WGU D103
Intermediate Accounting I
OA2 (Units 5-7)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢70 OA Exam Questions w/ Answers
➢ Complete Units 5, 6, and 7
➢ Unit 5 - Time Value of Money = 20%
➢ Unit 6 - Cash & Receivables = 40%
➢ Unit 7 - Inventory = 40%
Take and pass the OA :)
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,UNIT 5 — TIME VALUE OF MONEY & RECEIVABLES
QUESTION 1
A company deposits $10,000 in a bank where it will earn simple interest of 10%
annually. What is the amount of interest earned in Year 2?
A. $500
B. $1,000
C. $1,100
D. $2,000
CORRECT ANSWER: B. $1,000
CALCULATION:
Simple Interest = Principal × Rate × Time
Simple Interest = $10,000 × 10% × 1 year = $1,000
EXPERT RATIONALE:
Simple interest is calculated ONLY on the original principal amount. Unlike
compound interest, simple interest does NOT earn interest on previously earned
interest. Each year, the interest remains constant at $1,000 ($10,000 × 10%). The
interest earned in Year 2 is identical to Year 1 because the principal never changes
under simple interest. This is a fundamental distinction between simple and compound
interest methods.
ACCOUNTING RULE:
Under GAAP, simple interest is recorded as Interest Revenue when earned, with no
compounding effect on the principal balance.
QUESTION 2
A company is putting together a list of transactions that are affected by the time
value of money. Which transaction should be included in this list?
A. Cash sales
B. Short-term accounts payable (30 days)
C. Long-term leases
D. Prepaid insurance (6 months)
CORRECT ANSWER: C. Long-term leases
,EXPERT RATIONALE:
The time value of money (TVM) concept applies to transactions where cash flows
extend over multiple periods, making the timing of cash receipts/payments materially
significant. Long-term leases involve payments spanning multiple years, so the present
value of those future payments must be calculated to properly record the lease liability
and right-of-use asset. Short-term transactions (cash sales, 30-day payables, 6-month
prepaid insurance) do not span a long enough period for the time value of money to be
material.
ACCOUNTING RULE:
Per ASC 842 (Leases) and ASC 310 (Receivables), any long-term contractual
arrangement with deferred payments requires present value calculations to determine
the appropriate carrying amount at inception.
QUESTION 3
A company needs to have $70,000 in cash at the end of four years. The company can
invest the cash now in a money market account that will return 6% interest compounded
annually.
The following present value factors are given:
• Assuming 4% for 6 years: PV factor = 0.79031 → $70,000 × 0.79031 = $55,322
• Assuming 6% for 4 years: PV factor = 0.79209 → $70,000 × 0.79209 = $55,446
• Assuming 6% for 6 years: PV factor = 0.70946 → $70,000 × 0.70946 = $49,662
How much does this company need to deposit today?
A. $55,322
B. $55,446
C. $49,662
D. $70,000
CORRECT ANSWER: B. $55,446
CALCULATION:
Present Value = Future Value × PV Factor (i=6%, n=4)
Present Value = $70,000 × 0.79209 = $55,446
EXPERT RATIONALE:
The correct present value factor must match BOTH the stated interest rate (6%) AND
the stated time period (4 years). The problem specifies 6% compounded annually for 4
years, so the appropriate factor is 0.79209 (6%, 4 periods). This represents the amount
,that, if invested today at 6% compounded annually, will grow to exactly $70,000 in 4
years. Using the wrong rate or wrong period would materially misstate the required
deposit.
ACCOUNTING RULE:
Under GAAP (ASC 835), present value measurements must use the rate implicit in the
transaction or the market rate for similar instruments. The discount rate and period must
precisely match the contractual terms.
QUESTION 4
Company A sells a parcel of land to Company B in exchange for a note receivable. The
terms require Company B to make a single payment of $600,000 in two years. Using a
10% interest rate, the implied annual interest is $600,000 × 0.10 = $60,000, and the
present value of the note is $600,000 × 0.82645 = $495,870.
