Intermediate Financial Accounting
Exam Questions
Course Introduction
Intermediate Financial Accounting builds upon the foundational principles introduced in introductory accounting courses, focusing on the theory and practice of financial reporting and analysis. This course emphasizes the detailed examination and application of accounting standards related to assets, liabilities, equity, revenues, and expenses. Students will develop a deeper understanding of complex accounting topics such as revenue recognition, inventory valuation, long-term assets, and financial instruments, as well as issues related to income measurement and presentation in financial statements. Through a combination of theoretical discussions, real-world cases, and problem-solving activities, students will enhance their analytical skills and prepare for advanced accounting studies or professional careers in the field.
Recommended Textbook
Financial Accounting 10th Edition by Walter T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) The stable monetary unit assumption:
A)ensures that accounting records and statements are based on the most reliable data available.
B)holds that the entity will remain in operation for the foreseeable future.
C)maintains that each organization or section of an organization stands apart from other organizations and individuals.
D)enables accountants to ignore the effect of inflation on the accounting records.
Answer: D
Q2) Advantages of a corporation include:
A)each stockholder can enter into agreements that legally bind all the stockholders.
B)the double taxation of distributed profits.
C)limited liability of the stockholders for the corporation's debts.
D)each stockholder can conduct business in the name of the corporation.
Answer: C
Q3) The basic component of paid-in capital is common stock.
A)True
B)False
Answer: True
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3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) Which of the following statements regarding a trial balance is TRUE?
A)A trial balance may be prepared at any time during the accounting period.
B)A trial balance is a list of all accounts used in a business with their balances.
C)A trial balance shows that total debits equals total credits.
D)All of the above are true.
Answer: D
Q2) Common Stock and Retained Earnings are increased by debits.
A)True
B)False
Answer: False
Q3) An example of a slide-type error is writing:
A)$1,200 as $2,100.
B)$300 as $600.
C)$1,000 as $2,000.
D)$400 as $40.
Answer: D
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) If a company fails to record a sale on account:
A)revenue on the income statement will be understated.
B)assets on the balance sheet will be understated.
C)net income on the income statement will still be correct.
D)A and B
Answer: D
Q2) A company's current ratio is decreasing every year and currently stands at 1.00.This indicates:
A)an improving financial position.
B)an improving liquidity position.
C)a declining ability to pay current liabilities.
D)an increase in profitability.
Answer: C
Q3) Accounts that relate to a limited period of time are called:
A)asset and liability accounts.
B)permanent accounts.
C)real accounts.
D)temporary accounts.
Answer: D
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) The Sarbanes-Oxley Act created the American Institute of Certified Public Accountants to oversee the audits of public companies.
A)True
B)False
Q2) Managers can use records produced by point-of-sale terminals to check inventory levels.
A)True B)False
Q3) The Sarbanes-Oxley Act of 2002:
A)requires public companies to issue an internal control report.
B)requires an outside auditor to evaluate the soundness of a public company's internal controls.
C)requires public companies to issue a special report on the amount of collusion within a company.
D)A and B
Q4) A compensating balance maintained for a loan increases the actual interest rate on a loan.
A)True B)False
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) Which statement is TRUE?
A)Available-for-sale securities are debt securities only.
B)Trading securities are debt securities only.
C)Held-to-maturity securities are debt securities only.
D)Held-to-maturity securities are reported as long-term assets only.
Q2) The two major types of receivables are accounts receivable and trade receivables.
A)True
B)False
Q3) On April 3,Jenny's Store purchased stock in New Company for $36,000,and classified it as a short-term available-for-sale security.On April 28,Jenny's Store received dividends from New Company of $1,250.On June 30,the New Company stock had a fair value of $32,000.
Required:
1.Prepare the journal entries needed to record the transactions.Explanations are not required.
2.What will Jenny's Store report on its income statement for the year ended December 31?
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Mariah Company has inventory at the end of the year with a historical cost of $75,000.Mariah Company uses the perpetual inventory system.Under the LCM rules,the current replacement cost is $72,600.Under U.S.GAAP,the journal entry to record the write-down to LCM will:
A)debit Cost of Goods Sold for $2,400 and credit Inventory for $2,400.
B)debit Cost of Goods Sold for $2,400 and credit Purchases for $2,400.
C)debit Inventory for $2,400 and credit Cost of Goods Sold for $2,400.
D)debit Purchases for $2,400 and credit Cost of Goods Sold for $2,400.
Q2) In 2015,ending inventory is overstated.What is the effect of the error on net income in 2015 and 2016?
A)net income is overstated in 2015 and understated in 2016
B)net income is understated in 2015 and overstated in 2016
C)net income is understated in 2015 and 2016
D)net income is overstated in 2015 and 2016
Q3) Another term for gross profit is:
A)gross income.
B)gross sales.
C)gross margin.
D)gross operating income.
