Intermediate Financial Accounting
Mock Exam
Course Introduction
Intermediate Financial Accounting builds upon the foundational principles introduced in introductory accounting courses, diving deeper into the recognition, measurement, and reporting of assets, liabilities, and equity. The course emphasizes the application of Generally Accepted Accounting Principles (GAAP) in preparing and analyzing financial statements. Students will explore topics such as revenue recognition, inventory valuation, long-term assets, current and non-current liabilities, and stockholders equity. Through practical exercises, case studies, and analysis of real-world scenarios, this course equips students with the knowledge and skills essential for addressing complex accounting issues and for progressing toward advanced accounting studies or professional certification.
Recommended Textbook
Intermediate Accounting 1st Edition by Elizabeth A. Gordon
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Page 2
Chapter 1: The Financial Reporting Environment
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Q1) Which of the following statements is FALSE?
A)The SEC permits the use of IFRS-based financial statements by international companies with shares trading on U.S.stock exchanges.
B)Non-U.S.companies operate in the United States but prepare their financial statements using IFRS.
C)The SEC is currently deliberating if IFRS will be required to be used by U.S.companies.
D)The accounting profession has determined that a working knowledge of IFRS is not important for accountants working in the United States.
Answer: D
Q2) Accountants in the United States do not need to learn international accounting standards.
A)True
B)False
Answer: False
Q3) Contrast the differences between rules-based standards and principles-based standards.
Answer: 11ea822b_79fc_1769_bbd8_21c943c239f0_TB3884_00
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Chapter 2: Financial Reporting Theory
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Q1) Under IFRS,which of the following is considered to be a measure of current cost?
A)systematic value
B)direct cost
C)present value of future cash flows
D)historical cost
Answer: C
Q2) Ronaldo Woods is a student getting his degree in business administration.He does not like his accounting class very much,and doesn't understand why he needs to study accounting - stating "I'm never going to be an accountant - why do I need to know this?" Explain to Ronaldo why it is important for business students to learn about accounting and give examples.
Answer: Answers will vary - should include discussion on accountability and transparency.Other points could be the need to talk intelligently with their accountant,to know which gauges to watch (and be able to understand their meaning and consequence),and be able to identify economic events that could impact the compan
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Chapter 3: Judgment and Applied Financial Accounting Research
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Q1) List five issues that are typically addressed in a company's accounting policy footnote.
Answer: Correct answers include:Revenue recognition Receivables
Inventory valuation
Deferred taxes
Intangible assets
Warranty provisions
Contingent liabilities
Foreign exchange risks
Financial instruments
Long-term assets
Business combinations
Share-based compensation
Q2) IFRS and U.S.GAAP have the same disclosure requirements regarding the estimates made at the end of the accounting period.
A)True
B)False
Answer: False
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Chapter 4: Review of the Accounting Cycle
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Q1) If a company does not adjust a prepaid expense initially recorded as an asset,expenses will be overstated.
A)True
B)False
Q2) The adjusted trial balance includes only permanent accounts.
A)True
B)False
Q3) The posting reference in the general journal is the general journal page number.
A)True
B)False
Q4) Permanent accounts do not include ________.
A)Rent Expense
B)Taxes Payable
C)Prepaid Insurance
D)Interest Receivable
Q5) Expense accounts are temporary accounts.
A)True
B)False
Q6) List the sequence in which financial statements are prepared from the adjusted trial balance.
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Chapter 5: Statements of Net Income and Comprehensive
Net Income
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Q1) On May 1,Jonson Industries decided to discontinue its prepackaged business segment.At the end of the year,the company is still holding the business segment for disposal,which is expected early in the following year.On its year-end income statement,Jonson Industries will report as income from discontinued operations the profits generated by the prepackaged business segment ________.
A)for the entire year,before taxes
B)for the entire year,net of taxes
C)since May 1,before taxes
D)since May 1,net of taxes
Q2) Which of the following items does IFRS require to be disclosed but not necessarily presented on the income statement?
A)litigation settlements
B)finance costs
C)turnover
D)income of associates
Q3) Other comprehensive income includes gains and losses from all foreign currency translations.
A)True
B)False
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Chapter 6: Statements of Financial Position and Cash Flows and
the Annual Report
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Q1) Which of the following events would not be treated as a subsequent event?
A)settlement of litigation between the year end and the issuance of the financial statements
B)sale of a business segment between the year end and the issuance of financial statements
C)recalculation of estimated salvage values for property and equipment
D)stock split occurring ten days after the end of the fiscal year
Q2) If an auditor is not able to gather enough evidence to form an opinion on financial statements,the auditor issues a(n)________.