Which amount must Company A consider as the proceeds from the sale to
calculate gross profit or gain/loss on the sale per GAAP?
A. $600,000
B. $495,870
C. $60,000
D. $540,000
CORRECT ANSWER: B. $495,870
CALCULATION:
PV of Note = Face Value × PV Factor (i=10%, n=2)
PV of Note = $600,000 × 0.82645 = $495,870
EXPERT RATIONALE:
Under GAAP, when a note is non-interest-bearing or bears an unreasonably low rate,
the note must be recorded at its PRESENT VALUE, not its face value. The $495,870
represents the fair value of the consideration received at the transaction date. The
difference between face value ($600,000) and present value ($495,870), which equals
$104,130, represents the total interest to be earned over the two-year period and is
amortized as interest revenue using the effective interest method. Recording the note at
face value would overstate both the sale proceeds and the gain on sale.
ACCOUNTING RULE:
Per ASC 310-10-25, notes received in exchange for property, goods, or services must
be recorded at present value when the stated interest rate differs materially from the
market rate. The present value is calculated using the market rate for similar notes.
,QUESTION 5
A company performs services for a customer in exchange for a noninterest-bearing
note. The customer agrees to pay $100,000 in three years. Using a 5% interest rate, the
implied annual interest is $100,000 × 0.05 = $5,000, and the present value of the note is
$100,000 × 0.86384 = $86,384.
Which amount must this company record as service revenue per GAAP?
A. $100,000
B. $86,384
C. $5,000
D. $95,000
CORRECT ANSWER: B. $86,384
CALCULATION:
PV of Note = Face Value × PV Factor (i=5%, n=3)
PV of Note = $100,000 × 0.86384 = $86,384
EXPERT RATIONALE:
Service revenue must be recognized at the FAIR VALUE of the consideration received
at the transaction date. Since the note is noninterest-bearing, its fair value is its present
value ($86,384), not its face value ($100,000). The $13,616 difference ($100,000 −
$86,384) represents total implicit interest revenue to be recognized over the three-year
term using the effective interest method. Recording $100,000 as revenue would violate
the revenue recognition principle by overstating both revenue and the note receivable.
ACCOUNTING RULE:
Per ASC 606-10-32 and ASC 310-10-25, revenue from contracts with customers is
measured at the transaction price, which for deferred payment arrangements is the
present value of future payments. The time value of money must be incorporated when
the contract includes a significant financing component.
QUESTION 6
A company will receive $10,000 each year in lease payments for the next five years.
The payments will start at the end of the first year. Assuming 4% annual interest, the
present value of an ordinary annuity is 4.45182 × $10,000 = $44,518, and the present
value of an annuity due is 4.62989 × $10,000 = $46,299.
Which amount should be recorded for this sale?
,UNIT 7 — INVENTORY
QUESTION 20
As of March 1, a company had merchandise costing $100,000 in inventory. During
March, the company purchased merchandise costing $40,000 and sold merchandise
costing $30,000. The company uses a perpetual inventory system.
What is the amount in the inventory account as of March 31?
A. $70,000
B. $100,000
C. $110,000
D. $140,000
CORRECT ANSWER: C. $110,000
CALCULATION:
Beginning Inventory: $100,000
• Purchases: $40,000
− Cost of Goods Sold: $30,000
= Ending Inventory: $110,000
EXPERT RATIONALE:
Under the PERPETUAL inventory system, the inventory account is updated
continuously with each purchase and sale. When merchandise is sold, cost of goods
sold is recorded simultaneously, and the inventory account is reduced by the cost of the
items sold. This differs from the periodic system, where inventory and COGS are
determined only at period-end through physical count. The perpetual system provides
real-time inventory balances.
ACCOUNTING RULE:
Per ASC 330-10-30, under perpetual inventory systems, inventory is debited for
purchases and credited for the cost of goods sold at the time of each sale. The
inventory account always reflects the current balance.
QUESTION 21
During a year, the inventory of a merchandiser decreased by $50,000. The beginning
inventory was $200,000. The income statement reported cost of goods sold of
$350,000.
