WGU D104
Intermediate Accounting II
OA2 (Units 4-6)
Actual Questions with Verified Answers
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➢60 OA Exam Questions w/ Answers
➢Complete Units 4, 5, and 6
➢Accounting Rule Included
Take and pass the OA :)
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,D104 IA 2 OA2 Units 4-6
A company has a policy of calculating depreciation using the nearest fraction of a
year policy. On May 10, the company purchased and placed in service an asset
costing $50,000 with a five-year useful life. The Company uses the straight-line
depreciation method.
What fraction is used to calculate the depreciation expense on December 31 and
what is the depreciation expense on December 31? (round your answer to a
whole number)
$6,392
$6,392 = (7.67/12) x ($50,000/5)
Accounting Rule: the nearest fraction of a year policy states that the depreciation
expense is prorated at the time the asset is placed in service
You need to know the various fractional-year policies (shown in the attached image)
,A company purchases an asset on April 5 of the current year. The company would
like to use the depreciation policy that will result in the highest depreciation
expense in the last year of the asset's useful life.
Which depreciation policy should be used?
a. nearest full month.
b. half-year convention.
c. nearest fraction of the year.
d. full year in period of disposal.
d. full year in period of disposal.
You need to know the various fractional-year policies (shown in the attached image.)
A company owns a machine that it purchased on January 1, year 1 for $600,000.
The machine has an estimated useful life of 5 years and an estimated salvage
value of $75,000. The company uses the sum-of-the-years'-digits method.
What is the depreciation expense for each year and book value of the machine at
the end of year 5?
Year 1: ($600,000 - $75,000) x 5/15 = $175,000
Year 2: ($600,000 - $75,000) x 4/15 = $140,000
Year 3: ($600,000 - $75,000) x 3/15 = $105,000
Year 4: $(600,000 - $75,000) x 2/15 = $70,000
,Year 5: ($600,000 - $75,000) x 1/15 = $35,000
Total accumulated depreciation $525,000 = ($175,000 + $140,000 + $105,000+ $70,000
+ $35,000)
Book value of the machine at the end of year 5 is its salvage $75,000 = $600,000 –
$525,000
Accounting Rule: the sum-of-the-years’-digits method is an accelerated depreciation
method resulting in higher deprecation cost in the earlier years and lower charges in
later periods. It is a passage of time depreciation method that results in a decreasing
depreciation charge based on a decreasing fraction of depreciable cost (original cost
less salvage value). Each fraction uses the sum of the years as a denominator (e.g. 5 +
4 + 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as
of the beginning of the year. In this method, the numerator decreases year by year, and
the denominator remains constant (e.g. 5/15, 4/15, 3/15, 2/15, and 1/15). At the end of
the asset’s useful life, the balance remaining should equal the salvage value. Never
depreciate beyond an asset’s salvage value.
A company purchased a truck at the beginning of 2020 for $109,200. The truck is
estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It
was driven 21,000 miles in 2020 and 29,000 miles in 2021.
What is the depreciation expense for 2020 and 2021 using the variable charge
method?
Year 2020: $18,375
Year 2021: $25,375
Formula:
( (Cost - Salvage Value) × Current Miles)/ Total Estimated Miles
Year 2020: (($109,200 – $4,200) × 21,000)/ 120,000 = $18,375
Year 2021: (($109,200 – $4,200) × 29,000)/ 120,000 = $25,375
Accounting Rule: The activity method (also called the variable-charge or units-of-
activity/production approach) assumes that depreciation is a function of use or
productivity, instead of the passage of time. It calculates depreciation based on the
asset’s activity such as the number of units produced or the number of hours/miles the
asset is used during the period. In other words, this method focuses on the actual use of
,Accounting Rule: balances owed to others for goods, supplies, or services purchased
on account are accounts payable or trade accounts payable.
Which of the following is not a current liability?
a. cash dividends declared.
b. deposits received from customers.
c. deferred revenue.
d. preferred dividends in arrears.
d. preferred dividends in arrears.
