D104 OA2 Intermediate Accounting II (Units 4–6) Assessment 2026 UPDATE
1. Under US GAAP, a liability should be recognized for a loss contingency if the occurrence of
the loss is:
A. Remote and the amount can be reasonably estimated.
B. Reasonably possible and the amount is known.
C. Probable but the amount cannot be estimated.
D. Probable and the amount can be reasonably estimated.
Answer: D
Rationale: To accrue a loss contingency, the event must be both probable and the amount
must be reasonably estimable. If only one condition is met, disclosure in the notes is
required.
2. Which of the following is considered a current liability?
A. Unearned revenue to be earned within the next 8 months.
B. Bonds payable maturing in 5 years.
C. Preferred stock dividends not yet declared.
D. Stock dividends distributable.
Answer: A
,Rationale: Current liabilities are obligations expected to be settled within one year or the
operating cycle. Unearned revenue to be earned in 8 months fits this criteria.
3. When bonds are issued at a discount, the carrying value of the bonds will:
A. Decrease initially and then increase.
B. Decrease over the life of the bond.
C. Stay the same until maturity.
D. Increase over the life of the bond.
Answer: D
Rationale: As the discount is amortized, it is added to the carrying value. By the time the
bond matures, the carrying value will equal the face value.
4. The effective-interest method of amortization provides for a:
A. Constant dollar amount of interest expense each period.
B. Increasing interest rate each period.
C. Constant rate of interest based on the carrying value.
D. Decreasing rate of interest based on the face value.
Answer: C
Rationale: The effective-interest method calculates interest expense by multiplying the
carrying value of the bond by the market (effective) interest rate at issuance.
, 5. Under the cost method, when treasury stock is purchased, the Treasury Stock account is
debited for the:
A. Price paid to reacquire the shares.
B. Par value of the shares.
C. Net realizable value.
D. Market value at the date of original issuance.
Answer: A
Rationale: Under the cost method, Treasury Stock is recorded at the reacquisition cost,
regardless of par value.
6. A ‘dividend in arrears’ refers to:
A. A liability recorded when dividends are declared.
B. Passed dividends on non-cumulative preferred stock.
C. Dividends paid in the form of property.
D. Passed dividends on cumulative preferred stock.
Answer: D
Rationale: Dividends in arrears are only applicable to cumulative preferred stock when
the board fails to declare a dividend.
7. Which date does NOT require a formal journal entry?
A. Date of declaration.
1. Under US GAAP, a liability should be recognized for a loss contingency if the occurrence of
the loss is:
A. Remote and the amount can be reasonably estimated.
B. Reasonably possible and the amount is known.
C. Probable but the amount cannot be estimated.
D. Probable and the amount can be reasonably estimated.
Answer: D
Rationale: To accrue a loss contingency, the event must be both probable and the amount
must be reasonably estimable. If only one condition is met, disclosure in the notes is
required.
2. Which of the following is considered a current liability?
A. Unearned revenue to be earned within the next 8 months.
B. Bonds payable maturing in 5 years.
C. Preferred stock dividends not yet declared.
D. Stock dividends distributable.
Answer: A
,Rationale: Current liabilities are obligations expected to be settled within one year or the
operating cycle. Unearned revenue to be earned in 8 months fits this criteria.
3. When bonds are issued at a discount, the carrying value of the bonds will:
A. Decrease initially and then increase.
B. Decrease over the life of the bond.
C. Stay the same until maturity.
D. Increase over the life of the bond.
Answer: D
Rationale: As the discount is amortized, it is added to the carrying value. By the time the
bond matures, the carrying value will equal the face value.
4. The effective-interest method of amortization provides for a:
A. Constant dollar amount of interest expense each period.
B. Increasing interest rate each period.
C. Constant rate of interest based on the carrying value.
D. Decreasing rate of interest based on the face value.
Answer: C
Rationale: The effective-interest method calculates interest expense by multiplying the
carrying value of the bond by the market (effective) interest rate at issuance.
, 5. Under the cost method, when treasury stock is purchased, the Treasury Stock account is
debited for the:
A. Price paid to reacquire the shares.
B. Par value of the shares.
C. Net realizable value.
D. Market value at the date of original issuance.
Answer: A
Rationale: Under the cost method, Treasury Stock is recorded at the reacquisition cost,
regardless of par value.
6. A ‘dividend in arrears’ refers to:
A. A liability recorded when dividends are declared.
B. Passed dividends on non-cumulative preferred stock.
C. Dividends paid in the form of property.
D. Passed dividends on cumulative preferred stock.
Answer: D
Rationale: Dividends in arrears are only applicable to cumulative preferred stock when
the board fails to declare a dividend.
7. Which date does NOT require a formal journal entry?
A. Date of declaration.