A)unqualified opinion
B)adverse opinion
C)qualified opinion
D)disclaimer of opinion
Q3) What is total stockholders' equity for San Marcos Corporation?
A)$710
B)$818
C)$993
D)$1,058
Q4) List and explain three common cash flow measures based upon balance sheet information.
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Chapter 7: Accounting and the Time Value of Money
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Q1) The expected cash flow approach encompasses all of the following features in determining a present value except ________.
A)the risk-free rate of return
B)a range of estimated future cash flows
C)the fair value of the asset or liability
D)the probabilities of various cash-flow outcomes
Q2) A specific present value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the present value of a single sum factors over the number of periods for that discount rate.
A)True
B)False
Q3) Fanagi Corp.borrowed $58,000 from its bank at a 6% annual interest rate and will repay $250,000.Assume annual compounding.In approximately how many years will Fanagi repay the loan?
A)5 years
B)19 years
C)23 years
D)25 years
Q4) What is a deferred annuity?
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Chapter 8: Revenue Recognition
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Q1) Louise paints seascapes and landscapes.In 2017 she placed nine of her most prized paintings with the Wainwright Studio Gallery.The paintings each carried a price of $1,000,and Louise made a deal with the Gallery to pay them a 40% commission on all paintings sold.At the end of the year three paintings had been sold.How much revenue will Louise recognize on the consignment sales?
A)$3,000
B)$1,800
C)$1,200
D)$-0-
Q2) Under the completed-contract method,revenues are only reported in the last year. A)True
B)False
Q3) Refer to Camey Construction.How much gross profit should Camey recognize in Year 1 assuming the use of the percentage of completion method?
A)$375,000
B)$750,000
C)$937,500
D)$5,000,000
Q4) What are the requirements for a performance obligation to be distinct?
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Chapter 9: OL: Revenue Recognition
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Q1) IFRS requires disclosure or the amount of revenue earned from interest and dividends.
A)True
B)False
Q2) Refer to LaGrow Developers.Assuming that LaGrow uses the installment sales method,in its December 31,2017 balance sheet,the company would report ________.
A)$100,000 net installment accounts receivable
B)$1,500,000 net installment accounts receivable
C)$2,500,000 net installment accounts receivable
D)$3,500,000 net installment accounts receivable
Q3) Deferred gross profit may be treated either as a contra-asset or a liability.
A)True
B)False
Q4) Refer to LaGrow Developers.Assuming that LaGrow uses the installment sales method,the company would recognize gross profit in 2017 of ________.
A)$0
B)$1,000,000
C)$1,500,000
D)$2,500,000
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Chapter 10: Short-Term Operating Assets: Cash and Receivables
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Q1) The operating cycle is the length of time from when a product is sold until the cash is collected.
A)True
B)False
Q2) Companies that use the aging-of-receivables method must disclose the percentage of uncollectible amounts for each age categories.
A)True
B)False
Q3) During the year,Liptom Company made an entry to write off a $4,000 uncollectible account.Before this entry was made,the balance in accounts receivable was $60,000 and the balance in the allowance account was $4,500 (normal balance).What is the net realizable value of accounts receivable after the write-off entry?
A)$60,000
B)$59,500
C)$55,500
D)$51,500
Q4) Pledged receivables are collateral for a financing arrangement.
A)True
B)False
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Chapter 11: Short-Term Operating Assets: Inventory
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Q1) The inventory turnover ratio equals ________.
A)cost of goods sold divided by average inventory
B)sales revenue divided by average inventory
C)sales revenue divided by cost of goods sold
D)365 divided by average inventory
Q2) Beck Company has inventory of $725,000 in its stores as of December 31.It also has two shipments in-transit that left the suppliers' warehouses by December 28.Both shipments are expected to arrive on January 5.The first shipment of $210,000 was sold f.o.b.destination and the second shipment of $102,000 was sold f.o.b.shipping point.Beck Company also has consigned goods of $72,000 awaiting sale with Meyer Company.What amount of inventory should Beck Company report on its balance sheet as of December 31?
A)$725,000
B)$899,000
C)$1,007,000
D)$1,109,000
Q3) The "ceiling" when computing the Lower-of-Cost-or-Market is the net realizable value.
A)True B)False
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Chapter 12: Long-Term Operating Assets: Acquisition, cost
Allocation, and Derecognition
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Q1) Which of the following is an exclusive right to reproduce and sell an original creative work?
