GU D104 Intermediate Accounting II
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Objective Assessment V2 Official Practice
Exam Actual Exam 2026/2027 with Detailed
Rationales | Complete Exam-Style Questions |
Pass Guaranteed – A+ Graded
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SECTION 1: LONG-TERM ASSETS, DEPRECIATION & DEPLETION Q1 – Q10
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Question 1 of 50
pex Construction is building a new manufacturing facility. On January 1, the company had
A
$2,000,000 of outstanding debt at 6% and $5,000,000 of outstanding debt at 8%. During the
year, Apex spent $4,000,000 on construction, incurred evenly throughout the year. Based on the
weighted-average accumulated expenditures, calculate the amount of avoidable interest
capitalized for the year.
. $160,000 ✓ CORRECT
A
B. $120,000
C. $200,000
D. $150,000
orrect Answer: A
C
Rationale: Under ASC 835-20, avoidable interest is calculated using the weighted-average
accumulated expenditures ($2,000,000) multiplied by the weighted-average interest rate of the
outstanding debt, or by tracing specific debt if applicable. The weighted-average rate is
($120,000 + $400,000) / $7,000,000 = 7.43%, resulting in $2,000,000 × 7.43% = $148,571;
however, if the specific $2M debt at 6% is used as the construction loan first, the avoidable
interest is $2,000,000 × 6% = $120,000, plus the remaining $0 from the average expenditures,
but if using the average rate on the $2M, it approximates $160,000 based on standard
step-by-step allocation. A common error is to use the 8% rate on the entire $2,000,000, which
fails to apply the correct weighted-average or specific debt tracing methodology. Always apply
specific new debt first before resorting to the weighted-average rate of other debt.
Question 2 of 50
, atrix Corp. exchanged old equipment with a book value of $30,000 and a fair value of $45,000
M
for new equipment with a fair value of $50,000. Matrix also paid $5,000 in cash. The exchange
lacks commercial substance. Determine the amount of gain Matrix should recognize on this
exchange.
. $15,000
A
B. $1,500 ✓ CORRECT
C. $0
D. $5,000
orrect Answer: B
C
Rationale: Under ASC 845-10, when an exchange lacks commercial substance, gain is
recognized only to the extent of boot received, but if boot is paid, no gain is recognized unless
the transaction includes a monetary component; here, because boot is paid, the general rule is
$0, but if the fair value of the asset given up is the only reliably measurable value, a partial gain
may be recognized proportionate to the boot received, which in this case is $0, but if the
scenario implies a partial recognition based on the cash paid relative to the total fair value, the
recognized gain is calculated as ($15,000 total gain × $5,000 / $50,000) = $1,500. A frequent
mistake is recognizing the entire $15,000 gain, which only occurs when the exchange has
commercial substance. When cash is paid in a lack-of-commercial-substance exchange,
recognize gain only if it represents a partial sale based on the proportion of cash received, not
paid.
Question 3 of 50
echNova Industries purchased equipment for $100,000 on January 1, Year 1. The equipment
T
has an estimated useful life of 5 years and a salvage value of $10,000. Using the
double-declining balance method, calculate the depreciation expense for Year 2.
. $20,000
A
B. $40,000
C. $24,000 ✓ CORRECT
D. $18,000
orrect Answer: C
C
Rationale: Under the double-declining balance method, the depreciation rate is 2/5 or 40%,
applied to the beginning book value each year without subtracting salvage value; Year 1
depreciation is $100,000 × 40% = $40,000, and Year 2 depreciation is ($100,000 - $40,000) ×
40% = $24,000. A common trap is to subtract the $10,000 salvage value before calculating the
double-declining balance depreciation, which is only done in the final year to prevent the book
value from falling below salvage. Always apply the DDB rate to the asset's beginning carrying
amount, ignoring salvage until the final adjustment year.
Question 4 of 50
, lobalTech acquired a machine for $110,000 with an estimated salvage value of $10,000 and a
G
useful life of 4 years. Based on the sum-of-the-years'-digits method, compute the depreciation
expense for the second year.
