WGU D105
Intermediate Accounting III
OA2 (Units 5-9)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢172 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. What is included in the present value for the lease receivable amount?
A. Rental payments only
B. Rental payments plus the present value of guaranteed and unguaranteed residual
values
C. Executory costs and overhead only
D. The historical cost of the leased property only
CORRECT ANSWER:
B. Rental payments plus the present value of guaranteed and unguaranteed
residual values
Expert Rationale:
The lessor’s net investment includes the present value of contractual lease payments
and the expected residual interest in the asset. General overhead is not part of the
lease receivable.
2. Which of the following is a correct statement of one of the classification tests?
A. The lease term is always less than 50% of the asset’s life
B. Ownership must remain with the lessee
C. The lease term is equal to or more than 75% of the estimated economic life of the
leased property
D. The asset must have an unlimited useful life
CORRECT ANSWER:
C. The lease term is equal to or more than 75% of the estimated economic life of
the leased property
Expert Rationale:
The course material uses the traditional 75% guideline to determine whether the lease
covers a major portion of the asset’s economic life. Meeting this threshold supports
finance-lease classification.
3. A lessee had a ten-year finance lease requiring equal annual payments. What
should the reduction of the lease liability in Year 2 be equal to?
A. Total lease expense reported in Year 1
B. The Year 2 amortization expense
,C. The interest expense recognized in Year 2
D. The current liability shown for the lease at the end of Year 1
CORRECT ANSWER:
D. The current liability shown for the lease at the end of Year 1
Expert Rationale:
The current portion of the lease liability represents the principal expected to be repaid
during the following year. Therefore, the current amount reported at the end of Year 1
equals the expected Year 2 principal reduction.
4. What is the amount to be recorded as the cost of an asset under a finance
lease equal to?
A. Present value of the lease payments
B. Total undiscounted payments
C. The lessor’s original historical cost
D. Future interest plus residual value
CORRECT ANSWER:
A. Present value of the lease payments
Expert Rationale:
The leased asset and corresponding liability are initially measured using the present
value of required lease payments. Appropriate adjustments may then be made for
incentives, prepayments, and initial direct costs.
5. What is a major reason why a company may become involved in leasing to
other companies?
A. Tax incentives
B. Reduced financial reporting
C. Elimination of credit risk
D. Avoidance of depreciation
CORRECT ANSWER:
A. Tax incentives
Expert Rationale:
Leasing may provide the lessor with depreciation deductions, interest income, and other
tax advantages. These incentives can make leasing financially attractive while also
supporting product sales.
,6. Which of the following best describes current practice in accounting for
leases?
A. Only finance leases are disclosed
B. All long-term leases are capitalized
C. Operating leases are recorded only when paid
D. Leases are excluded from the balance sheet
CORRECT ANSWER:
B. All long-term leases are capitalized
Expert Rationale:
Lessees generally recognize a right-of-use asset and a lease liability for leases
extending beyond the short-term exemption. Finance and operating leases differ mainly
in how lease expense is recognized.
7. What single lease expense is recognized on the income statement?
A. A sales-type lease
B. A finance lease
C. An operating lease
D. A direct-financing lease
CORRECT ANSWER:
C. An operating lease
Expert Rationale:
A lessee generally reports one combined lease expense for an operating lease. Finance
leases produce separate amortization and interest expenses.
8. In computing present value of the lease payments, what rate should the lessee
use?
A. The prime rate in every circumstance
B. The lessee’s dividend rate
C. The risk-free rate only
D. The implicit rate of the lessor, assuming that the implicit rate is known to the lessee
CORRECT ANSWER:
D. The implicit rate of the lessor, assuming that the implicit rate is known to the
lessee
,A. $5,500
B. $10,213
C. $13,333
D. $8,000
CORRECT ANSWER:
D. $8,000
Expert Rationale:
Straight-line depreciation is $40,000 ÷ 5 years = $8,000 per year. The lessor continues
depreciating the underlying asset during an operating lease.
41. If retrospective application of a change in accounting principle requires
assumptions about management’s intent in a prior period, then what approach
should be used to account for the change?
A. Prospective
B. Retrospective
C. Cash basis
D. Liquidation basis
CORRECT ANSWER:
A. Prospective
Expert Rationale:
Retrospective application is impracticable when it depends on unsupported
assumptions about prior management intent. The new principle is applied prospectively
from the earliest practicable date.
42. Where is the cumulative effect of a change in accounting principle reported?
A. In current operating income
B. On the retained-earnings statement as an adjustment to the beginning balance of the
earliest year presented
C. As other comprehensive income
D. As a financing activity
CORRECT ANSWER:
B. On the retained-earnings statement as an adjustment to the beginning balance
of the earliest year presented
,Expert Rationale:
Retrospective application adjusts opening equity for the earliest comparative period
presented. Prior statements are restated when practicable.
