WGU D104 – Intermediate Accounting II
Exam Final Exam Prep (Latest Update
) Questions and Verified
Answers | 100% Correct | Grade A.
1. Which of the following best describes the primary purpose of
financial accounting?
A. To provide internal managers with detailed operational budgets
B. To determine the amount of taxes owed by a business
C. To provide financial information useful to external users in making
economic decisions
D. To eliminate uncertainty associated with business decisions
Answer: C. To provide financial information useful to external users in
making economic decisions
Rationale: Financial accounting focuses on providing relevant and
reliable financial information to external users such as investors,
creditors, and regulators. Although the information may also be useful
to management, the primary objective is external decision-making.
Financial accounting does not eliminate uncertainty or exist solely for
tax purposes.
2. A company purchases a machine for $120,000. The machine has
an estimated useful life of 8 years and an estimated residual value
of $8,000. Using straight-line depreciation, what is the annual
depreciation expense?
,A. $14,000
B. $15,000
C. $14,500
D. $13,000
Answer: A. $14,000
Rationale: Straight-line depreciation is calculated as (Cost − Residual
value) ÷ Useful life. Therefore, ($120,000 − $8,000) ÷ 8 = $14,000 per
year. The residual value is subtracted because it represents the amount
expected to remain at the end of the asset's useful life.
3. Which accounting principle requires an asset to be recorded at the
amount paid to acquire it rather than at its current market value,
when applicable under the historical-cost model?
A. Revenue recognition principle
B. Historical cost principle
C. Matching principle
D. Full disclosure principle
Answer: B. Historical cost principle
Rationale: The historical cost principle generally requires assets to be
initially recorded at the amount paid or the fair value of consideration
given to acquire them. This provides an objective and verifiable basis for
measurement. Other principles address when revenue is recognized,
how expenses are associated with revenues, and what information must
be disclosed.
4. A company exchanges an old piece of equipment for a new piece
of equipment. The transaction has commercial substance, and the
fair value of the old equipment is reliably measurable. Which
, amount generally provides the basis for recording the new
equipment?
A. The book value of the old equipment only
B. The original cost of the old equipment
C. The fair value of the asset given up or received, whichever is more
clearly evident
D. The accumulated depreciation of the old equipment
Answer: C. The fair value of the asset given up or received, whichever
is more clearly evident
Rationale: For a nonmonetary exchange that has commercial substance,
the acquired asset is generally measured at fair value, using the fair
value of the asset given up or received depending on which is more
clearly evident. Book value and accumulated depreciation are
components of the old asset's accounting records but do not ordinarily
determine the measurement of the new asset.
5. Which of the following is most likely to result in an increase in the
carrying amount of property, plant, and equipment?
A. Recording ordinary repairs and maintenance
B. Recording depreciation expense
C. Capitalizing qualifying expenditures that improve an asset
D. Recording an impairment loss
Answer: C. Capitalizing qualifying expenditures that improve an asset
Rationale: Expenditures that increase an asset's useful life, capacity,
efficiency, or other future economic benefits may qualify for
capitalization. Ordinary repairs and maintenance are generally
, expensed as incurred. Depreciation and impairment losses reduce the
carrying amount of property, plant, and equipment.
6. A company acquires a patent for $90,000 and expects to use it for
10 years. The patent has no residual value. What is the annual
amortization expense using straight-line amortization?
A. $9,000
B. $10,000
C. $8,000
D. $90,000
Answer: A. $9,000
Rationale: Straight-line amortization equals the amortizable cost divided
by the useful life. Because the patent has no residual value, the full
$90,000 is amortized over 10 years: $90,000 ÷ 10 = $9,000 annually.
7. Which of the following intangible assets is generally considered to
have an indefinite useful life if there is no foreseeable limit on the
period over which it is expected to contribute to cash flows?
A. A patent
B. A copyright with a known remaining legal life
C. A renewable trademark with an indefinite expected economic life
D. A customer list with a finite expected life
Answer: C. A renewable trademark with an indefinite expected
economic life
Rationale: An intangible asset may be classified as indefinite-lived when
there is no foreseeable limit to the period over which it is expected to
generate cash flows. An indefinite-lived intangible asset is not amortized
Exam Final Exam Prep (Latest Update
) Questions and Verified
Answers | 100% Correct | Grade A.
