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 :)
, 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.
,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.
,EXPERT RATIONALE:
Since withdrawals occur "at the end of the month," this is an ordinary annuity
problem. The $40,000 represents the present value of 12 equal monthly payments. The
PVOA factor of 10.57534 is the sum of the present value factors for 12 periods at 2%
per period. Dividing the principal by this factor yields the equal monthly withdrawal
amount. The annuity due calculation ($3,708.22) would apply only if withdrawals were
made at the BEGINNING of each month.
ACCOUNTING RULE:
Annuity calculations are fundamental to loan amortization, lease accounting, and
pension obligations. The ordinary annuity assumption is standard unless the contract
explicitly specifies payments in advance.
UNIT 6 — CASH & RECEIVABLES
QUESTION 8
A company has the following items:
• Cash: $10,000
• Petty cash: $100
• Short-term commercial paper: $1,500
• Post-dated customer check: $2,000
• Bank overdraft: $50
How much should be recorded as cash and cash equivalents?
A. $13,600
B. $11,600
C. $11,550
D. $13,550
CORRECT ANSWER: C. $11,550
CALCULATION:
Cash: $10,000
• Petty cash: $100
, • Short-term commercial paper: $1,500
− Bank overdraft: $50
= Cash and Cash Equivalents: $11,550
EXPERT RATIONALE:
Cash equivalents include short-term, highly liquid investments readily convertible to
known amounts of cash with original maturities of THREE MONTHS OR LESS. Short-
term commercial paper qualifies. Petty cash is included as it is immediately available.
Post-dated checks are NOT cash equivalents because they cannot be deposited until
the future date; they should be classified as receivables. Bank overdrafts are typically
reported as current liabilities and are deducted from cash (or reported separately if the
right of offset exists per ASC 210-20-45).
ACCOUNTING RULE:
Per ASC 305-10-20, cash equivalents must be so near maturity that they present
insignificant risk of value changes from interest rate movements. Post-dated checks are
receivables, not cash. Bank overdrafts are liabilities unless a right of setoff exists with
the same bank.
QUESTION 9
A company has the following account balances 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 under current assets on the
balance sheet?
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
(trade, notes, and other) are aggregated, then reduced by the allowance for doubtful
accounts to reflect estimated uncollectible amounts. The allowance method is required
under GAAP for material uncollectible amounts. Net realizable value is the relevant
measurement for financial statement presentation.
ACCOUNTING RULE:
Per ASC 310-10-35, receivables must be reported at net realizable value (gross amount
less allowance for doubtful accounts). The allowance must be adequate to cover
estimated uncollectible amounts based on historical experience, current conditions, and
reasonable forecasts.
QUESTION 10
A company uses the net method to record a sale of $500 on 6/18 with terms of 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 the sale at the discounted amount:
$500 × (1 − 0.02) = $500 × 0.98 = $490
EXPERT RATIONALE:
Under the NET METHOD, the sale is initially recorded at the amount expected to be
collected ($490), assuming the customer will take the 2% discount. The accounts
receivable balance is $490 from inception. When payment of $490 is received on 6/30
(within the 10-day discount period), accounts receivable is CREDITED for $490 to
eliminate the receivable balance. Cash is debited for $490. If the discount period had
,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
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.
,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.
,EXPERT RATIONALE:
Since withdrawals occur "at the end of the month," this is an ordinary annuity
problem. The $40,000 represents the present value of 12 equal monthly payments. The
PVOA factor of 10.57534 is the sum of the present value factors for 12 periods at 2%
per period. Dividing the principal by this factor yields the equal monthly withdrawal
amount. The annuity due calculation ($3,708.22) would apply only if withdrawals were
made at the BEGINNING of each month.
ACCOUNTING RULE:
Annuity calculations are fundamental to loan amortization, lease accounting, and
pension obligations. The ordinary annuity assumption is standard unless the contract
explicitly specifies payments in advance.
UNIT 6 — CASH & RECEIVABLES
QUESTION 8
A company has the following items:
• Cash: $10,000
• Petty cash: $100
• Short-term commercial paper: $1,500
• Post-dated customer check: $2,000
• Bank overdraft: $50
How much should be recorded as cash and cash equivalents?
A. $13,600
B. $11,600
C. $11,550
D. $13,550
CORRECT ANSWER: C. $11,550
CALCULATION:
Cash: $10,000
• Petty cash: $100
, • Short-term commercial paper: $1,500
− Bank overdraft: $50
= Cash and Cash Equivalents: $11,550
EXPERT RATIONALE:
Cash equivalents include short-term, highly liquid investments readily convertible to
known amounts of cash with original maturities of THREE MONTHS OR LESS. Short-
term commercial paper qualifies. Petty cash is included as it is immediately available.
Post-dated checks are NOT cash equivalents because they cannot be deposited until
the future date; they should be classified as receivables. Bank overdrafts are typically
reported as current liabilities and are deducted from cash (or reported separately if the
right of offset exists per ASC 210-20-45).
ACCOUNTING RULE:
Per ASC 305-10-20, cash equivalents must be so near maturity that they present
insignificant risk of value changes from interest rate movements. Post-dated checks are
receivables, not cash. Bank overdrafts are liabilities unless a right of setoff exists with
the same bank.
QUESTION 9
A company has the following account balances 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 under current assets on the
balance sheet?
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
(trade, notes, and other) are aggregated, then reduced by the allowance for doubtful
accounts to reflect estimated uncollectible amounts. The allowance method is required
under GAAP for material uncollectible amounts. Net realizable value is the relevant
measurement for financial statement presentation.
ACCOUNTING RULE:
Per ASC 310-10-35, receivables must be reported at net realizable value (gross amount
less allowance for doubtful accounts). The allowance must be adequate to cover
estimated uncollectible amounts based on historical experience, current conditions, and
reasonable forecasts.
QUESTION 10
A company uses the net method to record a sale of $500 on 6/18 with terms of 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 the sale at the discounted amount:
$500 × (1 − 0.02) = $500 × 0.98 = $490
EXPERT RATIONALE:
Under the NET METHOD, the sale is initially recorded at the amount expected to be
collected ($490), assuming the customer will take the 2% discount. The accounts
receivable balance is $490 from inception. When payment of $490 is received on 6/30
(within the 10-day discount period), accounts receivable is CREDITED for $490 to
eliminate the receivable balance. Cash is debited for $490. If the discount period had
,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
