Intermediate Accounting Question
Bank
Course Introduction
Intermediate Accounting is a comprehensive course that delves into the theory and application of financial accounting principles beyond the introductory level. It covers a detailed examination of standards and practices related to asset valuation, revenue recognition, liabilities, equity, and the preparation and analysis of financial statements. Students will explore the conceptual framework underlying accounting rules, gain insights into the regulatory environment, and develop skills in interpreting and applying generally accepted accounting principles (GAAP). Through a combination of lectures, case studies, and practical exercises, the course prepares students to tackle complex accounting issues encountered in professional practice.
Recommended Textbook
Intermediate Accounting Reporting and Analysis 1st Edition by James M. Wahlen
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Chapter 1: The Demand for and Supply of Financial Accounting Information
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Sample Questions
Q1) How many FASB members are there?
A) 5
B) 7
C) 21
D) 33
Answer: B
Q2) After formulating a strategic plan what three types of activities will a company engage in?
A) Planning, operating, and selling
B) Investing, operating, and selling
C) Financing, investing, and operating
D) Operating, planning, and financing
Answer: C
Q3) The codification was established to assist in reducing the time necessary to research an accounting issue and improve the ability to utilize accounting information to conform to GAAP.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Financial Reporting: Its Conceptual Framework
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Q1) List the eight phases of the Joint FASB and IASB Conceptual Framework Project.
Answer: 1.objective and qualitative characteristics
2.elements and recogrition
3.measurement
4.reporting entity
5.presentation and disclosure
6.framework for a GAAP hierarchy
7.applicability to the not for profit sector
8.remaining issues
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Chapter 3: Review of a Companys Accounting System
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Q1) What are closing entries and why are they necessary?
Answer: Closing entries are required at the end of an accounting period. The entries close the temporary accounts which are revenue, expenses, gains, losses, and dividend accounts. This closure updates the retained earnings account and reduces the balance in each temporary account to zero. The temporary accounts are closed to a temporary holding account called "Income Summary".
Q2) If the trial balance does not balance and the difference between debits and credits is evenly divisible by 9, there is a good chance that
A) a transaction has not been recorded
B) a transaction has been journalized to the wrong account
C) a transposition or slide has occurred
D) only one side of the transaction has been recorded
Answer: C
Q3) An adjusting entry always affects
A) balance sheet accounts only
B) income statement accounts only
C) an income statement account and a balance sheet account
D) balance sheet accounts or income statement accounts only
Answer: C
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Chapter 4: The Balance Sheet and the Statement of
Shareholders Equity
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Sample Questions
Q1) The valuation method primarily used in the balance sheets of business entities is
A) current exit value
B) historical cost
C) present value
D) net realizable value
Q2) GAAP requires that all derivative financial instruments be reported at their
A) historical cost
B) fair value
C) present value
D) par value
Q3) Which of the following would not be classified as contributed capital?
A) additional paid-in capital
B) unrealized capital
C) common stock
D) preferred stock
Q4) GAAP requires disclosures relating to asset allocation and revenue recognition, any deviations from the acceptable norm must be disclosed.
A)True
B)False
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Chapter 5: The Income Statement and the Statement of Cash Flows
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Sample Questions
Q1) Examples of matching expenses against revenues using the association of cause and effect include all of the following except
A) insurance costs
B) transportation costs for delivery of goods to customers
C) costs of products sold
D) sales commissions
Q2) An operating segment is significant and reportable if it satisfies at least one of three tests. Which of the following is not one of those three tests?
A) profit test
B) revenue test
C) asset test
D) ratio test
Q3) A segment must pass all of the tests in order for it to be considered a reportable segment. These tests include the revenue, profit, and asset tests.
A)True
B)False
Q4) What is the difference between interperiod tax allocation and intraperiod tax allocation?
Page 7
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Chapter 6: Cash and Receivables
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Q1) What is a bank reconciliation and what is its importance?
Q2) Compensating balance agreements that do not legally restrict the amount of funds shown on the balance sheet should be reported in the
A) current asset section
B) long-term investment section
C) other asset section
D) notes of the financial statements
Q3) On September 1, 2014, Excellent Company received an $80,000, 12%, 120-day note from a credit customer wishing to extend its repayment period. On October 1, 2010, thirty days after the note was received, Excellent discounted the note at the bank at 14%. How much cash did Excellent Company receive from the bank?
A) $80,800
B) $80,749
C) $80,288
D) $79,317
Q4) What two attributes do notes receivables have that account receivables do not?
Q5) Describe the key elements for internal control of cash receipts and cash payments.
Q6) What two issues are related to the valuation of receivables?
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Chapter 7: Inventories: Cost Measurement and Flow
Assumptions
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Q1) Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory in the year of the change?
