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
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study resources, feel free to Message me."
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,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
,Expert Rationale:
The rate implicit in the lease reflects the lessor’s expected return and the economics of
the arrangement. When it is known or readily determinable, the lessee uses it instead of
the incremental borrowing rate.
9. Which of the following is an advantage of captive leasing companies over the
other players in the leasing market?
A. They have the point-of-sale advantage in finding leasing customers
B. They are exempt from lease accounting rules
C. They do not assess customer credit
D. They cannot experience residual-value losses
CORRECT ANSWER:
A. They have the point-of-sale advantage in finding leasing customers
Expert Rationale:
Captive leasing companies are commonly affiliated with manufacturers or dealers. They
can offer financing directly when customers are considering purchasing or leasing the
parent company’s products.
10. In computing amortization of a leased asset where there is no bargain
purchase option, what should the lessee subtract?
A. The full guaranteed residual value
B. No residual value and depreciate over the term of the lease
C. All future interest expense
D. The unguaranteed residual value plus maintenance costs
CORRECT ANSWER:
B. No residual value and depreciate over the term of the lease
Expert Rationale:
Without an expected transfer of ownership or purchase-option exercise, the lessee
generally amortizes the asset over the lease term. The residual value belongs to the
lessor and is not treated as the lessee’s salvage value.
11. In order to be an operating lease, the lease must fail all five of the
classification tests. Which of the following describes the lease-term test?
,CORRECT ANSWER:
D. Defer the cost and allocate it over the term of the lease in proportion to the
recognition of rental revenue
Expert Rationale:
Initial direct costs of an operating lease are deferred and recognized over the lease term
on a basis consistent with rental revenue.
37. Company A leased a delivery truck from Company B. The initial measurement
of Company A’s lease liability is $100,000. Company A paid $2,000 to its attorney
for legal assistance with the lease agreement. Company B paid $5,000 to
Company A as an incentive to lease the vehicle. What is Company A’s initial value
of its right-of-use asset for the delivery truck?
A. $97,000
B. $100,000
C. $102,000
D. $107,000
CORRECT ANSWER:
A. $97,000
Expert Rationale:
The calculation is $100,000 lease liability + $2,000 initial direct cost − $5,000 lease
incentive = $97,000.
38. Company A leases computers from Company B with annual payments of
$6,469. The leases are for two years, and the computers have an economic life of
three years. At the end of the lease, the computers are expected to have a
residual value of $5,000. Company A has an option to purchase the computers for
$2,000 at the end of the lease agreement, which it expects to do. The fair value of
the lease is $15,000, and the present value of the lease is $12,689. The present
value of the option to purchase the computers is $1,849. How does Company A
account for the amortization of the computers due to the bargain purchase
option?
A. Amortize $12,689 over two years
B. Amortize $14,538 using the economic life of the computers
C. Expense $1,849 immediately
D. Amortize $15,000 over the lease term
,A. Income-statement error
B. Revenue error
C. Balance-sheet error
D. Cash-receipts error
CORRECT ANSWER:
C. Balance-sheet error
Expert Rationale:
The error affects the classification of liabilities on the balance sheet. It may also affect
current versus noncurrent presentation.
64. What happens when there is a failure to record accrued wages in the previous
period?
A. Net income for the first period is understated
B. Assets are understated
C. Cash is overstated
D. Net income for the first period is overstated
CORRECT ANSWER:
D. Net income for the first period is overstated
Expert Rationale:
Omitting accrued wages understates wage expense and the related liability. Lower
expenses cause reported net income to be overstated.
65. What is the reason why companies prefer certain accounting methods?
A. Bonus payments
B. Elimination of audits
C. Avoidance of all taxes
D. Removal of disclosures
CORRECT ANSWER:
A. Bonus payments
Expert Rationale:
Management bonuses may be tied to reported income or other accounting measures.
This can influence management’s preference among acceptable accounting methods.
,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
, Expert Rationale:
Repayment of bond principal reduces long-term financing and is reported as a financing
cash outflow.
117. 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?
A. Cash inflow from financing activities
B. Cash outflow from operating activities
C. Cash inflow from investing activities
D. Noncash activity
CORRECT ANSWER:
A. Cash inflow from financing activities
Expert Rationale:
Borrowing through a note payable increases debt financing and generates a financing
cash inflow.
118. 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 adding all financing transactions
B. By eliminating the effects of income-statement transactions that did not result in a
corresponding increase or decrease in cash
C. By removing all investing transactions
D. By replacing revenue with gross sales
CORRECT ANSWER:
B. 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 adjusts accrual-basis net income for noncash items and changes in
operating assets and liabilities.
119. During 2021, Stout Inc. had the following activities related to its financial
operations:
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."
