Intermediate Accounting
Textbook Exam Questions
Course Introduction
Intermediate Accounting delves deeper into the principles and practices introduced in introductory accounting. This course covers a wide range of accounting topics, including revenue recognition, asset valuation, liabilities, equity, and the preparation and analysis of complex financial statements in accordance with Generally Accepted Accounting Principles (GAAP). Students will develop skills in problem-solving and critical thinking as they apply accounting standards to practical business scenarios, analyze financial disclosures, and evaluate the impact of accounting decisions on financial reporting. The course is essential for those planning to pursue advanced studies or a professional career in accounting and finance.
Recommended Textbook
Horngrens Financial and Managerial Accounting 6th Edition by Tracie L. Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Regarding the monetary unit assumption,which of the following statements is correct?
A)This assumption requires that the items on the financial statements be measured at their current market value.
B)Accountants assume that the dollar's purchasing power is stable.
C)The value of a dollar does not change over time.
D)During periods of inflation,a dollar will purchase more.
Answer: B
Q2) An entity refers to one business which includes its owners.
A)True
B)False
Answer: False
Q3) A corporation purchased office supplies on account.As a result of this transaction,expenses and liabilities will increase.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Q1) A trial balance is the list of only a company's asset and liability accounts,along with their account numbers,at a point in time.
A)True
B)False
Answer: False
Q2) A business buys $300 of office supplies on account.Which of the following accounts is debited?
A)Cash
B)Accounts Payable
C)Office Supplies
D)Accounts Receivable
Answer: C
Q3) The Salaries Payable account is a(n)________.
A)liability account with a normal debit balance
B)asset account with a normal debit balance
C)liability account with a normal credit balance
D)asset account with a normal credit balance
Answer: C
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4
Chapter 3: The Adjusting Process
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Q1) Why is it important for companies to record adjusting entries?
Answer: It is important for companies to record adjusting entries so that the correct balances of accounts are reported to users of the financial statements and an accurate picture of the company's health is represented.Adjusting entries affect the balance sheet and income statement.
Q2) The Accumulated Depreciation account is ________.
A)a record of the sum of all the depreciation expense recorded to date for a depreciable asset
B)the price quoted to the buyer of a used asset
C)a liability account
D)the expense account used to allocate the depreciable cost of an asset
Answer: A
Q3) On December 15,2018,Donald Services,Inc.collected revenue of $3,000 in advance from a new client,and agreed to provide services to the client for the period of December 15 through January 15 of the following year.Assume that the company records deferred revenues using the alternative treatment.Prepare the December 15,2018 journal entry.Omit explanation.
Answer: 11ea86ed_2cf8_1b58_8b27_197aadf06dea_TB3056_00
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following is a plant asset?
A)Equipment
B)Patents
C)Trademark
D)Accounts Receivable
Q2) The balance sheet is the first financial statement that is prepared at the end of the period.
A)True
B)False
Q3) Only permanent accounts appear on the post-closing trial balance.
A)True
B)False
Q4) In a classified balance sheet,assets are reported in the order of liquidity and liabilities are listed in the order in which they must be paid.
A)True
B)False
Q5) Only temporary accounts appear on the post-closing trial balance. A)True
B)False
Q6) List the steps of the accounting cycle that take place during the period.
Page 6
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Chapter 5: Merchandising Operations
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Q1) When a perpetual inventory system is used,at the time of each sale an entry to record an expense and an increase in Merchandise Inventory must be made.
A)True
B)False
Q2) FOB destination represents a situation in which the buyer takes title to the goods after the goods leave the seller's place of business.
A)True
B)False
Q3) In a perpetual inventory system,the entry that adjusts the Merchandise Inventory account based on the physical count equals the merchandise inventory balance before adjustment less actual merchandise inventory on hand.
A)True
B)False
Q4) List the three steps,in order of occurrence,of the operating cycle of a merchandising business.