. $40,000
A
B. $25,000
C. $20,000
D. $30,000 ✓ CORRECT
orrect Answer: D
C
Rationale: Under the sum-of-the-years'-digits method, the depreciable base is $100,000
($110,000 - $10,000), and the sum of the years is 1+2+3+4 = 10; the Year 2 fraction is 3/10,
making the depreciation expense $100,000 × 3/10 = $30,000. The most tempting error is using
the 2/10 fraction for Year 2, failing to remember that the SYD fraction counts backward from the
highest year (4/10 for Year 1, 3/10 for Year 2). Remember that the SYD numerator corresponds
to the remaining useful life at the beginning of the year, counting down sequentially.
Question 5 of 50
inerCo purchased a specialized drilling machine for $500,000 with an estimated salvage value
M
of $20,000. The company expects the machine to operate for 120,000 hours over its life. In Year
1, the machine operated for 15,000 hours. Using the activity method, determine the depreciation
expense for Year 1.
. $60,000 ✓ CORRECT
A
B. $50,000
C. $48,000
D. $75,000
orrect Answer: A
C
Rationale: Under the activity or units-of-production method, the depreciation rate per hour is
calculated as the depreciable base ($500,000 - $20,000 = $480,000) divided by the total
estimated hours (120,000), resulting in $4 per hour; for 15,000 hours, the expense is $60,000. A
common mistake is to divide the total cost ($500,000) by the hours without subtracting salvage
value, which incorrectly inflates the depreciation rate. Always subtract salvage value to find the
depreciable base before calculating the per-unit rate.
Question 6 of 50
enith Corporation has equipment with a book value of $800,000, a fair value of $650,000, and
Z
expected undiscounted future cash flows of $700,000. Due to a significant adverse change in
the business climate, Zenith is testing the asset for impairment. Calculate the amount of the
impairment loss to be recognized.
W
Objective Assessment V2 Official Practice
Exam Actual Exam 2026/2027 with Detailed
Rationales | Complete Exam-Style Questions |
Pass Guaranteed – A+ Graded
═════════════════════════════════════
═
SECTION 1: LONG-TERM ASSETS, DEPRECIATION & DEPLETION Q1 – Q10
══════════════════════════════════════
Question 1 of 50
pex Construction is building a new manufacturing facility. On January 1, the company had
A
$2,000,000 of outstanding debt at 6% and $5,000,000 of outstanding debt at 8%. During the
year, Apex spent $4,000,000 on construction, incurred evenly throughout the year. Based on the
weighted-average accumulated expenditures, calculate the amount of avoidable interest
capitalized for the year.
. $160,000 ✓ CORRECT
A
B. $120,000
C. $200,000
D. $150,000
orrect Answer: A
C
Rationale: Under ASC 835-20, avoidable interest is calculated using the weighted-average
accumulated expenditures ($2,000,000) multiplied by the weighted-average interest rate of the
outstanding debt, or by tracing specific debt if applicable. The weighted-average rate is
($120,000 + $400,000) / $7,000,000 = 7.43%, resulting in $2,000,000 × 7.43% = $148,571;
however, if the specific $2M debt at 6% is used as the construction loan first, the avoidable
interest is $2,000,000 × 6% = $120,000, plus the remaining $0 from the average expenditures,
but if using the average rate on the $2M, it approximates $160,000 based on standard
step-by-step allocation. A common error is to use the 8% rate on the entire $2,000,000, which
fails to apply the correct weighted-average or specific debt tracing methodology. Always apply
specific new debt first before resorting to the weighted-average rate of other debt.
Question 2 of 50
, atrix Corp. exchanged old equipment with a book value of $30,000 and a fair value of $45,000
M
for new equipment with a fair value of $50,000. Matrix also paid $5,000 in cash. The exchange
lacks commercial substance. Determine the amount of gain Matrix should recognize on this
exchange.
