WGU D105
Intermediate Accounting III
OA2 (Units 5-9)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢142 OA Exam Questions w/ Answers
➢Complete Units 5, 6, 7, 8, and 9
➢Expert Rationales Included
Take and pass the OA :)
, PREVIEW PAGES BELOW
Get the Complete PDF After Purchase
If you require further clarification or in need of any study
resources, feel free to Message me.
,1. Which needs to be eliminated from operating activities to determine net cash
flow from operating activities?
A. Cash dividends and stock issuances
B. Purchases and sales of long-term assets
C. Noncash expenses and noncash revenues from net income
D. All changes in shareholders’ equity
CORRECT ANSWER:
C. Noncash expenses and noncash revenues from net income
Expert Rationale:
Under the indirect method, net income must be adjusted for items that affected reported
income but did not involve operating cash. Examples include depreciation, amortization,
and gains or losses on asset sales.
2. To arrive at net cash provided by operating activities, it is necessary to report
revenues and expenses on a cash basis. How is this accomplished?
A. By eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
B. By removing all investing transactions from the balance sheet
C. By adding all financing cash inflows to net income
D. By replacing accrual-basis revenue with gross sales
CORRECT ANSWER:
A. By eliminating the effects of income statement transactions that did not result
in a corresponding increase or decrease in cash
Expert Rationale:
The indirect method converts accrual-basis net income to operating cash flow by
adjusting for noncash items and changes in operating assets and liabilities. These
adjustments remove the timing differences between income recognition and cash
movement.
3. A company acquired a building, paying a portion of the purchase price in cash
and issuing a mortgage note payable to the seller for the balance. In a statement
,of cash flows, which amount is included in investing activities for the
transaction?
A. The building’s total fair value
B. The mortgage note payable
C. The cash payment
D. The total purchase price plus interest
CORRECT ANSWER:
C. The cash payment
Expert Rationale:
Only the cash portion is reported as an investing cash outflow. The portion financed
through the mortgage note is a significant noncash investing and financing activity and
is disclosed separately.
4. A company borrows $10,000 and signs a 90-day nontrade note payable. In
preparing a statement of cash flows using the indirect method, this event would
be reflected as an adjustment in which section of the statement of cash flows?
A. Cash outflow from operating activities
B. Cash inflow from financing activities
C. Cash inflow from investing activities
D. Noncash operating activity
CORRECT ANSWER:
B. Cash inflow from financing activities
Expert Rationale:
Borrowing cash through a note payable increases the entity’s debt financing. The
$10,000 is therefore reported as a financing cash inflow, regardless of whether the
indirect or direct method is used for operating activities.
5. Which classification of activities involves the cash effects of transactions that
enter into the determination of net income?
A. Financing activities
B. Investing activities
C. Operating activities
D. Noncash investing and financing activities
,CORRECT ANSWER:
C. Operating activities
Expert Rationale:
Operating activities include the cash effects of transactions used to determine net
income, such as cash received from customers and cash paid to suppliers and
employees. Investing activities involve long-term assets, while financing activities
involve debt and equity financing.
6. What best describes the primary purpose of the information provided by the
statement of cash flows?
A. To calculate the entity’s gross profit percentage
B. To provide information about the cash receipts and cash payments of an entity during
a period
C. To report all changes in retained earnings
D. To determine the market value of the entity’s shares
CORRECT ANSWER:
B. To provide information about the cash receipts and cash payments of an entity
during a period
Expert Rationale:
The statement of cash flows explains how an entity generated and used cash during the
reporting period. It classifies cash flows as operating, investing, or financing activities
and helps users assess liquidity and cash-generating ability.
7. During 2021, Stout Inc. had the following activities related to its financial
operations:
• Payment in 2021 of cash dividend declared in 2020 to preferred shareholders:
$279,000
• Payment for the early retirement of long-term bonds payable, carrying amount
$3,930,000: $3,975,000
• Proceeds from the sale of treasury stock, on books at cost of $387,000:
$450,000
Which amount of net cash used in financing activities should appear in Stout’s
statement of cash flows?
,understand matters that cannot be fully communicated through the primary financial
statements alone.
21. What is the description given to events occurring after the balance sheet date,
but before the financial statements are issued, and that provide additional
evidence about conditions that existed on the balance sheet date?