Q5) Operating income equals gross profit minus operating expenses.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) For all four inventory costing methods,cost of goods sold is always equal to the sum of beginning inventory plus net purchases.
A)True
B)False
Q2) Better Deals,Inc.has 6 units in inventory on December 31.The units were purchased in November for $165 each.The price lists from the suppliers indicate that the same items would now cost the company a total of $1,020.What would be the amount reported as ending Merchandise Inventory on the balance sheet?
A)$2,010
B)$335
C)$990
D)$1,020
Q3) During a period of declining inventory costs,which of the following inventory costing methods should be used by a company that intends to minimize its income tax expenses?
A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) To be IFRS compliant,foreign companies are not required to have their internal controls audited by outside auditors.
A)True
B)False
Q2) The petty cash fund at Brookshire Company has a designated balance of $350.The fund currently holds $126 in cash and $226 in petty cash tickets.Based on this information,which of the following statements is correct?
A)The total of the cash on hand plus petty cash tickets equals the designated fund balance.
B)A shortage of $2 exists.
C)To replenish the petty cash fund,the company must write a check,payable to Petty Cash,for $226.
D)The petty cash fund custodian must locate the $2 discrepancy.
Q3) The mailroom employee opens all incoming mail.Customers' checks are sent to the treasurer,and remittance advices are sent to the accounting department.The controller compares the daily bank deposit amount from the treasurer and the daily debit to cash from the accounting department.
Q4) List the four steps,the proper order,of the purchasing and payment process.
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Chapter 8: Receivables
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Sample Questions
Q1) The entry to write off an account under the allowance method affects net income at the time of entry.
A)True
B)False
Q2) In counting the number of days in a note term,omit the date the note was issued.
A)True
B)False
Q3) Accounts Receivable has a balance of $32,000,and the Allowance for Bad Debts has a credit balance of $3,000.The allowance method is used.What is the net realizable value of Accounts Receivable before and after a $2,100 account receivable is written off?
A)$29,000;$29,000
B)$26,900;$26,900
C)$29,000;$26,900
D)$26,900;$31,100
Q4) If a note receivable is outstanding at the end of an accounting period,the interest earned up to year-end is recorded as interest revenue when the cash is received.
A)True
B)False
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) A machine that was purchased for $120,000 has accumulated depreciation of $90,000.The business exchanges the machine for a new one.The new machine has a market value of $130,000,and the business pays $120,000 cash.Assume the exchange has commercial substance.This exchange results in a ________.
A)gain of $20,000
B)gain of $10,000
C)loss of $20,000
D)loss of $30,000
Q2) Which of the following is included in the cost of land?
A)cost of fencing
B)cost of paving
C)brokerage commission
D)cost of outdoor lighting
Q3) Which of the following is an intangible asset?
A)plant and machinery
B)goodwill
C)building
D)land
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Chapter 10: Investments
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Sample Questions
Q1) Which of the following is true of the Fair Value Adjustment - Trading account for trading debt investments?
A)It will always have a credit balance.
B)It will always have a debit balance.
C)It is considered as an adjunct account if it has a credit balance.
D)It is considered as an adjunct account if it has a debit balance.
Q2) Significant influence equity investments are reported as ________ on the balance sheet.
A)current assets
B)either current assets or current liabilities
C)long-term assets
D)either current assets or long-term assets
Q3) Provide the following information for controlling interest equity investments:
1.Which accounting method is used?
2.What is the balance sheet effect when using this accounting method?
3.What is the income statement effect when using this accounting method?
Q4) No significant influence equity investments generally involve the ownership of less than 20% of the investee's voting stock.
A)True
B)False
Page 12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Sean's gross pay for this month is $8750.His gross year-to-date pay,prior to this month,totaled $112,000.Sean's rate for federal income tax is 25%.His voluntary deductions total $950.What is Sean's net pay? (Assume an OASDI rate of 6.2%,applicable on the first $118,500 earnings,and a Medicare rate of 1.45%,applicable on all earnings.Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$6032.62
B)$5612.50
C)$6562.50
D)$5082.62
Q2) If the likelihood of a future event is probable and the amount of the expense cannot be estimated,how should the company report the contingency?
