Intermediate Accounting I
Midterm Exam
Course Introduction
Intermediate Accounting I delves into the theoretical foundations and practical applications of financial accounting beyond the introductory level. The course focuses on a comprehensive study of the conceptual framework, accounting standards, and principles governing the preparation and presentation of financial statements. Students explore topics such as income measurement, revenue recognition, time value of money concepts, and the detailed accounting for assets including cash, receivables, inventories, property, plant, and equipment. Emphasis is placed on analyzing and interpreting complex accounting transactions and applying judgment in resolving financial reporting issues in accordance with generally accepted accounting principles (GAAP).
Recommended Textbook
Intermediate Accounting Volume 1 12th Canadian Edition by Donald E. Kieso
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Page 2
Chapter 1: The Canadian Financial Reporting Environment
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Sample Questions
Q1) IFRS Discussion Group
Explain the purpose of the IFRS Discussion Group.
Answer: The IFRS Discussion Group (IFRS DG) is a sub-committee created by the AcSB mandated to raise awareness of issues arising in Canada as a result of implementing IFRS, and to make recommendations to the AcSB for referral to the International Accounting Standards Board and its subcommittees.
Q2) Financial accounting can be broadly defined as the area of accounting that prepares financial statements to be used
A) by parties internal to the business enterprise only.
B) by investors only.
C) by parties both internal and external to the business enterprise.
D) primarily by external users and Canada Revenue Agency.
Answer: C
Q3) Under ASPE, the primary sources of GAAP include
A) accounting textbooks and journals.
B) International Financial Reporting Standards.
C) the CICA Handbook and appendices.
D) research studies.
Answer: C
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Page 3
Chapter 2: Conceptual Framework Underlying Financial Reporting
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Sample Questions
Q1) In the absence of specific GAAP guidance, an entity should adopt accounting policies that are i. consistent with specific GAAP guidance. Ii) consistent with the most conservative reporting choices. Iii) collaboratively developed with the assistance of all business units. Iv) developed through exercising professional judgement and applying the conceptual framework.
A) i, ii, and iii
B) i and iii
C) i and iv
D) ii and iv
Answer: C
Q2) Financial reporting pressures caused by budgets
Explain why budgets might exert negative influence into accounting decisions. Offer some examples to illustrate where this might be the case.
Answer: Budgets put tremendous pressure on company management since bonuses and even jobs might depend on meeting budget targets. For example, if a manager's year-end bonus depends upon reaching a certain sales target, he might create some artificial sales near year-end to inflate the sales figure.
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Chapter 3: Measurement
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Sample Questions
Q1) Barkley Company will receive $400,000 in a future year. If the future receipt is discounted at an interest rate of 8%, its present value is $252,068. In how many years is the $400,000 received?
A) 5 years
B) 6 years
C) 7 years
D) 8 years
Answer: B
Q2) Level 1 inputs
A) are the lowest-quality inputs but provide the best-quality fair value.
B) are used when level 3 inputs are not available.
C) are generally not observable in various markets.
D) are more objective.
Answer: D
Q3) Valuation premise does not refer to
A) the perceived value of the asset/liability.
B) the actual use of the asset/liability.
C) the highest and best use valuation in the market.
D) how the asset/liability is to be used.
Answer: B
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Chapter 4: Reporting Financial Performance
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Sample Questions
Q1) Regarding presentation of discontinued operations, under IFRS, on the balance sheet, an entity must classify held-for-sale assets as
A) current assets.
B) current or non-current, depending on their nature.
C) available for sale assets.
D) Assets held for sale do not appear on the balance sheet.
Q2) Comprehensive income Oiseau Inc. reported the following for 2020: \(\begin{array}{llcc}
\text { Net sales............................................ } & \$1,470,000 \\
\text { Cost of goods sold.............................. } &850,000\\
\text { Selling and admin expenses ...............} &210,000\\
\text {Loss on disposal of equipment.............. } &(12,000)\\
\text {Unrealized gain OCL............................ } &14,000\\ \end{array}\)
Instructions
Prepare a statement of comprehensive income. Ignore income tax and EPS. Assume Oiseau follows IFRS.
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Chapter 5: Financial Position and Cash Flows
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Sample Questions
Q1) Which of the following is NOT a limitation of the statement of financial position?
A) Many assets are reported at historical cost.
B) Judgements and estimates are used.
C) Only "hard" numbers are reported.
D) Disclosure of all pertinent information in the notes.
Q2) In preparing a statement of cash flows, repurchase of a company's own shares at an amount greater than cost would be classified as a(n)
A) operating activity.
B) extraordinary activity.
C) financing activity.
D) investing activity.
Q3) A measure of a company's financial flexibility is the
A) cash debt coverage ratio.
B) current cash debt coverage ratio.
C) free cash flow.
D) cash debt coverage ratio and free cash flow.
Q4) Statement of cash flows basic format
Illustrate the basic format of the statement of cash flows.
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Chapter 6: Revenue Recognition
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Sample Questions
Q1) Performance obligations
Trikonasana Inc. enters into a contract to design and build a bridge connecting a busy downtown core to a shoreline across the way that is home to many commuters. Trikonasana is responsible for overall management of the project and identifies various goods and services to be provided, including engineering, site clearance, foundation, procurement, construction of the structure, and so on.
Instructions
Under IFRS, does Trikonasana have a single performance obligation to the city in this revenue arrangement?
Q2) Where there are potentially multiple performance obligations within a single contract, if products or services are interdependent and interrelated, they must be A) accounted for as multiple performance obligations.
B) combined and reported as a single performance obligation.
C) sold separately.
D) combined under a new contract.
Q3) Explain the advantages and disadvantages of the completed-contract method.