A. Prospective accounting changes
B. Recognized subsequent events
C. Nonrecognized subsequent events
D. Extraordinary transactions
CORRECT ANSWER:
B. Recognized subsequent events
Expert Rationale:
Recognized subsequent events provide additional evidence about conditions that
already existed at the balance-sheet date. The financial statements are adjusted to
reflect that new information.
22. Which post-balance-sheet event would require adjustment of the accounts
before issuance of the financial statements?
A. Destruction of a factory by a fire occurring after year-end
B. Issuance of common stock after year-end
C. Settlement payments paid on a lawsuit, the outcome of which was deemed uncertain
at year-end
D. Purchase of another company after year-end
CORRECT ANSWER:
C. Settlement payments paid on a lawsuit, the outcome of which was deemed
uncertain at year-end
Expert Rationale:
The settlement provides additional evidence regarding a condition—the lawsuit—that
existed at year-end. Therefore, the year-end financial statements should be adjusted to
reflect the amount of the obligation.
23. Regarding related-party transactions, what needs to be disclosed in the notes
to the financial statements?
,A. The nature of the relationship involved
B. Only the names of the parties’ attorneys
C. The personal income of each party
D. All unrelated transactions completed during the year
CORRECT ANSWER:
A. The nature of the relationship involved
Expert Rationale:
Related-party disclosures generally include the nature of the relationship, a description
of the transactions, relevant dollar amounts, and amounts due to or from related parties.
This information helps users evaluate whether transactions occurred on normal market
terms.
24. Rondelli Manufacturing Company employs a standard cost system. In
December 2017, the company is working on the budgets for 2018 and plans a
volume variance for the first quarter of 2018. If the variance is expected to be
absorbed by the end of 2018, how would the planned volume variance be
described in the 2017 financial statements?
A. As a recognized subsequent event requiring an immediate loss
B. As a prior-period accounting error
C. As a change in accounting estimate applied retrospectively
D. As a nonrecognized subsequent event that should be deferred at the end of the first
quarter, regardless of whether it is favorable or unfavorable
CORRECT ANSWER:
D. As a nonrecognized subsequent event that should be deferred at the end of the
first quarter, regardless of whether it is favorable or unfavorable
Expert Rationale:
The planned variance relates to future production activity and does not provide
additional evidence about a condition existing at the 2017 balance-sheet date. It is
therefore not recognized in the 2017 accounts.
25. On March 3, 2022, Phillips Inc. began preparing financial statements and the
accompanying notes for the year ended December 31, 2021. On February 25,
2022, Allen Corporation, Phillips Inc.’s largest customer, informed Phillips that it
was filing for bankruptcy and would be unable to pay its balance due to Phillips.
Phillips found that Allen Corporation owed $250,000 in accounts receivable as of
,December 31, 2021. How should the information provided by Allen Corporation be
treated?
A. It should be ignored because bankruptcy occurred after year-end
B. It should only be disclosed as a future event
C. It should be used to record an adjustment in the December 31, 2021 financial
statements
D. It should be recognized as revenue in 2022
CORRECT ANSWER:
C. It should be used to record an adjustment in the December 31, 2021 financial
statements
Expert Rationale:
The bankruptcy provides evidence that the receivable was impaired at December 31,
2021. Phillips should adjust the allowance for doubtful accounts and related bad-debt
expense in the 2021 financial statements.
26. Jackson Inc. reports financial statements on the calendar year ending
December 31, 2020. It issues its financial statements on April 5, 2021. What is
Jackson’s subsequent-events period?
A. December 31, 2020 through December 31, 2021
B. January 1, 2021 through April 5, 2021
C. April 5, 2021 through December 31, 2021
D. January 1, 2020 through December 31, 2020
CORRECT ANSWER:
B. January 1, 2021 through April 5, 2021
Expert Rationale:
Subsequent events are evaluated from the day after the balance-sheet date through the
date the financial statements are issued or available to be issued, as applicable.
27. What does the term “big GAAP versus little GAAP” refer to?
A. The assertion that certain types of companies should not have to follow complex
requirements such as deferred expenses
B. A comparison of U.S. GAAP and income-tax accounting
C. The difference between quarterly and annual statements
D. The use of GAAP by domestic companies and IFRS by foreign companies
,Expert Rationale:
Funding occurs when the employer transfers assets to a separate pension trustee or
funding agency. The assets are invested and used to pay benefits as employees retire.
