D104 OA2 Intermediate Accounting II (Units 4–6) - 2026 Actual Questions
1. Which of the following conditions must be met for a loss contingency to be accrued as a
liability?
A. It is reasonably possible that a liability has been incurred and the amount is known.
B. It is probable that a liability has been incurred and the amount can be reasonably
estimated.
C. It is probable that a liability has been incurred, regardless of whether the amount can be
estimated.
D. It is certain that a liability has been incurred and the amount is material.
Answer: B
Rationale: Under GAAP, a loss contingency is accrued if it is both probable that an asset
has been impaired or a liability incurred and the amount of loss can be reasonably
estimated.
2. When a bond is issued at a discount, what happens to the carrying value over time using
the effective interest method?
A. It stays the same until maturity.
B. It increases until it reaches the face value.
C. It decreases until it reaches the face value.
,D. It fluctuates based on market interest rates.
Answer: B
Rationale: Amortization of a bond discount increases the carrying value of the bond until it
reaches the face value at maturity.
3. How should a company account for treasury stock using the cost method when it is
reissued at a price higher than its cost?
A. The excess should be credited to Retained Earnings.
B. The excess should be recorded as a Gain on Sale of Treasury Stock in the income
statement.
C. The excess should be credited to Paid-in Capital from Treasury Stock.
D. The excess should be credited to Common Stock.
Answer: C
Rationale: Gains or losses on treasury stock transactions are never recorded on the
income statement; a ‘gain’ is credited to Paid-in Capital from Treasury Stock.
4. Which date in the dividend process does not require a formal accounting entry?
A. Date of Declaration
B. Date of Record
C. Date of Payment
D. Date of Distribution
, Answer: B
Rationale: The date of record is used to determine who is eligible to receive the dividend;
no financial transaction or journal entry occurs on this date.
5. A company issues 1,000 shares of $10 par value common stock for $15,000. What is the
amount credited to Paid-in Capital in Excess of Par?
A. $5,000
B. $10,000
C. $15,000
D. $0
Answer: A
Rationale: Common stock is credited for par value (1,000 * $10 = $10,000). The excess
($15,000 - $10,000 = $5,000) is credited to Paid-in Capital in Excess of Par.
6. When using the if-converted method for convertible bonds in Diluted EPS, what
adjustment is made to the numerator?
A. No adjustment is made to the numerator.
B. Subtract interest expense, net of tax.
C. Add back preferred dividends.
D. Add back interest expense, net of tax.
Answer: D
1. Which of the following conditions must be met for a loss contingency to be accrued as a
liability?
A. It is reasonably possible that a liability has been incurred and the amount is known.
B. It is probable that a liability has been incurred and the amount can be reasonably
estimated.
C. It is probable that a liability has been incurred, regardless of whether the amount can be
estimated.
D. It is certain that a liability has been incurred and the amount is material.
Answer: B
Rationale: Under GAAP, a loss contingency is accrued if it is both probable that an asset
has been impaired or a liability incurred and the amount of loss can be reasonably
estimated.
2. When a bond is issued at a discount, what happens to the carrying value over time using
the effective interest method?
A. It stays the same until maturity.
B. It increases until it reaches the face value.
C. It decreases until it reaches the face value.
,D. It fluctuates based on market interest rates.
Answer: B
Rationale: Amortization of a bond discount increases the carrying value of the bond until it
reaches the face value at maturity.
3. How should a company account for treasury stock using the cost method when it is
reissued at a price higher than its cost?
A. The excess should be credited to Retained Earnings.
B. The excess should be recorded as a Gain on Sale of Treasury Stock in the income
statement.
C. The excess should be credited to Paid-in Capital from Treasury Stock.
D. The excess should be credited to Common Stock.
Answer: C
Rationale: Gains or losses on treasury stock transactions are never recorded on the
income statement; a ‘gain’ is credited to Paid-in Capital from Treasury Stock.
4. Which date in the dividend process does not require a formal accounting entry?
A. Date of Declaration
B. Date of Record
C. Date of Payment
D. Date of Distribution
, Answer: B
Rationale: The date of record is used to determine who is eligible to receive the dividend;
no financial transaction or journal entry occurs on this date.
5. A company issues 1,000 shares of $10 par value common stock for $15,000. What is the
amount credited to Paid-in Capital in Excess of Par?
A. $5,000
B. $10,000
C. $15,000
D. $0
Answer: A
Rationale: Common stock is credited for par value (1,000 * $10 = $10,000). The excess
($15,000 - $10,000 = $5,000) is credited to Paid-in Capital in Excess of Par.
6. When using the if-converted method for convertible bonds in Diluted EPS, what
adjustment is made to the numerator?
A. No adjustment is made to the numerator.
B. Subtract interest expense, net of tax.
C. Add back preferred dividends.
D. Add back interest expense, net of tax.
Answer: D
