GU D104 Intermediate Accounting II
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Pre-Assessment V1 Official Practice Exam
Actual Exam 2026/2027 with Detailed
Rationales | Complete Exam-Style Questions |
Pass Guaranteed – A+ Graded
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SECTION 1: BONDS, LONG-TERM LIABILITIES & DEBT RESTRUCTURING Q1 –
Q10
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Question 1 of 50
pex Corporation issues $1,000,000 of 5-year, 6% bonds at face value on January 1, 2025.
A
Apex pays $30,000 in bond issue costs to underwriters. The carrying amount of the bond
payable on the issuance date is reported as:
. $970,000 ✓ CORRECT
A
B. $1,000,000
C. $1,030,000
D. $970,030
orrect Answer: A
C
Rationale: Under ASC 835-30, debt issue costs are presented as a direct deduction from the
carrying amount of the related debt liability, resulting in an initial carrying amount of $970,000. A
common error is to capitalize the debt issue costs as a separate asset, which was the previous
treatment under old GAAP but is no longer permitted. Always net the issue costs against the
liability on the balance sheet.
Question 2 of 50
amma Inc. issues $500,000 of 5-year, 8% bonds for $520,000. The market rate of interest at
G
issuance is 7%. Using the effective interest method, the interest expense recognized in the first
year is calculated by multiplying the carrying amount of the bonds by the:
. 8% nominal rate
A
B. 7% market rate ✓ CORRECT
, . 8% nominal rate less amortization
C
D. 7% market rate plus amortization
orrect Answer: B
C
Rationale: Under the effective interest method, interest expense is calculated by multiplying the
beginning carrying amount of the bonds by the market rate of interest (yield) at the time of
issuance. A frequent trap is to use the nominal or coupon rate (8%) to calculate interest
expense, but the coupon rate is only used to calculate the actual cash interest payment. The
difference between the cash paid and the interest expense is the premium or discount
amortization.
Question 3 of 50
psilon Corp. retires its $1,000,000 face value bonds early on January 1, 2026, by paying
E
$1,050,000 in cash. At the retirement date, the carrying amount of the bonds is $1,040,000,
which includes an unamortized premium of $40,000. Epsilon should recognize a:
. Gain on extinguishment of $10,000
A
B. Gain on extinguishment of $50,000
C. Loss on extinguishment of $10,000 ✓ CORRECT
D. Loss on extinguishment of $50,000
orrect Answer: C
C
Rationale: Under ASC 470-50, a gain or loss on extinguishment of debt is calculated as the
difference between the carrying amount of the debt ($1,040,000) and the cash paid to retire it
($1,050,000), resulting in a $10,000 loss. A tempting error is to compare the face value
($1,000,000) to the cash paid, which would incorrectly yield a $50,000 loss. The unamortized
premium must be included in the carrying amount to accurately determine the economic gain or
loss on retirement.
Question 4 of 50
eta Corporation owes $800,000 on a note payable to a bank. Due to financial distress, the
Z
bank agrees to accept land with a book value of $500,000 and a fair value of $750,000 in full
settlement of the debt. Zeta should record a gain on restructuring of:
. $50,000 ✓ CORRECT
A
B. $250,000
C. $300,000
D. $200,000
orrect Answer: A
C
Rationale: In a troubled debt restructuring by settlement, the gain on restructuring is the
difference between the carrying amount of the debt ($800,000) and the fair value of the assets
, transferred ($750,000), resulting in a $50,000 gain. A common mistake is to calculate the gain
using the book value of the asset ($500,000) or to combine the restructuring gain with the asset
disposition gain, rather than separating them. The disposition gain on the land is $250,000,
which is recorded separately from the debt restructuring gain.
Question 5 of 50
ta Company owes $600,000 on a note payable. The lender agrees to modify the terms by
E
reducing the principal to $500,000 and extending the maturity date by two years. After the
modification, the present value of the new future cash flows discounted at the original effective
interest rate is $480,000. Eta should record a gain on restructuring of:
. $100,000
A
B. $120,000
C. $0 ✓ CORRECT
D. $20,000
orrect Answer: C
C
Rationale: Under ASC 470-60, if the present value of the new future cash flows ($480,000) is
less than the carrying amount of the old debt ($600,000), the debtor records a gain on
restructuring. However, if the total future cash flows ($500,000) are greater than the carrying
amount of the old debt ($600,000), no gain is recognized under the "total future cash flows" test,
and the new effective interest rate is calculated instead. A frequent trap is to compare the
present value of the new cash flows to the carrying amount, which applies only when the total
future cash flows are less than the carrying amount. Therefore, the gain is $0 and interest
expense is imputed.
Question 6 of 50
heta Inc. issued bonds at a premium during the current fiscal year. Over the life of the bond,
T
the total interest expense recognized by Theta will be:
. Equal to the total cash interest payments
A
B. Less than the total cash interest payments ✓ CORRECT
C. More than the total cash interest payments
D. Equal to the face value of the bonds
orrect Answer: B
C
Rationale: When bonds are issued at a premium, the borrower pays more than face value at
issuance but only repays face value at maturity, meaning the premium amortization reduces
total interest expense below total cash interest payments. A common error is assuming that
interest expense always equals cash interest paid, failing to account for the amortization of the
premium or discount. On the exam, always remember that a premium acts as a reduction to the
cost of borrowing, while a discount increases it.