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Page 8
Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) On January 2,2015,Kornis Corporation acquired equipment for $300,000.The estimated life of the equipment is 5 years or 40,000 hours.The estimated residual value is $20,000.What is the balance in Accumulated Depreciation on December 31,2015,if Kornis Corporation uses the double-declining-balance method of depreciation?
A)$56,000
B)$60,000
C)$112,000
D)$120,000
Q2) A machine costing $40,000 was purchased on January 1,2014.It has an estimated useful life of 5 years and a salvage value of $5,000.
Required:
1.Calculate depreciation expense for 2014 and 2015 using (a)straight-line rate,and (b)double-declining balance method.
2.Determine the book value of the machine at December 31,2015 under the (a)straight-line method and (b)double-declining balance method.
Q3) The normal balance of the Accumulated Depreciation account is a debit.
A)True B)False
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9
Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) The equity method is used to account for stock investments in which the investor company owns less than 20% of the outstanding stock of the investee.
A)True
B)False
Q2) In present value calculations,the process of determining the present value of a single sum of money is called:
A)allocating.
B)pricing.
C)negotiating.
D)discounting.
Q3) The cash paid to purchase 40% of a corporation's outstanding stock to be accounted for under the equity method is reported on the statement of cash flows as a(n):
A)increase in financing activities.
B)decrease in financing activities.
C)increase in investing activities.
D)decrease in investing activities.
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Page 10
Chapter 9: Liabilities
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Q1) The carrying value of bonds decreases over the term of the bonds if the bonds were issued at a discount.
A)True B)False
Q2) The stated interest rate is always equal to the market interest rate on the date the bonds are issued.
A)True B)False
Q3) If bonds have been issued at a discount,the ________ over the life of the bonds.
A)carrying value of the bonds will decrease
B)interest payment will increase
C)interest expense will decrease
D)interest expense will increase
Q4) The carrying amount of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.
A)True B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) On February 1,a corporation has 30,000 shares of $1 par value common stock issued and outstanding.The corporation also has Additional Paid-in Capital of $100,000 and Retained Earnings of $100,000.On February 1,the corporation declared a 2-for-1 stock split.After the split,what is the total par value of the common stock and the total stockholders' equity,respectively?
A)0; $230,000
B)$30,000; $230,000
C)$60,000; $260,000
D)$130,000; $260,000
Q2) A stock dividend is considered small when it is a dividend of:
A)less than 30% but greater than 25% of the corporation's outstanding stock.
B)between 50% and 100% of the corporation's outstanding stock.
C)more than 30% of the corporation's outstanding stock.
D)25% or less of the corporation's outstanding stock.
Q3) Stockholders of a corporation directly elect the:
A)Board of directors.
B)President of the corporation.
C)Chief Financial Officer of the corporation.
D)Chairperson of the Board.
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Chapter 11: Evaluating Performance: Earnings Quality, the Income Statement, the Statement of Comprehensive Income
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Q1) Corporations with convertible securities outstanding such as convertible preferred stock report:
A)basic and diluted EPS.
B)basic EPS only.
C)diluted EPS only.
D)no EPS figures.
Q2) Comprehensive income includes net income plus:
A)Foreign-Currency Transaction Gain.
B)Equity-Method Investment Revenue.
C)Foreign-Currency Translation Gain.
D)Unrealized Gains on Investments in Trading Securities.
Q3) For a merchandiser,how is Interest Revenue classified on the income statement?
A)Income from Discontinued Operations
B)Extraordinary item
C)Other Revenues and Gains
D)Operating Expenses
Q4) The revenue recognition principle requires that sales revenues be recognized when it is earned.
A)True
B)False Page 13
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Chapter 12: The Statement of Cash Flows
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Q1) Which financial statements cover a period of time?
A)Income Statement only
B)Income Statement and Statement of Stockholders' Equity
C)Income Statement,Statement of Stockholders' Equity and Statement of Cash Flows
D)Income Statement,Statement of Stockholders' Equity,Statement of Cash Flows and Balance Sheet
Q2) Which of the following would be reported on a statement of cash flows as an investing activity?
A)Depreciation expense
B)Purchase of treasury stock
C)Sale of equipment for cash
D)Paying cash dividends
Q3) An increase in Interest Payable during the reporting period indicates that the cash paid for interest exceeded Interest Expense on the income statement.
A)True
B)False
Q4) The statement of cash flows is an optional statement.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Q1) Analyzing the statement of cash flows may help analysts determine the financial health of a company.Which of the following signs below is NOT an indicator of a financially healthy company?
A)The company's operations are a major source (not a use)of cash.
B)The company's operations result in Net Cash Used by Operating Activities.
C)The company's investing activities include more purchases than sales of long-term assets.
D)The company's financing activities are not dominated by borrowing.
Q2) In an efficient market,an investor's search for "underpriced" stock will be unsuccessful unless the investor has knowledge of confidential information.
A)True
B)False
Q3) In vertical analysis:
A)a base amount is optional.
B)a base amount is required.
C)line items from balance sheets are examined only.
D)line items from income statements are examined only.
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