A)copyright
B)franchise
C)trademark
D)patent
Q2) A firm does not recognize internally generated intangible assets because their value cannot be measured reliably.
A)True
B)False
Q3) All intangible assets with material values are recognized on a company's balance sheet.
A)True
B)False
Q4) U.S.GAAP allows a firm to record a half year of depreciation expense for any asset acquired at any time during the year.
A)True
B)False
Q5) Under what circumstances does derecognition of an asset occur?
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Chapter 13: Long-Term Operating Assets: Departures From
Historical Cost
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Q1) U.S.GAAP requires an impairment test for goodwill if ________.
A)the fair value of the reporting unit (including goodwill)is greater than the fair value of its net assets (without goodwill)
B)the fair value of the reporting unit (including goodwill)is less than the fair value of its net assets (without goodwill)
C)the fair value of the reporting unit (including goodwill)is less than the book value of the reporting unit (without goodwill)
D)the fair value of the reporting unit (including goodwill)is less than the book value of the reporting unit (including goodwill)
Q2) U.S.GAAP allows companies to make a qualitative evaluation annually to determine whether it is more likely than not that a reporting unit's goodwill is impaired. A)True
B)False
Q3) When testing assets for impairment,a firm must assess them as individual assets. A)True B)False
Q4) Explain how gains or losses on impaired assets should be reported in income.
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Chapter 14: Operating Liabilities and Contingencies
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Q1) A contingency is deemed to be probable if it is considered to be likely to occur.
A)True
B)False
Q2) Describe how to account for warranty costs if the warranty is determined to be a service-type warranty? An assurance-type warranty?
Q3) If management can only estimate a range for the loss,but cannot identify a single most likely outcome within that range,it should accrue the midpoint of the range.
A)True
B)False
Q4) The obligation for compensated absences represents services to be performed by the employee in the future.
A)True
B)False
Q5) Gift card breakage is never redeemed.
A)True
B)False
Q6) Define contingency.What exactly is the company uncertain about?
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Chapter 15: OL: Operating Liabilities and Contingencies
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Q1) A extended warranty exists if the customer has the option to purchase the warranty separately.
A)True B)False
Q2) Because the sale of a extended warranty increases sales revenue,the seller should recognize the expense of providing that warranty in the year of sale.
A)True B)False
Q3) When a company sells the extended warranty contract,it records a liability for unearned revenue.
A)True
B)False
Q4) Warranties that cover longer time periods are more likely to be base warranties. A)True B)False
Q5) An assurance-type warranty is also referred to as an extended warranty. A)True B)False
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Chapter 16: Financing Liabilities
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Q1) On January 2,2016,Weston,Inc.issued 5,000 bonds at $1,060 each.Each bond contains 20 detachable stock warrants,each of which gives the owner the right to purchase one share of Weston $5 par value common stock at $40.The current selling price of common stock is $30 per share.Weston bonds without stock warrants are currently selling for $1,025 and it has additional warrants on the market selling for $20.
Required:
1.Prepare the journal entry to record the sale of the bonds using the proportional method. 2.Prepare the journal entry to record the exercise of all warrants on October 8,2019,when the market price of the stock was $50.
Q2) Describe the difference between GAAP and IFRS in accounting for bond issue costs.
Q3) The face value of a bond is also referred to as its par value.
A)True
B)False
Q4) Bonds sold with nondetachable stock warrants do not recognize the value of the stock warrants.
A)True
B)False
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Chapter 17: Accounting for Stockholders Equity
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Q1) On December 15,Caesar & Company's accountant found a mistake that was made in the previous year's depreciation expense computation.The mistake resulted in depreciation expense that was reported too high last year.Based on the following information (and ignoring taxes),what will the correct ending balance in Retained Earnings be this year?
Retained Earnings balance at the end of last year was $45,000. Depreciation Expense last year overstated by $5,000.
Net income current year is $15,000.
Cash dividends declared and paid this year $4,000.
Q2) Betta Corp.has 65,000 shares of $3 par common stock and 25,000 shares of $17 par fully participating 7% cumulative preferred stock.The company declares cash dividends of $50,000 during the current year and there are $7,000 dividends in arrears.What will be the total dividend payment to common stockholders?
A)$13,250
B)$20,250
C)$36,750
D)$50,000
Q3) When treasury stock is sold above or below cost-why isn't this reported on the income statement as a gain or loss?
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Chapter 18: Investing Assets
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Q1) If an investee's net assets are not equal to their fair value,an additional adjustment is required under the equity method of accounting for investments.
