement of realization and liquidation?
Q2) Which one of the following unsecured liabilities has the highest priority when an insolvent company is about to be liquidated?
A) federal income taxes payable.
B) claims for expenses of administering the bankruptcy.
C) loans made to the company by its stockholders.
D) employees' claims for salaries.
E) bank loans.
Q3) How should liabilities (except for deferred income taxes) be reported by a company using fresh start accounting?
A) at the undiscounted sum of future cash payments.
B) at book value prior to the reorganization.
C) as partially secured liabilities.
D) at the present value of future cash payments.
E) as unsecured liabilities.
Q4) What occurs in the accounting records for fresh start accounting when a bank agrees to accept less than the debtor's book value of a note payable?
Q5) What is an order for relief?
Q6) What are the three categories of assets in a Statement of Financial Affairs?
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Chapter 14: Partnerships: Formation and Operation
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Q1) P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.
If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for goodwill?
A) $15,000
B) $20,000
C) $25,000
D) $28,000
E) $60,000
Q2) How is accounting for a partnership different from accounting for a corporation?
Q3) Why are the terms of the Articles of Partnership important to partners?
Q4) Which of the following is not a characteristic of a partnership?
A) The partnership itself pays no income taxes.
B) It is easy to form a partnership.
C) Any partner can be held personally liable for all debts of the business.
D) A partnership requires written Articles of Partnership.
E) Each partner has the power to obligate the partnership for liabilities.
Q5) By what methods can a person gain admittance to a partnership?
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Chapter 15: Partnerships: Termination and Liquidation
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Q1) When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to:
A) declare personal bankruptcy.
B) initiate legal proceedings against the partnership.
C) contribute cash to the partnership.
D) deliver a note payable to the partnership with specific payment terms.
E) None of these. The partner has no legal responsibility to cover the capital deficit balance.
Q2) Safe capital balances
At the start of a liquidation, this document provides guidance for all payments made to the partners throughout the liquidation.
Q3) What is a safe cash payment?
Q4) What is the purpose of a predistribution plan?
Q5) Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner has a deficit balance in their respective capital account. All assets from the partnership have been liquidated and all of the liabilities had been paid. How should any additional cash coming into the partnership be distributed to the partners?
Q6) What should occur when a solvent partner has a deficit balance?
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Chapter 16: Accounting for State and Local Governments
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Q1) Fiduciary funds are
A) Funds used to account for the activities of a government that are carried out primarily to provide services to citizens.
B) Funds used to account for a government's ongoing organizations and activities that are similar to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee capacity.
D) Funds used to account for all financial resources except those required to be accounted for in another fund.
E) Funds used to account for revenues that have been legally restricted as to expenditure.
Q2) On January 1, 2013, Wakefield City purchased $40,000 office supplies. During the year $35,000 of these supplies were used.
Required:
Record the journal entries for these transactions using the consumption method. (Disregard the encumbrance entries.)
Q3) What is the purpose of government-wide financial statements?
Q4) What are the five types of governmental funds?
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Chapter 17: Accounting for State and Local Governments
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Q1) A method of depreciation for infrastructure assets that allows the expensing of all maintenance costs each year instead of computing depreciation is called
A) Government-wide depreciation.
B) Proprietary depreciation.
C) GASB depreciation.
D) Modified approach.
E) Alternative depreciation.
Q2) Jones College, a public institution of higher education, must prepare financial statements
A) As if the college was an enterprise fund.
B) Following the same rules as state and local governments.
C) According to GAAP.
D) As if the college was a fiduciary fund.
E) In the same manner as private colleges and universities.
Q3) What information is required in the introductory section of a state or local government's CAFR?
Q4) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Q5) What is meant by the term legally independent?
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Chapter 18: Accounting and Reporting for Private
Not-For-Profit Organizations
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Q1) For the month of December 2013, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000. The hospital estimated that contractual adjustments would reduce the amount collected from third-party payors to $1,710,000.
Required:
Prepare the necessary journal entry to record the contractual adjustments.
Q2) For a not-for-profit organization, when is recognition of contributions of artworks and historical treasures not required?
Q3) Wakefield Home is a private not-for-profit healthcare organization offering services for a fee. In the first quarter of 2013, Wakefield Home rendered services of $300,000 to patients. Of this amount 75% will be paid by patients, and $25,000 will be adjusted based on estimated insurance agreements. The remaining amount is to be paid by third party insurance providers.
The Home incurred the following liabilities: $110,000 salaries, $30,000 medical equipment, $10,000 utilities expense. Prepare the journal entries for these transactions.
Q4) What are the objectives of accounting for a not-for-profit organization?
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Chapter 19: Accounting for Estates and Trusts
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Q1) In a will, a devise is a
A) gift of personal property that is directly identified.
B) cash gift from a particular source.
C) gift of estate property that remains after carrying out the other provisions of the will.
D) gift of real property.
E) gift of intangible property.
Q2) Executor's fees and court costs for settling an estate usually
A) must be apportioned between the principal and the income of the estate.
B) are adjustments to the principal of the estate.
C) are adjustments to the income of the estate.
D) are subtracted from life insurance proceeds.
E) are ignored.
Q3) A gift that is specified in a will as "I leave my collection of baseball cards to my son" is a
A) general legacy.
B) specific legacy.
C) demonstrative legacy.
D) residual legacy.
E) devise.
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