,How much were purchases during the year?
A. $200,000
B. $250,000
C. $300,000
D. $350,000
CORRECT ANSWER: C. $300,000
CALCULATION:
Ending Inventory = $200,000 − $50,000 = $150,000
COGS = Beginning Inventory + Purchases − Ending Inventory
$350,000 = $200,000 + Purchases − $150,000
$350,000 = $50,000 + Purchases
Purchases = $300,000
EXPERT RATIONALE:
The COGS formula (BI + Purchases − EI = COGS) is fundamental to inventory
accounting. When inventory decreases, purchases must be less than COGS because
some of the goods sold came from beginning inventory rather than new purchases. The
$50,000 decrease means $50,000 of the COGS was sourced from beginning inventory,
so purchases only needed to cover $300,000 of the $350,000 COGS.
ACCOUNTING RULE:
Per ASC 330-10-30, the cost of goods sold formula is: Beginning Inventory + Net
Purchases − Ending Inventory = Cost of Goods Sold. This relationship is used in both
periodic and perpetual systems.
QUESTION 22
A grocery store that uses a perpetual inventory system purchases goods for
resale. Which account is debited at the time of purchase?
A. Purchases
B. Cost of Goods Sold
C. Merchandise Inventory
D. Accounts Payable
CORRECT ANSWER: C. Merchandise Inventory
EXPERT RATIONALE:
Under the PERPETUAL inventory system, the "Merchandise Inventory" account is
debited directly when goods are purchased. This increases the inventory asset account
,EXPERT RATIONALE:
Since withdrawals occur "at the end of the month," this is an ordinary annuity. The
PVOA factor of 10.57534 applies. The annuity due calculation ($3,708.22) would only
apply for beginning-of-period payments.
ACCOUNTING RULE:
The ordinary annuity assumption is standard unless the contract explicitly specifies
payments in advance.
UNIT 6 — CASH & RECEIVABLES
QUESTION 13
A company has the following as of December 31:
• Trade receivables: $100,000
• Current notes receivable: $200,000
• Other receivables (due in six months): $20,000
• Allowance for doubtful accounts: $20,000
Which amount should be reported as net receivables?
A. $320,000
B. $300,000
C. $280,000
D. $340,000
CORRECT ANSWER: B. $300,000
CALCULATION:
Trade receivables: $100,000
• Current notes receivable: $200,000
• Other receivables: $20,000
= Gross receivables: $320,000
− Allowance for doubtful accounts: $20,000
= Net receivables: $300,000
EXPERT RATIONALE:
Net receivables represent the amount expected to be collected. All current receivables
are aggregated, then reduced by the allowance for doubtful accounts.
, ACCOUNTING RULE:
Per ASC 310-10-35, receivables must be reported at net realizable value (gross amount
less allowance for doubtful accounts).
QUESTION 14
A company uses the net method to record a sale of $500 on 6/18 with terms 2/10, net
30, and the discount is expected to be taken. Payment is received on 6/30.
How is accounts receivable recorded on 6/30?
A. Debited for $490
B. Credited for $490
C. Debited for $500
D. Credited for $500
CORRECT ANSWER: B. Credited for $490
CALCULATION:
Net method records at discounted amount:
$500 × (1 − 0.02) = $500 × 0.98 = $490
EXPERT RATIONALE:
Under the NET METHOD, the sale is recorded at the amount expected to be collected
($490). When payment of $490 is received on 6/30 (within the discount period),
accounts receivable is CREDITED for $490 to eliminate the receivable balance.
ACCOUNTING RULE:
Per ASC 606-10-32, cash discounts are treated as variable consideration. The net
method records receivables at net realizable value.
QUESTION 15
The December 31, 2019, trial balance reports $100,000 in accounts receivable.
Management estimates 10% may not be collected. Prior to adjustment, there was a
$1,000 credit balance in the allowance for doubtful accounts.
What net realizable value will be reported?