Accounting Rule: accumulated but undeclared dividends on cumulative preferred stock
is not a currently liability. In addition, dividends payable in the form of additional shares
of stock (stock dividend) are not recognized as a current liability.
On March 1, 2020, a company borrows money from its bank. The company signs
a $100,000, 6%, four-month note. The company has a calendar year end and
prepares financial statements annually.
1) What is the journal entry to record issuance of the note?
2) What is the journal entry to record payment of the note at maturity?
1) debit cash 100,000
credit notes payable 100,000
2) debit notes payable 100,000
debit interest expense 2,000*
credit cash 102,000
For question 2, the interest expense equals. ($100,000 x 6%) x 4/12
Interest is calculated on an annual basis.
On March 1, 2020, a company borrows money from its bank. The company signs
a $102,000, zero-interest-bearing, four-month note. The present value of the note
is $100,000. The company has a calendar year end and prepares financial
statements annually.
,What is the journal entry the company records for issuance of the note?
debit cash 100,000
debit discount on notes payable 2,000
credit notes payable 102,000
Accounting Rule: a zero-interest-bearing note does not explicitly state an interest rate
on the face of the note. However, interest is still charged. At maturity, the borrower must
pay back an amount greater than the cash received at the issuance date. In other
words, the borrower receives in cash the present value of the note. The present value
equals the face value of the note at maturity minus the interest or discount charged by
the lender for the term of the note. The bank takes its fee “up front” rather than on the
date the note matures.
The note is always credited for is face value at the time of issuance which is more than
the cash received. The discount on notes payable is the difference between the cash
received and the face value of the note. It represents the cost of borrowing and
represents interest expense that will be charged to future periods. The discount on
notes payable is a contra account to notes payable and is subtracted from notes
payable on the balance sheet. The journal entry to amortize the discount would be:
Debit interest expense
Credit discount on notes payable
A magazine outlet sells 64,000, 12-month subscriptions on account on March 1st.
The subscription price is $15 each. The subscriptions start on April 1st.
What is the journal entry on March 1st?
a. debit unearned subscription revenue for $960,000.
b. debit prepaid subscriptions for $960,000.
c. credit cash for $960,000.
d. credit unearned subscription revenue for $960,000.
d. credit unearned subscription revenue for $960,000.
($960,000= $15 x 64,000 subscriptions)
A tenant rented office space on September 1st at $450 per month, paying six
months' rent in advance. The landlord recognized a current liability of $2,700 at
,that time. The December 31st, year-end adjusting journal entry is:
a. debit unearned rent for $1,800; credit rent revenue for $1,800.
b. debit unearned rent for $1,350; credit rent revenue for $1,350.
c. debit rent revenue for $900; credit unearned rent for $900.
d. debit cash for $2,700; credit rent revenue for $1,800; credit unearned rent for
$900.
a. debit unearned rent for $1,800; credit rent revenue for $1,800.
The $2,700 was recorded as unearned rent (a current liability). At December 31, 2/3 of
the rent will have been earned (September 1 to December 31). The amount of rent
revenue to be recognized is 2/3 of $2,700 or $1,800.
A retail store operates in a state with a 7% sales tax. The retailer records the sales
tax in the sales revenue account. The amount recorded in the sales revenue
account during May was $754,350.
What is the amount of sales taxes for May?
$49,350
$49,350 = $754,350 – ($754,.07)
A company made cash sales during the month of October of $375,000. The sales
are subject to a 6% sales tax that was also collected. Which of the following
would be included in the journal entry to reflect the sale transactions?
a. debit accounts receivable for $375,000.
b. credit sales taxes payable for $21,226.
c. credit sales revenue for $347,483.
d. credit sales taxes payable for $22,500.
d. credit sales taxes payable for $22,500.
$375,000 x 6%
A company does not segregate sales tax and the amount of sale at the time of
sale. At quarter end, the company must record the sales tax. The sales revenue
account shows a balance of $200,000, which includes 6% sales tax.