43. Stone Company changed its method of pricing inventories from FIFO to LIFO.
What type of accounting change does this represent?
A. A change in estimate
B. A correction of an error
C. A change in accounting principle for which prior comparative financial statements
should be restated
D. A change in reporting entity
CORRECT ANSWER:
C. A change in accounting principle for which prior comparative financial
statements should be restated
Expert Rationale:
Changing inventory-costing methods is a change in accounting principle. The source
material directs retrospective presentation of comparative periods.
44. Which of the following is accounted for as a change in accounting principle?
A. A change in estimated useful life
B. A change in expected bad debts
C. Correction of a mathematical error
D. A change in inventory valuation from average cost to LIFO
CORRECT ANSWER:
D. A change in inventory valuation from average cost to LIFO
Expert Rationale:
Moving from one acceptable inventory method to another changes the accounting
principle used to measure inventory and cost of goods sold.
45. Which of the following disclosures is required for a change from the sum-of-
the-years’-digits to the straight-line depreciation method?
A. Recomputation of current and future years’ depreciation
B. Full restatement of all prior periods
,C. Immediate write-off of the asset
D. Adjustment to common stock
CORRECT ANSWER:
A. Recomputation of current and future years’ depreciation
Expert Rationale:
A depreciation-method change is treated prospectively as a change in estimate effected
by a change in principle.
46. Which of the following disclosures is required for a change from LIFO to
FIFO?
A. Only the current inventory balance
B. The cumulative effect on prior years, net of tax, the justification for the change, and
restated prior-year income
C. Only the reason for the change
D. No disclosure because both methods are acceptable
CORRECT ANSWER:
B. The cumulative effect on prior years, net of tax, the justification for the change,
and restated prior-year income
Expert Rationale:
A voluntary accounting-principle change requires disclosure of its nature, justification,
and material financial effects, together with retrospective presentation where required.
47. On December 31, 2020, Dodd Inc. appropriately changed its inventory
valuation method to FIFO cost from weighted-average cost for financial statement
purposes. The change will result in an increase in the Inventory account at
January 1, 2020. The amount of the change, net of tax, is $2,300,000. What is the
cumulative effect of this accounting change that should be reported by Dodd Inc.
in 2020?
A. A current operating gain of $2,300,000
B. A deduction from common stock
C. A $2,300,000 addition to the beginning balance of retained earnings
D. A financing cash inflow
CORRECT ANSWER:
C. A $2,300,000 addition to the beginning balance of retained earnings
,Expert Rationale:
A defined contribution plan specifies the employer’s contribution rather than the
employee’s eventual retirement benefit.
90. Commonly, in a defined benefit plan, who makes the contributions to the
plan?
A. Customers
B. An employer
C. The external auditor
D. Suppliers
CORRECT ANSWER:
B. An employer
Expert Rationale:
Employers commonly fund defined benefit plans and bear the actuarial and investment
risk associated with the promised benefits.
91. What is the purpose of a formula in a defined benefit plan?
A. To determine the employer’s sales
B. To calculate plan investment returns only
C. To define the benefits that the employee will receive at the time of retirement
D. To eliminate actuarial assumptions
CORRECT ANSWER:
C. To define the benefits that the employee will receive at the time of retirement
Expert Rationale:
The formula usually considers compensation and service to determine the retirement
benefit promised to the employee.
92. In a defined benefit plan, what is meant by the process of funding?
A. Recording expense without transferring assets
B. Estimating future compensation
C. Paying benefits from daily sales
D. Making periodic contributions to a funding agency to ensure that funds are available
to meet retirees’ claims
, CORRECT ANSWER:
D. Making periodic contributions to a funding agency to ensure that funds are
available to meet retirees’ claims
Expert Rationale:
Funding transfers assets to a separate pension trust or agency that invests the assets
and pays retirement benefits.
93. What is the purpose of a pension plan?
A. For an employer to provide benefits to retired employees
B. To provide short-term customer financing
C. To replace workers’ compensation
D. To finance inventory purchases
CORRECT ANSWER:
A. For an employer to provide benefits to retired employees
Expert Rationale:
Pension plans form part of employee compensation and provide income after
retirement.
94. Who benefits from the gain, or risks the loss, from the assets contributed to a
defined contribution plan?
A. The employer’s customers
B. The employee
C. The external auditor
D. The pension regulator
CORRECT ANSWER:
B. The employee
Expert Rationale:
The employee’s benefit depends on account contributions and investment performance.
The employee therefore benefits from gains and bears investment losses.
95. Fluffle Company bears the entire cost of its employee pension. Which type of
plan does Fluffle have?