Preview sample - full PDF available after purchase
,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
,Expert Rationale:
The rate implicit in the lease reflects the lessor’s expected return and the economics of
the arrangement. When it is known or readily determinable, the lessee uses it instead of
the incremental borrowing rate.
9. Which of the following is an advantage of captive leasing companies over the
other players in the leasing market?
A. They have the point-of-sale advantage in finding leasing customers
B. They are exempt from lease accounting rules
C. They do not assess customer credit
D. They cannot experience residual-value losses
CORRECT ANSWER:
A. They have the point-of-sale advantage in finding leasing customers
Expert Rationale:
Captive leasing companies are commonly affiliated with manufacturers or dealers. They
can offer financing directly when customers are considering purchasing or leasing the
parent company’s products.
10. In computing amortization of a leased asset where there is no bargain
purchase option, what should the lessee subtract?
A. The full guaranteed residual value
B. No residual value and depreciate over the term of the lease
C. All future interest expense
D. The unguaranteed residual value plus maintenance costs
CORRECT ANSWER:
B. No residual value and depreciate over the term of the lease
Expert Rationale:
Without an expected transfer of ownership or purchase-option exercise, the lessee
generally amortizes the asset over the lease term. The residual value belongs to the
lessor and is not treated as the lessee’s salvage value.
11. In order to be an operating lease, the lease must fail all five of the
classification tests. Which of the following describes the lease-term test?
,CORRECT ANSWER:
D. Defer the cost and allocate it over the term of the lease in proportion to the
recognition of rental revenue
Expert Rationale:
Initial direct costs of an operating lease are deferred and recognized over the lease term
on a basis consistent with rental revenue.
37. Company A leased a delivery truck from Company B. The initial measurement
of Company A’s lease liability is $100,000. Company A paid $2,000 to its attorney
for legal assistance with the lease agreement. Company B paid $5,000 to
Company A as an incentive to lease the vehicle. What is Company A’s initial value
of its right-of-use asset for the delivery truck?
A. $97,000
B. $100,000
C. $102,000
D. $107,000
CORRECT ANSWER:
A. $97,000
Expert Rationale:
The calculation is $100,000 lease liability + $2,000 initial direct cost − $5,000 lease
incentive = $97,000.
38. Company A leases computers from Company B with annual payments of
$6,469. The leases are for two years, and the computers have an economic life of
three years. At the end of the lease, the computers are expected to have a
residual value of $5,000. Company A has an option to purchase the computers for
$2,000 at the end of the lease agreement, which it expects to do. The fair value of
the lease is $15,000, and the present value of the lease is $12,689. The present
value of the option to purchase the computers is $1,849. How does Company A
account for the amortization of the computers due to the bargain purchase
option?
A. Amortize $12,689 over two years
B. Amortize $14,538 using the economic life of the computers
C. Expense $1,849 immediately
D. Amortize $15,000 over the lease term
,A. Income-statement error
B. Revenue error
C. Balance-sheet error
D. Cash-receipts error
CORRECT ANSWER:
C. Balance-sheet error
Expert Rationale:
The error affects the classification of liabilities on the balance sheet. It may also affect
current versus noncurrent presentation.
64. What happens when there is a failure to record accrued wages in the previous
period?
A. Net income for the first period is understated
B. Assets are understated
C. Cash is overstated
D. Net income for the first period is overstated
CORRECT ANSWER:
D. Net income for the first period is overstated
Expert Rationale:
Omitting accrued wages understates wage expense and the related liability. Lower
expenses cause reported net income to be overstated.
65. What is the reason why companies prefer certain accounting methods?
A. Bonus payments
B. Elimination of audits
C. Avoidance of all taxes
D. Removal of disclosures
CORRECT ANSWER:
A. Bonus payments
Expert Rationale:
Management bonuses may be tied to reported income or other accounting measures.
This can influence management’s preference among acceptable accounting methods.
,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
, Expert Rationale:
Repayment of bond principal reduces long-term financing and is reported as a financing
cash outflow.
117. 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?
A. Cash inflow from financing activities
B. Cash outflow from operating activities
C. Cash inflow from investing activities
D. Noncash activity
CORRECT ANSWER:
A. Cash inflow from financing activities
Expert Rationale:
Borrowing through a note payable increases debt financing and generates a financing
cash inflow.
118. 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 adding all financing transactions
B. By eliminating the effects of income-statement transactions that did not result in a
corresponding increase or decrease in cash
C. By removing all investing transactions
D. By replacing revenue with gross sales
CORRECT ANSWER:
B. 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 adjusts accrual-basis net income for noncash items and changes in
operating assets and liabilities.
119. During 2021, Stout Inc. had the following activities related to its financial
operations:
