WGU D104 OA2 Intermediate Accounting II (Units 4–6) Practice Exam 2026 UPDATE
1. A company is involved in a lawsuit and legal counsel advises that it is probable the
company will lose and the damages are estimated between $100,000 and $500,000. No
amount within the range is a better estimate than any other. What amount should be
accrued?
A. $300,000
B. $100,000
C. $500,000
D. No amount should be accrued, only disclosed.
Answer: B
Rationale: Under US GAAP, if a range of loss is probable and no amount is a better
estimate, the minimum amount in the range should be accrued.
2. When a bond is issued at a discount, how does the interest expense over the life of the
bond relate to the cash interest paid?
A. Interest expense is greater than cash interest paid.
B. Interest expense is less than cash interest paid.
C. Interest expense is equal to cash interest paid.
D. There is no relationship between the two.
,Answer: A
Rationale: When issued at a discount, the interest expense includes both the cash interest
paid and the amortization of the discount, making total expense higher than cash
payments.
3. Which of the following is considered a current liability?
A. Unearned revenue expected to be recognized in 18 months.
B. Stock dividends distributable.
C. Bonds payable maturing in 10 years.
D. A 5-year note payable with 6 months remaining until maturity.
Answer: D
Rationale: Long-term debt that is due within one year (or the operating cycle) is
reclassified as a current liability.
4. Under the cost method, when treasury stock is purchased, which account is debited?
A. Treasury Stock
B. Retained Earnings
C. Paid-in Capital in Excess of Par
D. Common Stock
Answer: A
, Rationale: Under the cost method, Treasury Stock is debited for the cost of the shares
purchased, regardless of the original par value.
5. What is the primary difference between a stock dividend and a stock split?
A. Stock splits increase total stockholders’ equity, while stock dividends do not.
B. Stock dividends increase the par value per share.
C. Stock dividends require a journal entry to Retained Earnings; stock splits do not.
D. Stock splits decrease the number of shares outstanding.
Answer: C
Rationale: Stock dividends transfer amounts from Retained Earnings to Paid-in Capital.
Stock splits only involve changing the par value and number of shares without a formal
journal entry.
6. A company issues a $1,000 face value bond with a 6% coupon rate when the market rate is
8%. The bond will be issued at:
A. Face value
B. A premium
C. A discount
D. Cannot be determined
Answer: C
1. A company is involved in a lawsuit and legal counsel advises that it is probable the
company will lose and the damages are estimated between $100,000 and $500,000. No
amount within the range is a better estimate than any other. What amount should be
accrued?
A. $300,000
B. $100,000
C. $500,000
D. No amount should be accrued, only disclosed.
Answer: B
Rationale: Under US GAAP, if a range of loss is probable and no amount is a better
estimate, the minimum amount in the range should be accrued.
2. When a bond is issued at a discount, how does the interest expense over the life of the
bond relate to the cash interest paid?
A. Interest expense is greater than cash interest paid.
B. Interest expense is less than cash interest paid.
C. Interest expense is equal to cash interest paid.
D. There is no relationship between the two.
,Answer: A
Rationale: When issued at a discount, the interest expense includes both the cash interest
paid and the amortization of the discount, making total expense higher than cash
payments.
3. Which of the following is considered a current liability?
A. Unearned revenue expected to be recognized in 18 months.
B. Stock dividends distributable.
C. Bonds payable maturing in 10 years.
D. A 5-year note payable with 6 months remaining until maturity.
Answer: D
Rationale: Long-term debt that is due within one year (or the operating cycle) is
reclassified as a current liability.
4. Under the cost method, when treasury stock is purchased, which account is debited?
A. Treasury Stock
B. Retained Earnings
C. Paid-in Capital in Excess of Par
D. Common Stock
Answer: A
, Rationale: Under the cost method, Treasury Stock is debited for the cost of the shares
purchased, regardless of the original par value.
5. What is the primary difference between a stock dividend and a stock split?
A. Stock splits increase total stockholders’ equity, while stock dividends do not.
B. Stock dividends increase the par value per share.
C. Stock dividends require a journal entry to Retained Earnings; stock splits do not.
D. Stock splits decrease the number of shares outstanding.
Answer: C
Rationale: Stock dividends transfer amounts from Retained Earnings to Paid-in Capital.
Stock splits only involve changing the par value and number of shares without a formal
journal entry.
6. A company issues a $1,000 face value bond with a 6% coupon rate when the market rate is
8%. The bond will be issued at:
A. Face value
B. A premium
C. A discount
D. Cannot be determined
Answer: C