1. Which of the following best describes the primary purpose of
financial accounting?
A. To provide internal managers with detailed operational budgets
B. To determine the amount of taxes owed by a business
C. To provide financial information useful to external users in making
economic decisions
D. To eliminate uncertainty associated with business decisions
Answer: C. To provide financial information useful to external users in
making economic decisions
Rationale: Financial accounting focuses on providing relevant and
reliable financial information to external users such as investors,
creditors, and regulators. Although the information may also be useful
to management, the primary objective is external decision-making.
Financial accounting does not eliminate uncertainty or exist solely for
tax purposes.
2. A company purchases a machine for $120,000. The machine has
an estimated useful life of 8 years and an estimated residual value
of $8,000. Using straight-line depreciation, what is the annual
depreciation expense?
,A. $14,000
B. $15,000
C. $14,500
D. $13,000
Answer: A. $14,000
Rationale: Straight-line depreciation is calculated as (Cost − Residual
value) ÷ Useful life. Therefore, ($120,000 − $8,000) ÷ 8 = $14,000 per
year. The residual value is subtracted because it represents the amount
expected to remain at the end of the asset's useful life.
3. Which accounting principle requires an asset to be recorded at the
amount paid to acquire it rather than at its current market value,
when applicable under the historical-cost model?
A. Revenue recognition principle
B. Historical cost principle
C. Matching principle
D. Full disclosure principle
Answer: B. Historical cost principle
Rationale: The historical cost principle generally requires assets to be
initially recorded at the amount paid or the fair value of consideration
given to acquire them. This provides an objective and verifiable basis for
measurement. Other principles address when revenue is recognized,
how expenses are associated with revenues, and what information must
be disclosed.
4. A company exchanges an old piece of equipment for a new piece
of equipment. The transaction has commercial substance, and the
fair value of the old equipment is reliably measurable. Which
, amount generally provides the basis for recording the new
equipment?
A. The book value of the old equipment only
B. The original cost of the old equipment
C. The fair value of the asset given up or received, whichever is more
clearly evident
D. The accumulated depreciation of the old equipment
Answer: C. The fair value of the asset given up or received, whichever
is more clearly evident
Rationale: For a nonmonetary exchange that has commercial substance,
the acquired asset is generally measured at fair value, using the fair
value of the asset given up or received depending on which is more
clearly evident. Book value and accumulated depreciation are
components of the old asset's accounting records but do not ordinarily
determine the measurement of the new asset.
5. Which of the following is most likely to result in an increase in the
carrying amount of property, plant, and equipment?
A. Recording ordinary repairs and maintenance
B. Recording depreciation expense
C. Capitalizing qualifying expenditures that improve an asset
D. Recording an impairment loss
Answer: C. Capitalizing qualifying expenditures that improve an asset
Rationale: Expenditures that increase an asset's useful life, capacity,
efficiency, or other future economic benefits may qualify for
capitalization. Ordinary repairs and maintenance are generally
, expensed as incurred. Depreciation and impairment losses reduce the
carrying amount of property, plant, and equipment.
6. A company acquires a patent for $90,000 and expects to use it for
10 years. The patent has no residual value. What is the annual
amortization expense using straight-line amortization?
A. $9,000
B. $10,000
C. $8,000
D. $90,000
Answer: A. $9,000
Rationale: Straight-line amortization equals the amortizable cost divided
by the useful life. Because the patent has no residual value, the full
$90,000 is amortized over 10 years: $90,000 ÷ 10 = $9,000 annually.
7. Which of the following intangible assets is generally considered to
have an indefinite useful life if there is no foreseeable limit on the
period over which it is expected to contribute to cash flows?
A. A patent
B. A copyright with a known remaining legal life
C. A renewable trademark with an indefinite expected economic life
D. A customer list with a finite expected life
Answer: C. A renewable trademark with an indefinite expected
economic life
Rationale: An intangible asset may be classified as indefinite-lived when
there is no foreseeable limit to the period over which it is expected to
generate cash flows. An indefinite-lived intangible asset is not amortized