Q3) Restaurant Foods Corp.had cash sales of $598,000 during the month of August.Sales taxes of 6.5% were collected on the sales.Prepare the journal entry to record the sales revenue and sales tax for the month.Omit explanation.
Q4) A journal entry is prepared to reclassify the current portion of a note payable. A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Which of the following describes a secured bond?
A)a bond that matures in installments at regular intervals
B)a bond that is backed by issuer's specific assets
C)a bond that matures at one specified time
D)a bond that is not backed by specific assets
Q2) Which of the following is true of the Discount on Bonds Payable account? The bonds are due in ten years.
A)It is added to the Bonds Payable balance and shown with long-term liabilities on the balance sheet.
B)It is subtracted from the Bonds Payable balance and shown with the current liabilities on the balance sheet.
C)It is added to the Bonds Payable balance and shown with stockholders' equity on the balance sheet.
D)It is subtracted from the Bonds Payable balance and shown with long-term liabilities on the balance sheet.
Q3) The fact that invested cash earns interest over time is called the time value of money.
A)True
B)False
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Chapter 13: Stockholders Equity
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Q1) When a stockholder contributes land to a corporation in exchange for stock,________.
A)liabilities and stockholders' equity are increased
B)assets and stockholders' equity are increased
C)one asset is increased and another asset is decreased
D)assets and liabilities are increased
Q2) Lack of mutual agency is best described as which of the following?
A)The liabilities of the corporation cannot be extended to the personal assets of the stockholder.
B)Shares of stock can be readily purchased and sold by investors on an organized stock exchange.
C)Stockholders are not authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings,and shareholders pay income tax on corporate dividends.
Q3) The declaration date is the date the corporation prepares a journal entry to record that stockholders will receive dividend checks.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Q1) Which of the following is a cash outflow for a financing activity on the statement of cash flows?
A)payment of interest on a loan
B)payment for purchasing Merchandise Inventory
C)payment of dividends
D)payments to the government for taxes
Q2) The operating activities section of the statement of cash flows reflects the cash flows that affect current assets and current liabilities.
A)True
B)False
Q3) The third section presented on the statement of cash flows is the non-cash operating activities section.
A)True
B)False
Q4) When preparing the statement of cash flows,the amount of net cash provided by operating activities differs between the direct and indirect methods.
A)True
B)False
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) A high times-interest-earned ratio indicates difficulty in paying interest expense.
A)True
B)False
Q2) Common-size statements ________.
A)allow the users to compare numbers in relative terms rather than absolute amounts
B)report dollar amounts and percentages
C)create a dollar value bias
D)show the same percentages that appear in a horizontal analysis
Q3) If inventory turnover is too slow,a company may be unable to sell goods or it may be understating merchandise inventory.
A)True
B)False
Q4) What is a common-size statement? Why are these statements useful?
Q5) Horizontal analysis is the study of percentage changes in line items in comparative financial statements.
A)True
B)False
Q6) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) In a manufacturing company,the salary of the sales staff is an example of a period cost.
A)True
B)False
Q2) Service companies do not have product costs,so they often consider all operating expenses as part of their cost of service.
A)True
B)False
Q3) Manufacturing overhead includes all manufacturing costs,such as direct labor and direct materials.
A)True
B)False
Q4) Anika,a division manager,is purchasing materials to ensure she has enough to meet customers' demands.Anika is engaging in the ________.
A)planning function
B)directing function
C)controlling function.
D)decision function
Q5) Describe the flow of product costs for a manufacturer.
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Overallocated manufacturing overhead occurs when the manufacturing overhead allocated to Work-in-Process Inventory is less than the amount actually incurred.
A)True
B)False
Q2) Kalliste,Inc.completed Job C50.Job C50 required $3,000 of direct materials cost,$2,000 of direct labor cost,and $600 of allocated manufacturing overhead.Provide the journal entry needed to record completion and transfer of the job.Omit explanation.
Q3) When goods are transferred from the Finished Goods Inventory account to the Cost of Goods Sold account,the product costs move from the balance sheet to the income statement.
A)True
B)False
Q4) If the debit side of the Manufacturing Overhead account totals more than the credit side of the account,the manufacturing overhead is overallocated.
A)True
B)False
Q5) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Q1) The Assembling Department of Origination Inc.had 10,000 units in process on December 1 and received 30,000 units from the Sewing Department.During the month,it completed 20,000 units and transferred them to the Packaging Department.Calculate the number of units accounted for by the Assembling Department for December.Prepare the production cost report for the Assembling Department for the units for the month of December.Use the FIFO method.
Q2) Which of the following is used to calculate the number of units accounted for under first-in,first-out (FIFO)method of inventory valuation of process costing? This is the first department in a company using process costing.
A)Accounted for = Beginning balance + Started and completed + In process
B)Accounted for = Beginning balance + Started and completed
C)Accounted for = Beginning balance + In process
D)Accounted for = Beginning balance + Amount transferred in
Q3) The task of summarizing the flow of physical units is one of the four steps involved in the preparation of the production cost report.
A)True
B)False
Q4) How is a production cost report prepared using the FIFO method?
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Page 20
Chapter 19: Cost Management Systems:
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Sample Questions
Q1) In the first step in developing an activity-based costing system for a manufacturing company,the management team must determine the activities that incur the majority of the product and period costs.
A)True
B)False
Q2) Barricade Corporation specializes in the production of door knobs,which are mostly sold within its territory.The selling price for each door knob is $15.Using the traditional allocation method to allocate manufacturing overhead,the full-product cost is determined to be $10.The company recently introduced the activity-based costing method to allocate its overhead.The refinement of costs shows that the full-product cost is $2.50 lower with activity-based costing than with traditional costing. Requirement:
1.Calculate the change in net profit percentage as a result of the introduction of activity-based costing.
2.The desired net profit margin of the company is 60%.If the production costs cannot be reduced,by how much should the selling price be increased in order to achieve the desired profit? (Use the cost estimates under activity-based costing. )
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Which of the following costs change in total in direct proportion to a change in volume?
A)fixed costs
B)variable costs
C)mixed costs
D)period costs
Q2) Which of the following is an assumption of cost-volume-profit (CVP)analysis?
A)The price per unit does not change as volume changes.
B)Mangers classify all costs as mixed.
C)Total fixed costs change in the relevant range.
D)The number of products produced exceeds the number of products sold.
Q3) McLeod,Inc.incurred fixed costs of $300,000.Total costs,both fixed and variable,are $500,000 when 59,000 units are produced.It sold 35,000 units during the year.Calculate the variable cost per unit.(Round your answer to the nearest cent. )
A)$8.47
B)$14.29
C)$5.08
D)$3.39
Q4) How is the unit contribution margin calculated?
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Chapter 21: Variable Costing
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Q1) In service companies,variable costing can be used for profitability analysis and contribution margin analysis.
A)True
B)False
Q2) Which of the following is true of the traditional format of the income statement?
A)It is prepared under the variable costing method.
B)It shows contribution margin as a line item.
C)It is not allowed under GAAP.
D)It is prepared under the absorption costing method.
Q3) Absorption costing is more appropriate than variable costing for making plant production capacity decisions in the long run.
A)True
B)False
Q4) Absorption costing is more appropriate when determining the product costs for long-term production planning.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) Budgeted financial statements are financial statements based on budgeted amounts rather than actual amounts.