W
Pre-Assessment V1 Official Practice Exam
Actual Exam 2026/2027 with Detailed
Rationales | Complete Exam-Style Questions |
Pass Guaranteed – A+ Graded
═════════════════════════════════════
═
SECTION 1: BONDS, LONG-TERM LIABILITIES & DEBT RESTRUCTURING Q1 –
Q10
══════════════════════════════════════
Question 1 of 50
pex Corporation issues $1,000,000 of 5-year, 6% bonds at face value on January 1, 2025.
A
Apex pays $30,000 in bond issue costs to underwriters. The carrying amount of the bond
payable on the issuance date is reported as:
. $970,000 ✓ CORRECT
A
B. $1,000,000
C. $1,030,000
D. $970,030
orrect Answer: A
C
Rationale: Under ASC 835-30, debt issue costs are presented as a direct deduction from the
carrying amount of the related debt liability, resulting in an initial carrying amount of $970,000. A
common error is to capitalize the debt issue costs as a separate asset, which was the previous
treatment under old GAAP but is no longer permitted. Always net the issue costs against the
liability on the balance sheet.
Question 2 of 50
amma Inc. issues $500,000 of 5-year, 8% bonds for $520,000. The market rate of interest at
G
issuance is 7%. Using the effective interest method, the interest expense recognized in the first
year is calculated by multiplying the carrying amount of the bonds by the:
. 8% nominal rate
A
B. 7% market rate ✓ CORRECT
, . 8% nominal rate less amortization
C
D. 7% market rate plus amortization
orrect Answer: B
C
Rationale: Under the effective interest method, interest expense is calculated by multiplying the
beginning carrying amount of the bonds by the market rate of interest (yield) at the time of
issuance. A frequent trap is to use the nominal or coupon rate (8%) to calculate interest
expense, but the coupon rate is only used to calculate the actual cash interest payment. The
difference between the cash paid and the interest expense is the premium or discount
amortization.
Question 3 of 50
psilon Corp. retires its $1,000,000 face value bonds early on January 1, 2026, by paying
E
$1,050,000 in cash. At the retirement date, the carrying amount of the bonds is $1,040,000,
which includes an unamortized premium of $40,000. Epsilon should recognize a:
. Gain on extinguishment of $10,000
A
B. Gain on extinguishment of $50,000
C. Loss on extinguishment of $10,000 ✓ CORRECT
D. Loss on extinguishment of $50,000
orrect Answer: C
C
Rationale: Under ASC 470-50, a gain or loss on extinguishment of debt is calculated as the
difference between the carrying amount of the debt ($1,040,000) and the cash paid to retire it
($1,050,000), resulting in a $10,000 loss. A tempting error is to compare the face value
($1,000,000) to the cash paid, which would incorrectly yield a $50,000 loss. The unamortized
premium must be included in the carrying amount to accurately determine the economic gain or
loss on retirement.
Question 4 of 50
eta Corporation owes $800,000 on a note payable to a bank. Due to financial distress, the
Z
bank agrees to accept land with a book value of $500,000 and a fair value of $750,000 in full
settlement of the debt. Zeta should record a gain on restructuring of:
. $50,000 ✓ CORRECT
A
B. $250,000
C. $300,000
D. $200,000
orrect Answer: A
C
Rationale: In a troubled debt restructuring by settlement, the gain on restructuring is the
difference between the carrying amount of the debt ($800,000) and the fair value of the assets
, transferred ($750,000), resulting in a $50,000 gain. A common mistake is to calculate the gain
using the book value of the asset ($500,000) or to combine the restructuring gain with the asset
disposition gain, rather than separating them. The disposition gain on the land is $250,000,
which is recorded separately from the debt restructuring gain.
Question 5 of 50
ta Company owes $600,000 on a note payable. The lender agrees to modify the terms by
E
reducing the principal to $500,000 and extending the maturity date by two years. After the
modification, the present value of the new future cash flows discounted at the original effective
interest rate is $480,000. Eta should record a gain on restructuring of:
. $100,000
A
B. $120,000
C. $0 ✓ CORRECT
D. $20,000
orrect Answer: C
C
Rationale: Under ASC 470-60, if the present value of the new future cash flows ($480,000) is
less than the carrying amount of the old debt ($600,000), the debtor records a gain on
restructuring. However, if the total future cash flows ($500,000) are greater than the carrying
amount of the old debt ($600,000), no gain is recognized under the "total future cash flows" test,
and the new effective interest rate is calculated instead. A frequent trap is to compare the
present value of the new cash flows to the carrying amount, which applies only when the total
future cash flows are less than the carrying amount. Therefore, the gain is $0 and interest
expense is imputed.
Question 6 of 50
heta Inc. issued bonds at a premium during the current fiscal year. Over the life of the bond,
T
the total interest expense recognized by Theta will be:
. Equal to the total cash interest payments
A
B. Less than the total cash interest payments ✓ CORRECT
C. More than the total cash interest payments
D. Equal to the face value of the bonds
orrect Answer: B
C
Rationale: When bonds are issued at a premium, the borrower pays more than face value at
issuance but only repays face value at maturity, meaning the premium amortization reduces
total interest expense below total cash interest payments. A common error is assuming that
interest expense always equals cash interest paid, failing to account for the amortization of the
premium or discount. On the exam, always remember that a premium acts as a reduction to the
cost of borrowing, while a discount increases it.