Intermediate Accounting III
OA2 (Units 5-9)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢172 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. What is included in the present value for the lease receivable amount?
A. Rental payments only
B. Rental payments plus the present value of guaranteed and unguaranteed residual
values
C. Executory costs and overhead only
D. The historical cost of the leased property only
CORRECT ANSWER:
B. Rental payments plus the present value of guaranteed and unguaranteed
residual values
Expert Rationale:
The lessor’s net investment includes the present value of contractual lease payments
and the expected residual interest in the asset. General overhead is not part of the
lease receivable.
2. Which of the following is a correct statement of one of the classification tests?
A. The lease term is always less than 50% of the asset’s life
B. Ownership must remain with the lessee
C. The lease term is equal to or more than 75% of the estimated economic life of the
leased property
D. The asset must have an unlimited useful life
CORRECT ANSWER:
C. The lease term is equal to or more than 75% of the estimated economic life of
the leased property
Expert Rationale:
The course material uses the traditional 75% guideline to determine whether the lease
covers a major portion of the asset’s economic life. Meeting this threshold supports
finance-lease classification.
3. A lessee had a ten-year finance lease requiring equal annual payments. What
should the reduction of the lease liability in Year 2 be equal to?
A. Total lease expense reported in Year 1
B. The Year 2 amortization expense
,C. The interest expense recognized in Year 2
D. The current liability shown for the lease at the end of Year 1
CORRECT ANSWER:
D. The current liability shown for the lease at the end of Year 1
Expert Rationale:
The current portion of the lease liability represents the principal expected to be repaid
during the following year. Therefore, the current amount reported at the end of Year 1
equals the expected Year 2 principal reduction.
4. What is the amount to be recorded as the cost of an asset under a finance
lease equal to?
A. Present value of the lease payments
B. Total undiscounted payments
C. The lessor’s original historical cost
D. Future interest plus residual value
CORRECT ANSWER:
A. Present value of the lease payments
Expert Rationale:
The leased asset and corresponding liability are initially measured using the present
value of required lease payments. Appropriate adjustments may then be made for
incentives, prepayments, and initial direct costs.
5. What is a major reason why a company may become involved in leasing to
other companies?
A. Tax incentives
B. Reduced financial reporting
C. Elimination of credit risk
D. Avoidance of depreciation
CORRECT ANSWER:
A. Tax incentives
Expert Rationale:
Leasing may provide the lessor with depreciation deductions, interest income, and other
tax advantages. These incentives can make leasing financially attractive while also
supporting product sales.
,6. Which of the following best describes current practice in accounting for
leases?
A. Only finance leases are disclosed
B. All long-term leases are capitalized
C. Operating leases are recorded only when paid
D. Leases are excluded from the balance sheet
CORRECT ANSWER:
B. All long-term leases are capitalized
Expert Rationale:
Lessees generally recognize a right-of-use asset and a lease liability for leases
extending beyond the short-term exemption. Finance and operating leases differ mainly
in how lease expense is recognized.
7. What single lease expense is recognized on the income statement?
A. A sales-type lease
B. A finance lease
C. An operating lease
D. A direct-financing lease
CORRECT ANSWER:
C. An operating lease
Expert Rationale:
A lessee generally reports one combined lease expense for an operating lease. Finance
leases produce separate amortization and interest expenses.
8. In computing present value of the lease payments, what rate should the lessee
use?
A. The prime rate in every circumstance
B. The lessee’s dividend rate
C. The risk-free rate only
D. The implicit rate of the lessor, assuming that the implicit rate is known to the lessee
CORRECT ANSWER:
D. The implicit rate of the lessor, assuming that the implicit rate is known to the
lessee
,A. $5,500
B. $10,213
C. $13,333
D. $8,000
CORRECT ANSWER:
D. $8,000
Expert Rationale:
Straight-line depreciation is $40,000 ÷ 5 years = $8,000 per year. The lessor continues
depreciating the underlying asset during an operating lease.
41. If retrospective application of a change in accounting principle requires
assumptions about management’s intent in a prior period, then what approach
should be used to account for the change?
A. Prospective
B. Retrospective
C. Cash basis
D. Liquidation basis
CORRECT ANSWER:
A. Prospective
Expert Rationale:
Retrospective application is impracticable when it depends on unsupported
assumptions about prior management intent. The new principle is applied prospectively
from the earliest practicable date.
42. Where is the cumulative effect of a change in accounting principle reported?
A. In current operating income
B. On the retained-earnings statement as an adjustment to the beginning balance of the
earliest year presented
C. As other comprehensive income
D. As a financing activity
CORRECT ANSWER:
B. On the retained-earnings statement as an adjustment to the beginning balance
of the earliest year presented
,Expert Rationale:
Retrospective application adjusts opening equity for the earliest comparative period
presented. Prior statements are restated when practicable.