A)True
B)False
Q2) Robust Resources expects to sell 440 units of Product A and 400 units of Product B each day at an average price of $18 for Product A and $27 for Product B.The expected cost for Product A is 40% of its selling price and the expected cost for Product B is 64% of its selling price.Robust Resources has no beginning inventory,but it wants to have a three-day supply of ending inventory for each product.Compute the company's budgeted sales for the next (seven-day)week.(Round the answer to the nearest dollar. )
A)$10,080
B)$56,160
C)$131,040
D)$18,720
Q3) The level of forecasted sales has little effect on other elements of the master budget.
A)True
B)False
Q4) What is the cornerstone of the master budget for a merchandising company? Why?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Which of the following amounts of a flexible budget changes,within the specified relevant range,with changes in sales volume?
A)sales price per unit
B)total fixed costs
C)variable cost per unit
D)total contribution margin
Q2) A favorable variance reflects a decrease in operating income.
A)True
B)False
Q3) The sales volume variance is the difference between the ________.
A)actual results and the expected results in the flexible budget for the actual units sold
B)expected results in the flexible budget for the actual units sold and the static budget
C)static budget and actual amounts due to differences in sales price
D)flexible budget and static budget due to differences in fixed costs
Q4) List three ways in which using a standard cost system helps managers.
Q5) A favorable variance has a debit balance and is a contra revenue.
A)True
B)False
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Profit center responsibility reports include ________.
A)revenues only
B)invested capital
C)both revenues and expenses
D)returns on investments
Q2) Companies evaluate investment centers using the same measures as the profit centers.
A)True
B)False
Q3) The return on investment of a company is a measure of profitability and efficiency.
A)True
B)False
Q4) List the two factors that the financial evaluation of investment centers must measure.
Q5) Centralized operations are better for small companies due to the smaller scope of their operations.
A)True
B)False
Q6) List the primary goals of performance evaluation systems.
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Chapter 25: Short-Term Business Decisions
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Q1) Comfort Cruiser Company manufactures 80 luxury yachts per month.Included in each yacht is a compact media center.Comfort Cruiser manufactures the media center in-house.The company is considering the possibility of outsourcing the production of the media centers in order to close down some of its facilities and reduce the administrative costs.At present,the variable cost per unit is $280,and fixed costs are $44,000 per month.Assume that if it outsources,fixed costs could be reduced by 60%.The production manager advised the company to contract with a foreign supplier who offered a contract cost of $410 per unit.If it outsources the media center,how would that affect operating income?
A)Operating income would increase by $16,000.
B)Operating income would increase by $26,400.
C)Operating income would decline by $16,000.
D)Operating income would remain the same.
Q2) A company is planning to replace an old machine with a new one.Which of the following is a sunk cost?
A)cost of the new machine
B)sales price of the old machine
C)future maintenance costs of the old machine
D)original cost of the old machine
Q3) Explain the difference between price-takers and price-setters.
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Chapter 26: Capital Investment Decisions
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Q1) Many service,merchandising,and manufacturing firms use discounted cash flow methods to make capital investment decisions.
A)True
B)False
Q2) Which of the following describes the time value of money?
A)The time value of money has no effect on the timing of capital investments.
B)Money loses its purchasing power over time through inflation.
C)The fact that invested cash may not earn interest over time is called the time value of money.
D)A dollar received today is worth more than a dollar to be received in the future.
Q3) A post-audit in capital budgeting is a comparison of the actual results of capital investments with the projected results.
A)True
B)False
Q4) The following formula is used to compute the present value of a lump sum: Future value = Present value × PV factor for i = X%,n = X periods
A)True
B)False
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Chapter 27: Accounting Information Systems
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Q1) The Accounts Receivable balance in the general ledger may or may not equal the sum of the accounts in the accounts receivable subsidiary ledger.
A)True
B)False
Q2) The sales journal is used for all sales of merchandise inventory.
A)True
B)False
Q3) The accounts payable subsidiary ledger lists each vendor along with amounts paid to the vendors and the remaining amounts owed to them.
A)True
B)False
Q4) In an accounting information system,outputs are the reports used for decision making,which include the financial statements.
A)True
B)False
Q5) Most small businesses have computerized all of their accounting.
A)True
B)False
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