Which journal entry should be used to record the amount due to the taxing unit?
,A company issues $500,000 of bonds at par.
What is the journal entry to record the bond issuance?
Debit cash 500,000
Credit bonds payable 500,000
A company issues $10,000,000 in 20-year bonds at a 10% interest rate, paid
annually. On the issue date, the bonds sold for $9,900,000.
At which value were the bonds issued?
a. face.
b. maturity.
c. premium.
d. discount.
d. discount.
Accounting Rule: bonds that sell for less than face value, sell at a discount. The stated
interest rate on the bonds is less than the market or effective yield rate. The face value
of the bonds is also called the par value, principal amount, or maturity value.
A company issues bonds at par with a 10-year term for $1,000,000 on January 1 of
year 1. The bonds bear interest at an annual rate of 7% payable semiannually on
January 1 and July 1.
Which journal entry should be recorded on July 1 of year 1?
a. debit interest expense for $70,000; credit interest payable for $70,000.
b. debit interest expense for $70,000; credit cash for $70,000.
c. debit interest expense for $35,000; credit cash for $35,000.
d. debit interest expense for $35,000: credit interest payable for $35,000.
c. debit interest expense for $35,000; credit cash for $35,000.
Accounting Rule: interest paid is calculated by multiplying principal by the stated interest
rate. Since the bonds were issued at par, all the interest paid semi-annually will be
$35,000. When interest is paid, the cash account is credited. When interest accrues, the
interest payable account is credited.
The corporate charter sometimes is known as (a)
a. articles of incorporation.
, b. statement of organization.
c. by-laws.
d. registration statement.
a. articles of incorporation.
Accounting Rule: the corporate form of business organization begins with the submitting
of articles of incorporation to the state in which incorporation is desired. Assuming the
requirements are properly fulfilled, the corporation charter is issued, and the corporation
is recognized as a legal entity subject to state law. The laws of the state of incorporation
that govern owners’ equity transactions are normally set out in the state’s business
corporation act.
The preemptive right of a common stockholder is the right to
a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preferred stockholders.
d. exclude preferred stockholders from voting rights.
b. share proportionately in any new issues of stock of the same class.
Accounting Rule: preemptive rights are a contractual clause giving a shareholder the
right to buy additional shares in any future issue of the company's common stock before
the shares are available to the general public. A preemptive right is sometimes called an
"anti-dilution provision." It gives the investor the option of maintaining a certain
percentage of ownership of the company as it grows.
A company's balance sheet displays common stock of $150,000, preferred stock
of $50,000, additional paid-in capital from common stock of $100,000 and retained
earnings of $80,000.
Which amount represents stockholders' equity?
a. $100,000
b. $300,000
c. $330,000
d. $380,000
d. $380,000
Accounting Rule: stockholders’ equity is comprised of
Intermediate Accounting II
OA2 (Units 4-6)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢60 OA Exam Questions w/ Answers
➢Complete Units 4, 5, and 6
➢Accounting Rule 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.
,D104 IA 2 OA2 Units 4-6
A company has a policy of calculating depreciation using the nearest fraction of a
year policy. On May 10, the company purchased and placed in service an asset
costing $50,000 with a five-year useful life. The Company uses the straight-line
depreciation method.
What fraction is used to calculate the depreciation expense on December 31 and
what is the depreciation expense on December 31? (round your answer to a
whole number)
$6,392
$6,392 = (7.67/12) x ($50,000/5)
Accounting Rule: the nearest fraction of a year policy states that the depreciation
expense is prorated at the time the asset is placed in service
You need to know the various fractional-year policies (shown in the attached image)
,A company purchases an asset on April 5 of the current year. The company would
like to use the depreciation policy that will result in the highest depreciation
expense in the last year of the asset's useful life.
Which depreciation policy should be used?
a. nearest full month.
b. half-year convention.
c. nearest fraction of the year.
d. full year in period of disposal.
d. full year in period of disposal.