54. What is the purpose of a formula in a defined benefit plan?
A. To define the benefits that the employee will receive at the time of retirement
B. To determine the market value of company stock
C. To establish the employer’s exact annual cash contribution only
D. To eliminate actuarial assumptions
CORRECT ANSWER:
A. To define the benefits that the employee will receive at the time of retirement
Expert Rationale:
A defined benefit formula commonly uses years of service and compensation levels to
determine the promised retirement benefit. The employer must fund the plan sufficiently
to meet that obligation.
55. Fluffle Company bears the entire cost of its employee pension. Which type of
plan does Fluffle have?
A. Contributory plan
B. Multiemployer plan
C. Noncontributory plan
D. Unfunded employee plan
CORRECT ANSWER:
C. Noncontributory plan
Expert Rationale:
In a noncontributory plan, the employer bears the entire cost. Employees do not make
required contributions toward the pension benefit.
56. Which plan involves an employer adding a certain sum to a pension trust each
period, based on a formula?
A. Defined contribution plan
B. Defined benefit plan
C. Nonqualified benefit plan
D. Postretirement medical plan
, CORRECT ANSWER:
A. Defined contribution plan
Expert Rationale:
A defined contribution plan specifies how much the employer contributes. The amount
available at retirement depends on the accumulated contributions and investment
returns.
57. Which amount does a defined contribution plan specify?
A. The employee’s final retirement benefit
B. The market value of plan investments at retirement
C. The employee’s life expectancy
D. The required payment amount by the employer
CORRECT ANSWER:
D. The required payment amount by the employer
Expert Rationale:
The employer’s contribution is defined by the plan formula. The ultimate retirement
benefit is not guaranteed because it varies with investment performance.
58. Which calculation is used to measure the funding needed for projected benefit
obligations of a defined benefit plan?
A. Future value
B. Present value
C. Historical cost
D. Replacement cost
CORRECT ANSWER:
B. Present value
Expert Rationale:
Projected benefit payments occur in future periods and must be discounted to their
present value. Actuarial assumptions about compensation, service, mortality, and
discount rates are used in the calculation.
59. Which statement accurately describes an employer’s accounting when
making a required contribution to a defined contribution pension plan?
Intermediate Accounting III
OA2 (Units 5-9)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢142 OA Exam Questions w/ Answers
➢Complete Units 5, 6, 7, 8, and 9
➢Expert Rationales Included
Take and pass the OA :)
, PREVIEW PAGES BELOW
Get the Complete PDF After Purchase
If you require further clarification or in need of any study
resources, feel free to Message me.
,1. Which needs to be eliminated from operating activities to determine net cash
flow from operating activities?
A. Cash dividends and stock issuances
B. Purchases and sales of long-term assets
C. Noncash expenses and noncash revenues from net income
D. All changes in shareholders’ equity
CORRECT ANSWER:
C. Noncash expenses and noncash revenues from net income
Expert Rationale:
Under the indirect method, net income must be adjusted for items that affected reported
income but did not involve operating cash. Examples include depreciation, amortization,
and gains or losses on asset sales.
2. To arrive at net cash provided by operating activities, it is necessary to report
revenues and expenses on a cash basis. How is this accomplished?
A. By eliminating the effects of income statement transactions that did not result in a
corresponding increase or decrease in cash
B. By removing all investing transactions from the balance sheet
C. By adding all financing cash inflows to net income
D. By replacing accrual-basis revenue with gross sales
CORRECT ANSWER:
A. By eliminating the effects of income statement transactions that did not result
in a corresponding increase or decrease in cash
Expert Rationale:
The indirect method converts accrual-basis net income to operating cash flow by
adjusting for noncash items and changes in operating assets and liabilities. These
adjustments remove the timing differences between income recognition and cash
movement.
3. A company acquired a building, paying a portion of the purchase price in cash
and issuing a mortgage note payable to the seller for the balance. In a statement
,of cash flows, which amount is included in investing activities for the
transaction?
A. The building’s total fair value
B. The mortgage note payable
C. The cash payment
D. The total purchase price plus interest
CORRECT ANSWER:
C. The cash payment
Expert Rationale:
Only the cash portion is reported as an investing cash outflow. The portion financed
through the mortgage note is a significant noncash investing and financing activity and
is disclosed separately.
4. A company borrows $10,000 and signs a 90-day nontrade note payable. In
preparing a statement of cash flows using the indirect method, this event would
be reflected as an adjustment in which section of the statement of cash flows?