A. $100,000
B. $99,000
C. $90,000
D. $91,000
Intermediate Accounting I
OA2 (Units 5-7)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢70 OA Exam Questions w/ Answers
➢ Complete Units 5, 6, and 7
➢ Unit 5 - Time Value of Money = 20%
➢ Unit 6 - Cash & Receivables = 40%
➢ Unit 7 - Inventory = 40%
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."
Preview sample - full PDF available after purchase
,UNIT 5 — TIME VALUE OF MONEY & RECEIVABLES
QUESTION 1
A company deposits $10,000 in a bank where it will earn simple interest of 10%
annually. What is the amount of interest earned in Year 2?
A. $500
B. $1,000
C. $1,100
D. $2,000
CORRECT ANSWER: B. $1,000
CALCULATION:
Simple Interest = Principal × Rate × Time
Simple Interest = $10,000 × 10% × 1 year = $1,000
EXPERT RATIONALE:
Simple interest is calculated ONLY on the original principal amount. Unlike
compound interest, simple interest does NOT earn interest on previously earned
interest. Each year, the interest remains constant at $1,000 ($10,000 × 10%). The
interest earned in Year 2 is identical to Year 1 because the principal never changes
under simple interest. This is a fundamental distinction between simple and compound
interest methods.
ACCOUNTING RULE:
Under GAAP, simple interest is recorded as Interest Revenue when earned, with no
compounding effect on the principal balance.
QUESTION 2
A company is putting together a list of transactions that are affected by the time
value of money. Which transaction should be included in this list?
A. Cash sales
B. Short-term accounts payable (30 days)
C. Long-term leases
D. Prepaid insurance (6 months)
CORRECT ANSWER: C. Long-term leases
,EXPERT RATIONALE:
The time value of money (TVM) concept applies to transactions where cash flows
extend over multiple periods, making the timing of cash receipts/payments materially
significant. Long-term leases involve payments spanning multiple years, so the present
value of those future payments must be calculated to properly record the lease liability
and right-of-use asset. Short-term transactions (cash sales, 30-day payables, 6-month
prepaid insurance) do not span a long enough period for the time value of money to be
material.
ACCOUNTING RULE:
Per ASC 842 (Leases) and ASC 310 (Receivables), any long-term contractual
arrangement with deferred payments requires present value calculations to determine
the appropriate carrying amount at inception.
QUESTION 3
A company needs to have $70,000 in cash at the end of four years. The company can
invest the cash now in a money market account that will return 6% interest compounded
annually.
The following present value factors are given:
• Assuming 4% for 6 years: PV factor = 0.79031 → $70,000 × 0.79031 = $55,322
• Assuming 6% for 4 years: PV factor = 0.79209 → $70,000 × 0.79209 = $55,446
• Assuming 6% for 6 years: PV factor = 0.70946 → $70,000 × 0.70946 = $49,662
How much does this company need to deposit today?
A. $55,322
B. $55,446
C. $49,662
D. $70,000
CORRECT ANSWER: B. $55,446
CALCULATION:
Present Value = Future Value × PV Factor (i=6%, n=4)
Present Value = $70,000 × 0.79209 = $55,446
EXPERT RATIONALE:
The correct present value factor must match BOTH the stated interest rate (6%) AND
the stated time period (4 years). The problem specifies 6% compounded annually for 4
years, so the appropriate factor is 0.79209 (6%, 4 periods). This represents the amount
,that, if invested today at 6% compounded annually, will grow to exactly $70,000 in 4
years. Using the wrong rate or wrong period would materially misstate the required
deposit.
ACCOUNTING RULE:
Under GAAP (ASC 835), present value measurements must use the rate implicit in the
transaction or the market rate for similar instruments. The discount rate and period must
precisely match the contractual terms.
QUESTION 4
Company A sells a parcel of land to Company B in exchange for a note receivable. The
terms require Company B to make a single payment of $600,000 in two years. Using a
10% interest rate, the implied annual interest is $600,000 × 0.10 = $60,000, and the
present value of the note is $600,000 × 0.82645 = $495,870.