A) increased ending inventory
B) decreased ending inventory
C) no change in ending inventory
D) cannot be determined from the information given
Q2) The LIFO conformity rule allows a company to use FIFO for financial reporting and LIFO for income taxes.
A)True
B)False
Q3) Refer to Exhibit 7-3. Assuming Davis uses a periodic FIFO cost flow assumption, ending inventory at April 30 would be
A) $880
B) $920
C) $1,090
D) $1,890
Q4) In a period of rising prices what are the differences between LIFO and FIFO?
Q5) What is the LIFO conformity rule?
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Chapter 8: Inventories: Special Valuation Issues
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Q1) Which one of the following inventories may be valued for balance sheet purposes at the inventory's selling price less distribution costs even if it is above the cost of the inventory?
A) automobiles for an automobile manufacturer
B) gold for a mining corporation
C) steel for a steel manufacturer
D) athletic shoes for a retail store
Q2) Which of the following statements is true?
A) Application of LIFO for financial reporting purposes must follow the tax laws applicable to LIFO.
B) A company must use FIFO for both tax reporting and financial statement reporting.
C) A company may use FIFO to valuate inventory and LIFO for financial statement reporting purposes.
D) LIFO must be used for financial reporting if it is used for tax purposes.
Q3) Lower of cost or market rule can be applied to periodic inventory. What are the two methods? Which one requires an entry to the loss due to market valuation account?
Q4) .....
Q5) ......
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Chapter 9: Current Liabilities and Contingencies
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Q1) Current liabilities are obligations of a company that it expects to liquidate within A) one year
B) the normal operating cycle
C) the normal operating cycle or one year, whichever is longer
D) the normal operating cycle or one year, whichever is shorter
Q2) The uncertainty associated with a loss contingency can vary widely. GAAP requires companies to categorize the likelihood of occurrences of the loss into three categories. What are these three categories and list three common loss contingencies?
Q3) Beta, Inc. had $10,000 of notes coming due on January 10, 2014. On January 5, 2014, the company used $2,000 of excess cash to pay off part of the note. On January 8, 2014, a refinancing was completed. The $2,000 payment was refunded and added back to the note balance, and the note was extended for another two years. On the December 31, 2013 balance sheet, how much of the $10,000 note should be shown as current?
A) $10,000
B) $ 0
C) $ 8,000
D) $ 2,000
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Chapter 10: Property, Plant, and Equipment: Acquisition and
Subsequent
Investments
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Q1) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset is the fair value of the new asset acquired.
A)True
B)False
Q2) All of the following would be classified as property, plant, and equipment except A) office buildings
B) machinery owned for standby purposes
C) equipment held for resale
D) equipment used in the operation of the business
Q3) Property, plant, and equipment are listed on the balance sheet at A) expected future value
B) fair value
C) cost
D) cost less accumulated depreciation
Q4) Recording property, plant, and equipment at historical costs has some advantages including the historical cost is equal to the fair value on the purchase date.
A)True
B)False
Page 12
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Chapter 11: Depreciation, Depletion, Impairment, and Disposal
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Q1) The Jefferson Co. purchased a machine on January 1, 2014. The machine cost $595,000. It had an estimated life of ten years, or 30,000 units, and an estimated residual value of $40,000. In 2014, Jeffries produced 3,000 units.
Required:
Compute the depreciation charge for 2014 using each of the following methods:
Q2) On July 9, 2013, March Company purchased an asset for $18,000. Marcus estimated a four-year life and no salvage value. Marcus uses sum-of-the-years'-digits depreciation to the nearest whole month. Depreciation expense for 2016 will be
A) $1,800
B) $2,700
C) $3,600
D) $4,500
Q3) List the time based allocation methods of cost allocation, provide a brief explanation of each.
Q4) The service life of an asset may be measured by all of the following except
A) units of output
B) units of activity
C) units of input
D) units of time
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Chapter 12: Intangibles
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Q1) The Jessie Company acquired a competitor company in January 2015. When Jessie's accountant recorded the purchase, she correctly recorded an amount for goodwill based on the expectation of the acquired company's earning a rate of return on its assets that was in excess of the industry's rate of return. In fact, the acquired company doubled the expected rate of return in 2015 and 2016. As a result of these increased earnings, in early 2017 the president of the Jessie Company asked the company's accountant to increase the amount recognized as goodwill.
Required:
a.Define the term "goodwill." In addition, discuss several possible factors that might contribute to a company having goodwill.
b.Discuss the accounting treatment under current GAAP for goodwill that is internally developed. Discuss the rationale for this treatment.
c.Discuss the accounting treatment under current GAAP for goodwill that is acquired through an external transaction.
d.Discuss the appropriateness of the president's request to increase the recorded amount of goodwill.
Q2) List 3 activities that can be included in R&D.
Q3) Provide two examples that would indicate goodwill is impaired.
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Chapter 13: Investments and Long-Term Receivables
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Q1) Investments in debt securities include all of the following except
A) U.S. treasury securities
B) corporate bonds
C) preferred stocks that are redeemable at the option of the issuer
D) commercial paper
Q2) For a minority active investment, a company should disclose the investor's accounting policies with respect to equity method of investments.
A)True
B)False
Q3) The generally accepted accounting principles for trading securities include all of the following except
A) initially recording the investment at cost
B) subsequently valuing the investment at fair value
C) including unrealized holding gains and losses as a component of stockholders' equity
D) including interest and dividend revenue as part of income
Q4) What are the four components necessary to account for investments in trading securities?
Q5) List 3 investments in debt securities and 3 investments in equity securities.
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Chapter 14: Financing Liabilities: Bonds and Notes Payable
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Q1) The interest rate used by the creditor to discount the future cash flows of an investment in a restructured loan is the
A) current market rate
B) rate specified in the restructuring agreement
C) original contract rate
D) weighted average rate
Q2) Siena sold $120,000 of 6% bonds for $127,125. Each $1,000 bond carried ten warrants and each warrant allowed the holder to acquire one share of $5 par common stock for $25 a share. After the issuance of the securities, the bonds were quoted at 108 and the warrants were quoted at $12. Later, one-fourth of the rights were exercised.
Required:
Journalize the exercise of the warrants.
Q3) Refer to Exhibit 14-13. If the bonds outstanding method is in use, what would be the total amount of interest expense for 2015?
A) $3,360
B) $4,320
C) $5,280
D) $6,240
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Chapter 15: Contributed Capital
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Sample Questions
Q1) What rights is a shareholder of capital stock entitled?
Q2) When accounting for a fixed compensatory share option plan, a company must make which of the following on the date of grant?
A) journal entry recognizing the common stock issued
B) journal entry recognizing the compensation expense
C) memorandum entry explaining the terms of the compensatory share option plan
D) memorandum entry of the expected annual compensation expense amount
Q3) The accounting method that is used for share appreciation rights (SARs) compensation plans is similar to the accounting procedures that can be used for
A) fixed compensatory share option plans
B) performance-based share option plans
C) noncompensatory share option plans
D) both fixed compensatory and performance-based share option plans
Q4) In accounting for a stock split, a company usually
A) receives less cash than market value
B) receives more cash than market value
C) issues more shares of stock
D) retires shares of stock
Q5) What is a stock subscription?
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Chapter 16: Retained Earnings and Earnings Per Share
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Q1) Describe the two types of corporate capital structures.
Q2) Under the treasury stock method, the number of shares of common stock assumed to be reacquired is determined by using the
A) ending market price of the stock
B) average market price of the stock
C) beginning market price of the stock
D) par value of the stock
Q3) On January 1, 2014, Kiper Corporation had 12,000 shares of common stock outstanding. Kiper reacquired 1,000 shares on May 1, and issued another 5,000 shares on September 1. The company also has 10,000 shares of $20 par, 10%, noncumulative preferred stock outstanding on which no dividends have been declared during the last two years. The company had a $28,360 loss for the year. The earnings per share for the year is
A) ($5.03)
B) ($2.95)
C) ($5.26)
D) ($2.18)
Q4) Other Comprehensive Income or loss might include what four items?
Q5) What is a restriction of retained earnings and why would it be necessary?
Q6) ......
Page 18
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Chapter 17: Advanced Issues in Revenue Recognition
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Q1) Your friend, a college marketing major, has started a marketing research consulting firm. He has already started working for his first client. When setting up his accounting system he wants to fully understand the theoretical issues associated with recording revenue. What do you advise?
Q2) At what point would using the cost recovery method over the installment method be appropriate?
Q3) The QD Company sells franchises. The company charges $50,000 for the initial franchise fee. A down payment of $10,000 is required as part of the franchise agreement. A note payable for the remaining balance is issued at a 10% interest rate payable in four equal annual installments.
Required:
For each of the following independent situations prepare the necessary journal entries for QD to record the initial franchise fee.
Q4) Accrual method is usually associated with
A) revenue recognition in the period of sale
B) revenue recognition prior to the period of sale
C) revenue recognition after the period of sale
D) revenue recognition delayed until a future event occurs
Q5) What three factors decide when to recognize revenue?
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Chapter 18: Accounting for Income Taxes
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Q1) Briefly describe the four major differences between IFRS and GAAP in the measurement procedures used in accounting for deferred income taxes.
Q2) Income tax expense as determined by GAAP differs from amount determined under the Internal Revenue Code; the differences arise due to measurement and timing.
A)True
B)False
Q3) Life insurance proceeds payable to a corporation upon the death of an insured employee are an example of
A) intraperiod tax allocation
B) interperiod tax allocation
C) a permanent difference
D) a temporary difference
Q4) Under IFRS valuation allowances for deferred tax assets are not recorded. A)True
B)False
Q5) What two objectives did FASB identify for accounting for income taxes?
Q6) What conclusion did FASB come to in regards to GAAP for the financial reporting of operating loss carrybacks and carryforwards?
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Chapter 19: Accounting for Postretirement Benefits
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Q1) What estimates are necessary to account for a defined benefit pension plan?
Q2) In 2014, the Electrician Company decided to amend its defined benefit pension plan. The amendment gave 7 employees the right to receive future benefits based upon their prior service. Electrician's actuary determined that the prior service cost for this amendment amounts to $550,000. Employee A will retire in 1 year, employee's B & C expect to retire in 2 years, employee D in three years, employee E in 4 years, and employee's F & G in five years.
Required:
Using the years-of-future service method, prepare the schedules to determine:
1) the amortization fraction for each year
2) the amortization of the prior service cost
Q3) Which of the following disclosures are required by GAAP for OPEBs?
A) the assumed healthcare cost trend rates
B) the amounts of securities included in the plan assets
C) the types of securities included in the plan assets
D) All of these choices
Q4) What disclosures are required by GAAP about a company's defined benefit pension plan?
Q5) What are the advantages of qualified pension plans?
Q6) What five components comprise pension expense?
Page 21
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Chapter 20: Accounting for Leases
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Q1) Lessee leased some land and buildings from Lessor. There was no transfer of ownership and no bargain purchase option. If the fair value of the land is less than a certain percentage of the total fair value of the leased property at the inception of the lease, both the lessee and the lessor may consider the land and buildings as a single unit. What is that percentage?
A) 10%
B) 75%
C) 25%
D) 50%
Q2) When a lessee makes periodic cash payments for an operating lease, which of the following accounts is increased?
A) Rent Expense
B) Leased Equipment
C) Capital Lease Obligation
D) Interest Expense
Q3) What are the four capitalization criteria in which to determine whether to record a lease as operating or capital lease?
Q4) What three criteria must be met for the lessor to account for the lease of land as a sales-type lease?
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Chapter 21: The Statement of Cash Flows
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Q1) When preparing a statement of cash flows under the indirect method, an increase in ending accounts receivable over beginning accounts receivable will result in an adjustment to net income in the operating activities section because
A) cash was increased since accounts receivable is a current asset
B) the accounts receivable increase was a revenue included in net income, but it was not a source of cash
C) the net increase in accounts receivable decreases net sales and represents an assumed use of cash
D) all changes in noncash accounts must be disclosed on the cash flow statement
Q2) Refer to Exhibit 21-1. What is Raymond's net cash provided by operating activities?
A) $11,540
B) $12,210
C) $12,860
D) $14,800
Q3) What are the four steps necessary to prepare the spreadsheet and its statement of cash flows?
Q4) What are the five operating cash outflows activities under the direct method of reporting cash flows?
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Chapter 22: Accounting for Changes and Errors
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Q1) When a company has a counterbalancing error, the company should
A) not take any action if the financial statements are no longer being presented on a comparative basis
B) restate the financial statements to show the correct balances if the financial statements are presented on a comparative basis
C) discuss the error in the notes to the financial statement and restate the financial statements
D) a and b
Q2) If consolidated statements are presented for the first time instead of statements of several individual companies, this change should be accounted for
A) retrospectively
B) prospectively
C) by cumulative effect adjustment
D) by footnote disclosure only
Q3) A change to GAAP from a principle that is not generally accepted
A) requires a retrospective application of the new accounting principle
B) requires prospective treatment
C) requires a retrospective adjustment or restatement
D) is a correction of an error and accounted for by a prior-period adjustment
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Chapter 23: Time Value of Money Module
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Q1) Using the table approach, the future amount of an annuity due may be calculated by finding the table factor for the future amount of an ordinary annuity of
A) n + 1 and then subtract 1
B) n + 1 and then add 1
C) n - 1 and then add 1
D) n - 1 and then subtract 1
Q2) The FASB Statement of Financial Accounting Concepts No. 7 describes five elements that together may be used to determine the value of various assets and liabilities, what are these five elements?
Q3) Abby wants to have $20,000 available in August 2019 to make a college tuition payment. To be able to have this amount available, Abby will have to make equal annual deposits in an investment earning 12% annually in August 2015, 2016, 2017, 2018, and 2019 in the amount of
A) $5,548
B) $4,954
C) $4,000
D) $3,148
Q4) What estimations are involved in present value measurements?
Q5) What is the formula to compute the future value of a single sum?
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