A)True
B)False
Q2) Which of the following statements is correct about the fair value option under IFRS?
A)The fair value method increases volatility in retained earnings.
B)Using the fair value method promotes mismatches because assets and liabilities are measured under different bases.
C)IFRS does not allow fair value reporting for investments under the equity method.
D)IFRS allows a company to revoke the fair value option at any time.
Q3) Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc.Ewok purchased the shares for $210,000 and the shares are currently trading for $195,000 at year-end.Record the journal entries needed to purchase the investment,then adjust it to fair value.Then,show how this investment will be reported on the balance sheet.
Q4) What are the primary effects of amortizing a discount on notes receivable?
Q5) List and discuss the three categories of investing securities.
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Chapter 19: Accounting for Income Taxes
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Q1) The amount of income that a company reports on its tax return is know as
A)refundable income
B)taxable income
C)deductible income
D)net income
Q2) In 2015,its first year of operations,Neuro Inc.experienced a $234,000 net operating loss and recorded a deferred tax asset of $81,900.Neuro decides that it is more likely than not that it will only be able to generate $175,000 of taxable income during the carryforward period.As a result,without generating additional future taxable income it will not be able to fully realize the NOL carryforward benefit.In order to account for this,what amount will Neuro Inc.record as a valuation allowance?
A)$20,650
B)$23,600
C)$28,665
D)Cannot be determined with the information provided.
Q3) Book income refers to the amount of income reported on a company's tax return.
A)True
B)False
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Chapter 20: Accounting for Employee Compensation and Benefits
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Q1) Which of the following is a characteristic of the accumulated benefit obligation measurement?
A)It considers only vested employees.
B)It does not use projected future salary levels.
C)It is required by GAAP for measurement of the pension obligation.
D)It considers only current employees.
Q2) An employee will generally exercise stock options only when the current market price is above the exercise price of the option.
A)True
B)False
Q3) At December 31,Year 1,Musslewhite Corporation reported a net loss of $2.5 million related to its pension plan,because the actuarial assumptions related to future salary levels changed.Musslewhite's entry to record the results of this change will include
A)a debit to Loss-OCI and a credit to Projected Benefit Obligation
B)a debit to Projected Benefit Obligation and a credit to Loss-OCI
C)a debit to pension expense and a credit to Projected Benefit Obligation
D)a debit to pension expense and a credit to loss-OCI
Q4) List and describe the five components of annual pension expense.
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Chapter 21: Earnings Per Share
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Q1) When options and warrants are in the money,they will be dilutive.
A)True
B)False
Q2) Baker Instruments reported $6,000,000 in net income for the current year.The company had $500,000 of 10% cumulative,non-convertible preferred stock outstanding all year,and issued,$5,000,000 of 6% convertible bonds issued on June 1.Determine the numerator for both basic and diluted EPS when the tax rate is 40%.
A)basic EPS $6,000,000 - $50,000; diluted EPS $6,000,000 - $50,000 + ($300,000 × 5/12)(1 - .40)
B)basic EPS $6,000,000 - $50,000; diluted EPS $6,000,000 - $50,000 + ($300,000 × 7/12)(1 - .40)
C)basic EPS $6,000,000 - $50,000 (7/12); diluted EPS $6,000,000 - $50,000 (7/12)+
($300,000 × 7/12)(1 - .40)
D)basic EPS $6,000,000 - $50,000 (5/12); diluted EPS $6,000,000 - $50,000 (5/12)+
($300,000 × 5/12)(1 - .40)
Q3) Why should shareholders pay attention to the diluted EPS?
Q4) Describe how managers can manipulate EPS to increase they own compensation and give at least three examples.
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Chapter 22: Accounting Corrections and Error Analysis
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Q1) One purpose of the cash flow statement is to determine the firm's need for external financing.
A)True
B)False
Q2) If the lease contract allows the lessee to exercise the bargain purchase option prior to the lease termination,all accounting computations must be based on the shorter period.
A)True
B)False
Q3) Which of the following factors is most indicative that a lease should be recorded as a a finance lease under IFRS?
A)Ownership of the property is transferred to the lessee at the end of the lease.
B)The present value of the minimum lease payments is at least equal to the majority of the cost of the property at the lease's inception.
C)The lease term equals at least 50% of the economic life of the asset.
D)The leased asset can be transferred to a subsequent owner during the course of the lease.
Q4) Describe the two methods for reporting accounting changes and how they differ.
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