Which amount must Company A consider as the proceeds from the sale to
calculate gross profit or gain/loss on the sale per GAAP?
A. $600,000
B. $495,870
C. $60,000
D. $540,000
CORRECT ANSWER: B. $495,870
CALCULATION:
PV of Note = Face Value × PV Factor (i=10%, n=2)
PV of Note = $600,000 × 0.82645 = $495,870
EXPERT RATIONALE:
Under GAAP, when a note is non-interest-bearing or bears an unreasonably low rate,
the note must be recorded at its PRESENT VALUE, not its face value. The $495,870
represents the fair value of the consideration received at the transaction date. The
difference between face value ($600,000) and present value ($495,870), which equals
$104,130, represents the total interest to be earned over the two-year period and is
amortized as interest revenue using the effective interest method. Recording the note at
face value would overstate both the sale proceeds and the gain on sale.
ACCOUNTING RULE:
Per ASC 310-10-25, notes received in exchange for property, goods, or services must
be recorded at present value when the stated interest rate differs materially from the
market rate. The present value is calculated using the market rate for similar notes.
,QUESTION 5
A company performs services for a customer in exchange for a noninterest-bearing
note. The customer agrees to pay $100,000 in three years. Using a 5% interest rate, the
implied annual interest is $100,000 × 0.05 = $5,000, and the present value of the note is
$100,000 × 0.86384 = $86,384.
Which amount must this company record as service revenue per GAAP?
A. $100,000
B. $86,384
C. $5,000
D. $95,000
CORRECT ANSWER: B. $86,384
CALCULATION:
PV of Note = Face Value × PV Factor (i=5%, n=3)
PV of Note = $100,000 × 0.86384 = $86,384
EXPERT RATIONALE:
Service revenue must be recognized at the FAIR VALUE of the consideration received
at the transaction date. Since the note is noninterest-bearing, its fair value is its present
value ($86,384), not its face value ($100,000). The $13,616 difference ($100,000 −
$86,384) represents total implicit interest revenue to be recognized over the three-year
term using the effective interest method. Recording $100,000 as revenue would violate
the revenue recognition principle by overstating both revenue and the note receivable.
ACCOUNTING RULE:
Per ASC 606-10-32 and ASC 310-10-25, revenue from contracts with customers is
measured at the transaction price, which for deferred payment arrangements is the
present value of future payments. The time value of money must be incorporated when
the contract includes a significant financing component.
QUESTION 6
A company will receive $10,000 each year in lease payments for the next five years.
The payments will start at the end of the first year. Assuming 4% annual interest, the
present value of an ordinary annuity is 4.45182 × $10,000 = $44,518, and the present
value of an annuity due is 4.62989 × $10,000 = $46,299.
Which amount should be recorded for this sale?
,UNIT 7 — INVENTORY
QUESTION 20
As of March 1, a company had merchandise costing $100,000 in inventory. During
March, the company purchased merchandise costing $40,000 and sold merchandise
costing $30,000. The company uses a perpetual inventory system.
What is the amount in the inventory account as of March 31?
A. $70,000
B. $100,000
C. $110,000
D. $140,000
CORRECT ANSWER: C. $110,000
CALCULATION:
Beginning Inventory: $100,000
• Purchases: $40,000
− Cost of Goods Sold: $30,000
= Ending Inventory: $110,000
EXPERT RATIONALE:
Under the PERPETUAL inventory system, the inventory account is updated
continuously with each purchase and sale. When merchandise is sold, cost of goods
sold is recorded simultaneously, and the inventory account is reduced by the cost of the
items sold. This differs from the periodic system, where inventory and COGS are
determined only at period-end through physical count. The perpetual system provides
real-time inventory balances.
ACCOUNTING RULE:
Per ASC 330-10-30, under perpetual inventory systems, inventory is debited for
purchases and credited for the cost of goods sold at the time of each sale. The
inventory account always reflects the current balance.
QUESTION 21
During a year, the inventory of a merchandiser decreased by $50,000. The beginning
inventory was $200,000. The income statement reported cost of goods sold of
$350,000.