A. Cash outflow from operating activities
B. Cash inflow from financing activities
C. Cash inflow from investing activities
D. Noncash operating activity
CORRECT ANSWER:
B. Cash inflow from financing activities
Expert Rationale:
Borrowing cash through a note payable increases the entity’s debt financing. The
$10,000 is therefore reported as a financing cash inflow, regardless of whether the
indirect or direct method is used for operating activities.
5. Which classification of activities involves the cash effects of transactions that
enter into the determination of net income?
A. Financing activities
B. Investing activities
C. Operating activities
D. Noncash investing and financing activities
,CORRECT ANSWER:
C. Operating activities
Expert Rationale:
Operating activities include the cash effects of transactions used to determine net
income, such as cash received from customers and cash paid to suppliers and
employees. Investing activities involve long-term assets, while financing activities
involve debt and equity financing.
6. What best describes the primary purpose of the information provided by the
statement of cash flows?
A. To calculate the entity’s gross profit percentage
B. To provide information about the cash receipts and cash payments of an entity during
a period
C. To report all changes in retained earnings
D. To determine the market value of the entity’s shares
CORRECT ANSWER:
B. To provide information about the cash receipts and cash payments of an entity
during a period
Expert Rationale:
The statement of cash flows explains how an entity generated and used cash during the
reporting period. It classifies cash flows as operating, investing, or financing activities
and helps users assess liquidity and cash-generating ability.
7. During 2021, Stout Inc. had the following activities related to its financial
operations:
• Payment in 2021 of cash dividend declared in 2020 to preferred shareholders:
$279,000
• Payment for the early retirement of long-term bonds payable, carrying amount
$3,930,000: $3,975,000
• Proceeds from the sale of treasury stock, on books at cost of $387,000:
$450,000
Which amount of net cash used in financing activities should appear in Stout’s
statement of cash flows?
,understand matters that cannot be fully communicated through the primary financial
statements alone.
21. What is the description given to events occurring after the balance sheet date,
but before the financial statements are issued, and that provide additional
evidence about conditions that existed on the balance sheet date?
A. Prospective accounting changes
B. Recognized subsequent events
C. Nonrecognized subsequent events
D. Extraordinary transactions
CORRECT ANSWER:
B. Recognized subsequent events
Expert Rationale:
Recognized subsequent events provide additional evidence about conditions that
already existed at the balance-sheet date. The financial statements are adjusted to
reflect that new information.
22. Which post-balance-sheet event would require adjustment of the accounts
before issuance of the financial statements?
A. Destruction of a factory by a fire occurring after year-end
B. Issuance of common stock after year-end
C. Settlement payments paid on a lawsuit, the outcome of which was deemed uncertain
at year-end
D. Purchase of another company after year-end
CORRECT ANSWER:
C. Settlement payments paid on a lawsuit, the outcome of which was deemed
uncertain at year-end
Expert Rationale:
The settlement provides additional evidence regarding a condition—the lawsuit—that
existed at year-end. Therefore, the year-end financial statements should be adjusted to
reflect the amount of the obligation.
23. Regarding related-party transactions, what needs to be disclosed in the notes
to the financial statements?
,A. The nature of the relationship involved
B. Only the names of the parties’ attorneys
C. The personal income of each party
D. All unrelated transactions completed during the year
CORRECT ANSWER:
A. The nature of the relationship involved
Expert Rationale:
Related-party disclosures generally include the nature of the relationship, a description
of the transactions, relevant dollar amounts, and amounts due to or from related parties.
This information helps users evaluate whether transactions occurred on normal market
terms.
24. Rondelli Manufacturing Company employs a standard cost system. In
December 2017, the company is working on the budgets for 2018 and plans a
volume variance for the first quarter of 2018. If the variance is expected to be
absorbed by the end of 2018, how would the planned volume variance be
described in the 2017 financial statements?
A. As a recognized subsequent event requiring an immediate loss
B. As a prior-period accounting error
C. As a change in accounting estimate applied retrospectively
D. As a nonrecognized subsequent event that should be deferred at the end of the first
quarter, regardless of whether it is favorable or unfavorable
CORRECT ANSWER:
D. As a nonrecognized subsequent event that should be deferred at the end of the
first quarter, regardless of whether it is favorable or unfavorable
Expert Rationale:
The planned variance relates to future production activity and does not provide
additional evidence about a condition existing at the 2017 balance-sheet date. It is
therefore not recognized in the 2017 accounts.