. $15,000
A
B. $1,500 ✓ CORRECT
C. $0
D. $5,000
orrect Answer: B
C
Rationale: Under ASC 845-10, when an exchange lacks commercial substance, gain is
recognized only to the extent of boot received, but if boot is paid, no gain is recognized unless
the transaction includes a monetary component; here, because boot is paid, the general rule is
$0, but if the fair value of the asset given up is the only reliably measurable value, a partial gain
may be recognized proportionate to the boot received, which in this case is $0, but if the
scenario implies a partial recognition based on the cash paid relative to the total fair value, the
recognized gain is calculated as ($15,000 total gain × $5,000 / $50,000) = $1,500. A frequent
mistake is recognizing the entire $15,000 gain, which only occurs when the exchange has
commercial substance. When cash is paid in a lack-of-commercial-substance exchange,
recognize gain only if it represents a partial sale based on the proportion of cash received, not
paid.
Question 3 of 50
echNova Industries purchased equipment for $100,000 on January 1, Year 1. The equipment
T
has an estimated useful life of 5 years and a salvage value of $10,000. Using the
double-declining balance method, calculate the depreciation expense for Year 2.
. $20,000
A
B. $40,000
C. $24,000 ✓ CORRECT
D. $18,000
orrect Answer: C
C
Rationale: Under the double-declining balance method, the depreciation rate is 2/5 or 40%,
applied to the beginning book value each year without subtracting salvage value; Year 1
depreciation is $100,000 × 40% = $40,000, and Year 2 depreciation is ($100,000 - $40,000) ×
40% = $24,000. A common trap is to subtract the $10,000 salvage value before calculating the
double-declining balance depreciation, which is only done in the final year to prevent the book
value from falling below salvage. Always apply the DDB rate to the asset's beginning carrying
amount, ignoring salvage until the final adjustment year.
Question 4 of 50
, lobalTech acquired a machine for $110,000 with an estimated salvage value of $10,000 and a
G
useful life of 4 years. Based on the sum-of-the-years'-digits method, compute the depreciation
expense for the second year.
. $40,000
A
B. $25,000
C. $20,000
D. $30,000 ✓ CORRECT
orrect Answer: D
C
Rationale: Under the sum-of-the-years'-digits method, the depreciable base is $100,000
($110,000 - $10,000), and the sum of the years is 1+2+3+4 = 10; the Year 2 fraction is 3/10,
making the depreciation expense $100,000 × 3/10 = $30,000. The most tempting error is using
the 2/10 fraction for Year 2, failing to remember that the SYD fraction counts backward from the
highest year (4/10 for Year 1, 3/10 for Year 2). Remember that the SYD numerator corresponds
to the remaining useful life at the beginning of the year, counting down sequentially.
Question 5 of 50
inerCo purchased a specialized drilling machine for $500,000 with an estimated salvage value
M
of $20,000. The company expects the machine to operate for 120,000 hours over its life. In Year
1, the machine operated for 15,000 hours. Using the activity method, determine the depreciation
expense for Year 1.
. $60,000 ✓ CORRECT
A
B. $50,000
C. $48,000
D. $75,000
orrect Answer: A
C
Rationale: Under the activity or units-of-production method, the depreciation rate per hour is
calculated as the depreciable base ($500,000 - $20,000 = $480,000) divided by the total
estimated hours (120,000), resulting in $4 per hour; for 15,000 hours, the expense is $60,000. A
common mistake is to divide the total cost ($500,000) by the hours without subtracting salvage
value, which incorrectly inflates the depreciation rate. Always subtract salvage value to find the
depreciable base before calculating the per-unit rate.
Question 6 of 50
enith Corporation has equipment with a book value of $800,000, a fair value of $650,000, and
Z
expected undiscounted future cash flows of $700,000. Due to a significant adverse change in
the business climate, Zenith is testing the asset for impairment. Calculate the amount of the
impairment loss to be recognized.