Q4) Concessionary terms
Explain what concessionary terms are, and give four examples.
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Page 8
Chapter 7: Cash and Receivables
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Sample Questions
Q1) Interest rate terminology
Explain the difference between the following interest rate terms: Market
Coupon
Effective Stated
Yield
Face
Q2) Playtime sold toys listed at $280 per unit to Jack Inc. for $252, a trade discount of 10 percent. Jack Inc. in turn sells the toys in the market at $265. Jenny should record the receivable and related sales revenue (per unit) at
A) $280.
B) $265.
C) $252.
D) $227.
Q3) Credit policies
What are the implications if credit policies are too "tight" or restrictive versus too "loose" or flexible?
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Chapter 8: Inventory
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Sample Questions
Q1) Gross profit method
Logan's Corporation recently suffered a fire in its warehouse. The fire destroyed all of the company's inventory on hand at June 30. The opening inventory on June 1 was $1,973,500. Logan purchased an additional $493,000 during June and had sales of $954,000 for the month at a gross profit of 25%.
Instructions
Using the gross profit method, estimate the value of inventory destroyed in the fire.
Q2) When using a periodic inventory system,
A) a Purchases account is not used.
B) a Cost of Goods Sold account is used.
C) two entries are required to record a sale.
D) a Cost of Goods Sold account is not used.
Q3) An estimated loss on purchase commitments is reported
A) under other expenses and losses.
B) as a deduction from purchases.
C) as a current liability.
D) as an extraordinary item.
Q4) What is the difference between an executory contract and an onerous contract?
Q5) What is the specific identification cost flow method?
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Chapter 9: Investments
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Sample
Questions
Q1) On its December 31, 2020, balance sheet, Red Corp. reported a short-term investment in equity securities, under the fair value through net income model, at $ 330,000. At December 31, 2021, the fair value of the securities was $ 350,000. What should Red report on its 2021 income statement as a result of the increase in fair value of the investments during 2021?
A) $ 0.
B) loss on investments of $ 20,000.
C) unrealized gain of $ 20,000.
D) investment income of $ 20,000.
Q2) Under the fair value through net income model, holding gains are
A) recognized in other comprehensive income only.
B) recognized in either net income or other comprehensive income.
C) recognized in net income only.
D) ignored.
Q3) Shares acquired on margin
What does it mean when an investment in shares is acquired on margin and how is the asset recorded?
Q4) Motivation for investments
List three reasons why an organization would make investments.
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Chapter 10: Property, Plant, and Equipment: Accounting Model Basics
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Sample Questions
Q1) The weighted-average accumulated expenditures on the construction project during 2020 were
A) $ 1,467,000.
B) $ 348,000.
C) $ 258,000.
D) $ 156,000.
Q2) Property, plant, and equipment purchased on long-term credit contracts should be accounted for at the
A) actual cash to be paid in the future.
B) future amount of the future payments.
C) present value of the future payments.
D) future value of the current payments.
Q3) When using the revaluation model of accounting for PP&E assets (asset-adjustment or elimination method),
A) the related Accumulated Depreciation account is closed to OCI.
B) depreciation continues to be charged in the original pattern.
C) the difference between fair value and book value is always debited to Revaluation Surplus (OCI).
D) a new depreciation rate must be calculated.
Page 12
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Chapter 11: Depreciation, Impairment, and Disposition
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Sample Questions
Q1) On January 1, 2020, the Accumulated Depreciation-Machinery account of Bonobo Corp. showed a balance of $760,000. At the end of 2020, after the adjusting entries were posted, it showed a balance of $820,000. During 2020, one of the machines that cost $240,000 was sold for $118,000 cash. This resulted in a loss of $7,000. Assuming that no other assets were disposed of during the year, depreciation expense for 2020 was
A) $189,000.
B) $182,000.
C) $180,000.
D) $175,000.
Q2) If a company uses the units of production method for calculating depreciation on its factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will
A) be constant.
B) vary with unit sales.
C) vary with sales revenue.
D) vary with production.
Q3) Explain why depreciation is not a method of determining an asset's declining value or a matter of valuation.
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Chapter 12: Intangible Assets and Goodwill
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Sample Questions
Q1) Alternative treatments of goodwill after recognition Once goodwill has been recognized in the accounts, there has been much disagreement over how it should be treated in subsequent periods. Discuss the alternative treatment approaches.
Q2) During 2020, Elysium Inc. incurred the following costs: Researeh Expense...................................................................................$360,000
Routine design of tools, jigs, moulds, and dies......................................\(250,000\)
Modification of the formulation of a process...........................................610,000 Development services performed by Orchard Corp. for Elysium .......... \({ 3 2 5 , 0 0 0 }\)
Assuming the 6 specific conditions have been demonstrated, in 2020, Elysium Corp. would report development costs of
A) $ 1,545,000.
B) $ 1,295,000.
C) $ 935,000.
D) $ 610,000.
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14
Chapter 13: Accounting Information Systems and Adjusting
Entries: A Comprehensive Guide
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Sample Questions
Q1) Which of the following criteria must be met before an event or item should be recorded for accounting purposes?
A) The event or item can be measured objectively in financial terms.
B) The event or item is relevant and reliable.
C) The event or item is an element.
D) All of these must be met.
Q2) The insurance expense on the 2019 statement of comprehensive income was
A) $ 12,700.
B) $ 12,800.
C) $ 14,100.
D) $ 14,200.
Q3) A post-closing trial balance
A) includes temporary accounts only.
B) includes permanent accounts only.
C) includes both temporary and permanent accounts.
D) may include expense accounts.
Q4) The accounting cycle
Summarize the steps in the accounting cycle.
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