You need to know the various fractional-year policies (shown in the attached image.)
A company owns a machine that it purchased on January 1, year 1 for $600,000.
The machine has an estimated useful life of 5 years and an estimated salvage
value of $75,000. The company uses the sum-of-the-years'-digits method.
What is the depreciation expense for each year and book value of the machine at
the end of year 5?
Year 1: ($600,000 - $75,000) x 5/15 = $175,000
Year 2: ($600,000 - $75,000) x 4/15 = $140,000
Year 3: ($600,000 - $75,000) x 3/15 = $105,000
Year 4: $(600,000 - $75,000) x 2/15 = $70,000
,Year 5: ($600,000 - $75,000) x 1/15 = $35,000
Total accumulated depreciation $525,000 = ($175,000 + $140,000 + $105,000+ $70,000
+ $35,000)
Book value of the machine at the end of year 5 is its salvage $75,000 = $600,000 –
$525,000
Accounting Rule: the sum-of-the-years’-digits method is an accelerated depreciation
method resulting in higher deprecation cost in the earlier years and lower charges in
later periods. It is a passage of time depreciation method that results in a decreasing
depreciation charge based on a decreasing fraction of depreciable cost (original cost
less salvage value). Each fraction uses the sum of the years as a denominator (e.g. 5 +
4 + 3 + 2 + 1 = 15). The numerator is the number of years of estimated life remaining as
of the beginning of the year. In this method, the numerator decreases year by year, and
the denominator remains constant (e.g. 5/15, 4/15, 3/15, 2/15, and 1/15). At the end of
the asset’s useful life, the balance remaining should equal the salvage value. Never
depreciate beyond an asset’s salvage value.
A company purchased a truck at the beginning of 2020 for $109,200. The truck is
estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It
was driven 21,000 miles in 2020 and 29,000 miles in 2021.
What is the depreciation expense for 2020 and 2021 using the variable charge
method?
Year 2020: $18,375
Year 2021: $25,375
Formula:
( (Cost - Salvage Value) × Current Miles)/ Total Estimated Miles
Year 2020: (($109,200 – $4,200) × 21,000)/ 120,000 = $18,375
Year 2021: (($109,200 – $4,200) × 29,000)/ 120,000 = $25,375
Accounting Rule: The activity method (also called the variable-charge or units-of-
activity/production approach) assumes that depreciation is a function of use or
productivity, instead of the passage of time. It calculates depreciation based on the
asset’s activity such as the number of units produced or the number of hours/miles the
asset is used during the period. In other words, this method focuses on the actual use of
,Accounting Rule: balances owed to others for goods, supplies, or services purchased
on account are accounts payable or trade accounts payable.
Which of the following is not a current liability?
a. cash dividends declared.
b. deposits received from customers.
c. deferred revenue.
d. preferred dividends in arrears.
d. preferred dividends in arrears.
Accounting Rule: accumulated but undeclared dividends on cumulative preferred stock
is not a currently liability. In addition, dividends payable in the form of additional shares
of stock (stock dividend) are not recognized as a current liability.
On March 1, 2020, a company borrows money from its bank. The company signs
a $100,000, 6%, four-month note. The company has a calendar year end and
prepares financial statements annually.
1) What is the journal entry to record issuance of the note?
2) What is the journal entry to record payment of the note at maturity?
1) debit cash 100,000
credit notes payable 100,000
2) debit notes payable 100,000
debit interest expense 2,000*
credit cash 102,000
For question 2, the interest expense equals. ($100,000 x 6%) x 4/12
Interest is calculated on an annual basis.
On March 1, 2020, a company borrows money from its bank. The company signs
a $102,000, zero-interest-bearing, four-month note. The present value of the note
is $100,000. The company has a calendar year end and prepares financial
statements annually.