43. Stone Company changed its method of pricing inventories from FIFO to LIFO.
What type of accounting change does this represent?
A. A change in estimate
B. A correction of an error
C. A change in accounting principle for which prior comparative financial statements
should be restated
D. A change in reporting entity
CORRECT ANSWER:
C. A change in accounting principle for which prior comparative financial
statements should be restated
Expert Rationale:
Changing inventory-costing methods is a change in accounting principle. The source
material directs retrospective presentation of comparative periods.
44. Which of the following is accounted for as a change in accounting principle?
A. A change in estimated useful life
B. A change in expected bad debts
C. Correction of a mathematical error
D. A change in inventory valuation from average cost to LIFO
CORRECT ANSWER:
D. A change in inventory valuation from average cost to LIFO
Expert Rationale:
Moving from one acceptable inventory method to another changes the accounting
principle used to measure inventory and cost of goods sold.
45. Which of the following disclosures is required for a change from the sum-of-
the-years’-digits to the straight-line depreciation method?
A. Recomputation of current and future years’ depreciation
B. Full restatement of all prior periods
,C. Immediate write-off of the asset
D. Adjustment to common stock
CORRECT ANSWER:
A. Recomputation of current and future years’ depreciation
Expert Rationale:
A depreciation-method change is treated prospectively as a change in estimate effected
by a change in principle.
46. Which of the following disclosures is required for a change from LIFO to
FIFO?
A. Only the current inventory balance
B. The cumulative effect on prior years, net of tax, the justification for the change, and
restated prior-year income
C. Only the reason for the change
D. No disclosure because both methods are acceptable
CORRECT ANSWER:
B. The cumulative effect on prior years, net of tax, the justification for the change,
and restated prior-year income
Expert Rationale:
A voluntary accounting-principle change requires disclosure of its nature, justification,
and material financial effects, together with retrospective presentation where required.
47. On December 31, 2020, Dodd Inc. appropriately changed its inventory
valuation method to FIFO cost from weighted-average cost for financial statement
purposes. The change will result in an increase in the Inventory account at
January 1, 2020. The amount of the change, net of tax, is $2,300,000. What is the
cumulative effect of this accounting change that should be reported by Dodd Inc.
in 2020?
A. A current operating gain of $2,300,000
B. A deduction from common stock
C. A $2,300,000 addition to the beginning balance of retained earnings
D. A financing cash inflow
CORRECT ANSWER:
C. A $2,300,000 addition to the beginning balance of retained earnings
,Expert Rationale:
A defined contribution plan specifies the employer’s contribution rather than the
employee’s eventual retirement benefit.
90. Commonly, in a defined benefit plan, who makes the contributions to the
plan?
A. Customers
B. An employer
C. The external auditor
D. Suppliers
CORRECT ANSWER:
B. An employer
Expert Rationale:
Employers commonly fund defined benefit plans and bear the actuarial and investment
risk associated with the promised benefits.
91. What is the purpose of a formula in a defined benefit plan?
A. To determine the employer’s sales
B. To calculate plan investment returns only
C. To define the benefits that the employee will receive at the time of retirement
D. To eliminate actuarial assumptions
CORRECT ANSWER:
C. To define the benefits that the employee will receive at the time of retirement
Expert Rationale:
The formula usually considers compensation and service to determine the retirement
benefit promised to the employee.
92. In a defined benefit plan, what is meant by the process of funding?
A. Recording expense without transferring assets
B. Estimating future compensation
C. Paying benefits from daily sales
D. Making periodic contributions to a funding agency to ensure that funds are available
to meet retirees’ claims
, CORRECT ANSWER:
D. Making periodic contributions to a funding agency to ensure that funds are
available to meet retirees’ claims
Expert Rationale:
Funding transfers assets to a separate pension trust or agency that invests the assets
and pays retirement benefits.
93. What is the purpose of a pension plan?
A. For an employer to provide benefits to retired employees
B. To provide short-term customer financing
C. To replace workers’ compensation
D. To finance inventory purchases
CORRECT ANSWER:
A. For an employer to provide benefits to retired employees
Expert Rationale:
Pension plans form part of employee compensation and provide income after
retirement.
94. Who benefits from the gain, or risks the loss, from the assets contributed to a
defined contribution plan?
A. The employer’s customers
B. The employee
C. The external auditor
D. The pension regulator
CORRECT ANSWER:
B. The employee
Expert Rationale:
The employee’s benefit depends on account contributions and investment performance.
The employee therefore benefits from gains and bears investment losses.
95. Fluffle Company bears the entire cost of its employee pension. Which type of
plan does Fluffle have?