,How much were purchases during the year?
A. $200,000
B. $250,000
C. $300,000
D. $350,000
CORRECT ANSWER: C. $300,000
CALCULATION:
Ending Inventory = $200,000 − $50,000 = $150,000
COGS = Beginning Inventory + Purchases − Ending Inventory
$350,000 = $200,000 + Purchases − $150,000
$350,000 = $50,000 + Purchases
Purchases = $300,000
EXPERT RATIONALE:
The COGS formula (BI + Purchases − EI = COGS) is fundamental to inventory
accounting. When inventory decreases, purchases must be less than COGS because
some of the goods sold came from beginning inventory rather than new purchases. The
$50,000 decrease means $50,000 of the COGS was sourced from beginning inventory,
so purchases only needed to cover $300,000 of the $350,000 COGS.
ACCOUNTING RULE:
Per ASC 330-10-30, the cost of goods sold formula is: Beginning Inventory + Net
Purchases − Ending Inventory = Cost of Goods Sold. This relationship is used in both
periodic and perpetual systems.
QUESTION 22
A grocery store that uses a perpetual inventory system purchases goods for
resale. Which account is debited at the time of purchase?
A. Purchases
B. Cost of Goods Sold
C. Merchandise Inventory
D. Accounts Payable
CORRECT ANSWER: C. Merchandise Inventory
EXPERT RATIONALE:
Under the PERPETUAL inventory system, the "Merchandise Inventory" account is
debited directly when goods are purchased. This increases the inventory asset account
,EXPERT RATIONALE:
Since withdrawals occur "at the end of the month," this is an ordinary annuity. The
PVOA factor of 10.57534 applies. The annuity due calculation ($3,708.22) would only
apply for beginning-of-period payments.
ACCOUNTING RULE:
The ordinary annuity assumption is standard unless the contract explicitly specifies
payments in advance.
UNIT 6 — CASH & RECEIVABLES
QUESTION 13
A company has the following as of December 31:
• Trade receivables: $100,000
• Current notes receivable: $200,000
• Other receivables (due in six months): $20,000
• Allowance for doubtful accounts: $20,000
Which amount should be reported as net receivables?
A. $320,000
B. $300,000
C. $280,000
D. $340,000
CORRECT ANSWER: B. $300,000
CALCULATION:
Trade receivables: $100,000
• Current notes receivable: $200,000
• Other receivables: $20,000
= Gross receivables: $320,000
− Allowance for doubtful accounts: $20,000
= Net receivables: $300,000
EXPERT RATIONALE:
Net receivables represent the amount expected to be collected. All current receivables
are aggregated, then reduced by the allowance for doubtful accounts.
, ACCOUNTING RULE:
Per ASC 310-10-35, receivables must be reported at net realizable value (gross amount
less allowance for doubtful accounts).
QUESTION 14
A company uses the net method to record a sale of $500 on 6/18 with terms 2/10, net
30, and the discount is expected to be taken. Payment is received on 6/30.
How is accounts receivable recorded on 6/30?
A. Debited for $490
B. Credited for $490
C. Debited for $500
D. Credited for $500
CORRECT ANSWER: B. Credited for $490
CALCULATION:
Net method records at discounted amount:
$500 × (1 − 0.02) = $500 × 0.98 = $490
EXPERT RATIONALE:
Under the NET METHOD, the sale is recorded at the amount expected to be collected
($490). When payment of $490 is received on 6/30 (within the discount period),
accounts receivable is CREDITED for $490 to eliminate the receivable balance.
ACCOUNTING RULE:
Per ASC 606-10-32, cash discounts are treated as variable consideration. The net
method records receivables at net realizable value.
QUESTION 15
The December 31, 2019, trial balance reports $100,000 in accounts receivable.
Management estimates 10% may not be collected. Prior to adjustment, there was a
$1,000 credit balance in the allowance for doubtful accounts.
What net realizable value will be reported?
A. $100,000
B. $99,000
C. $90,000
D. $91,000