25. On March 3, 2022, Phillips Inc. began preparing financial statements and the
accompanying notes for the year ended December 31, 2021. On February 25,
2022, Allen Corporation, Phillips Inc.’s largest customer, informed Phillips that it
was filing for bankruptcy and would be unable to pay its balance due to Phillips.
Phillips found that Allen Corporation owed $250,000 in accounts receivable as of
,December 31, 2021. How should the information provided by Allen Corporation be
treated?
A. It should be ignored because bankruptcy occurred after year-end
B. It should only be disclosed as a future event
C. It should be used to record an adjustment in the December 31, 2021 financial
statements
D. It should be recognized as revenue in 2022
CORRECT ANSWER:
C. It should be used to record an adjustment in the December 31, 2021 financial
statements
Expert Rationale:
The bankruptcy provides evidence that the receivable was impaired at December 31,
2021. Phillips should adjust the allowance for doubtful accounts and related bad-debt
expense in the 2021 financial statements.
26. Jackson Inc. reports financial statements on the calendar year ending
December 31, 2020. It issues its financial statements on April 5, 2021. What is
Jackson’s subsequent-events period?
A. December 31, 2020 through December 31, 2021
B. January 1, 2021 through April 5, 2021
C. April 5, 2021 through December 31, 2021
D. January 1, 2020 through December 31, 2020
CORRECT ANSWER:
B. January 1, 2021 through April 5, 2021
Expert Rationale:
Subsequent events are evaluated from the day after the balance-sheet date through the
date the financial statements are issued or available to be issued, as applicable.
27. What does the term “big GAAP versus little GAAP” refer to?
A. The assertion that certain types of companies should not have to follow complex
requirements such as deferred expenses
B. A comparison of U.S. GAAP and income-tax accounting
C. The difference between quarterly and annual statements
D. The use of GAAP by domestic companies and IFRS by foreign companies
,Expert Rationale:
Funding occurs when the employer transfers assets to a separate pension trustee or
funding agency. The assets are invested and used to pay benefits as employees retire.
54. What is the purpose of a formula in a defined benefit plan?
A. To define the benefits that the employee will receive at the time of retirement
B. To determine the market value of company stock
C. To establish the employer’s exact annual cash contribution only
D. To eliminate actuarial assumptions
CORRECT ANSWER:
A. To define the benefits that the employee will receive at the time of retirement
Expert Rationale:
A defined benefit formula commonly uses years of service and compensation levels to
determine the promised retirement benefit. The employer must fund the plan sufficiently
to meet that obligation.
55. Fluffle Company bears the entire cost of its employee pension. Which type of
plan does Fluffle have?
A. Contributory plan
B. Multiemployer plan
C. Noncontributory plan
D. Unfunded employee plan
CORRECT ANSWER:
C. Noncontributory plan
Expert Rationale:
In a noncontributory plan, the employer bears the entire cost. Employees do not make
required contributions toward the pension benefit.
56. Which plan involves an employer adding a certain sum to a pension trust each
period, based on a formula?
A. Defined contribution plan
B. Defined benefit plan
C. Nonqualified benefit plan
D. Postretirement medical plan
, CORRECT ANSWER:
A. Defined contribution plan
Expert Rationale:
A defined contribution plan specifies how much the employer contributes. The amount
available at retirement depends on the accumulated contributions and investment
returns.
57. Which amount does a defined contribution plan specify?
A. The employee’s final retirement benefit
B. The market value of plan investments at retirement
C. The employee’s life expectancy
D. The required payment amount by the employer
CORRECT ANSWER:
D. The required payment amount by the employer
Expert Rationale:
The employer’s contribution is defined by the plan formula. The ultimate retirement
benefit is not guaranteed because it varies with investment performance.
58. Which calculation is used to measure the funding needed for projected benefit
obligations of a defined benefit plan?
A. Future value
B. Present value
C. Historical cost
D. Replacement cost
CORRECT ANSWER:
B. Present value
Expert Rationale:
Projected benefit payments occur in future periods and must be discounted to their
present value. Actuarial assumptions about compensation, service, mortality, and
discount rates are used in the calculation.
59. Which statement accurately describes an employer’s accounting when
making a required contribution to a defined contribution pension plan?