,What is the journal entry the company records for issuance of the note?
debit cash 100,000
debit discount on notes payable 2,000
credit notes payable 102,000
Accounting Rule: a zero-interest-bearing note does not explicitly state an interest rate
on the face of the note. However, interest is still charged. At maturity, the borrower must
pay back an amount greater than the cash received at the issuance date. In other
words, the borrower receives in cash the present value of the note. The present value
equals the face value of the note at maturity minus the interest or discount charged by
the lender for the term of the note. The bank takes its fee “up front” rather than on the
date the note matures.
The note is always credited for is face value at the time of issuance which is more than
the cash received. The discount on notes payable is the difference between the cash
received and the face value of the note. It represents the cost of borrowing and
represents interest expense that will be charged to future periods. The discount on
notes payable is a contra account to notes payable and is subtracted from notes
payable on the balance sheet. The journal entry to amortize the discount would be:
Debit interest expense
Credit discount on notes payable
A magazine outlet sells 64,000, 12-month subscriptions on account on March 1st.
The subscription price is $15 each. The subscriptions start on April 1st.
What is the journal entry on March 1st?
a. debit unearned subscription revenue for $960,000.
b. debit prepaid subscriptions for $960,000.
c. credit cash for $960,000.
d. credit unearned subscription revenue for $960,000.
d. credit unearned subscription revenue for $960,000.
($960,000= $15 x 64,000 subscriptions)
A tenant rented office space on September 1st at $450 per month, paying six
months' rent in advance. The landlord recognized a current liability of $2,700 at
,that time. The December 31st, year-end adjusting journal entry is:
a. debit unearned rent for $1,800; credit rent revenue for $1,800.
b. debit unearned rent for $1,350; credit rent revenue for $1,350.
c. debit rent revenue for $900; credit unearned rent for $900.
d. debit cash for $2,700; credit rent revenue for $1,800; credit unearned rent for
$900.
a. debit unearned rent for $1,800; credit rent revenue for $1,800.
The $2,700 was recorded as unearned rent (a current liability). At December 31, 2/3 of
the rent will have been earned (September 1 to December 31). The amount of rent
revenue to be recognized is 2/3 of $2,700 or $1,800.
A retail store operates in a state with a 7% sales tax. The retailer records the sales
tax in the sales revenue account. The amount recorded in the sales revenue
account during May was $754,350.
What is the amount of sales taxes for May?
$49,350
$49,350 = $754,350 – ($754,.07)
A company made cash sales during the month of October of $375,000. The sales
are subject to a 6% sales tax that was also collected. Which of the following
would be included in the journal entry to reflect the sale transactions?
a. debit accounts receivable for $375,000.
b. credit sales taxes payable for $21,226.
c. credit sales revenue for $347,483.
d. credit sales taxes payable for $22,500.
d. credit sales taxes payable for $22,500.
$375,000 x 6%
A company does not segregate sales tax and the amount of sale at the time of
sale. At quarter end, the company must record the sales tax. The sales revenue
account shows a balance of $200,000, which includes 6% sales tax.
Which journal entry should be used to record the amount due to the taxing unit?
,A company issues $500,000 of bonds at par.
What is the journal entry to record the bond issuance?
Debit cash 500,000
Credit bonds payable 500,000
A company issues $10,000,000 in 20-year bonds at a 10% interest rate, paid
annually. On the issue date, the bonds sold for $9,900,000.
At which value were the bonds issued?
a. face.
b. maturity.
c. premium.
d. discount.
d. discount.
Accounting Rule: bonds that sell for less than face value, sell at a discount. The stated
interest rate on the bonds is less than the market or effective yield rate. The face value
of the bonds is also called the par value, principal amount, or maturity value.
A company issues bonds at par with a 10-year term for $1,000,000 on January 1 of
year 1. The bonds bear interest at an annual rate of 7% payable semiannually on
January 1 and July 1.
Which journal entry should be recorded on July 1 of year 1?
a. debit interest expense for $70,000; credit interest payable for $70,000.
b. debit interest expense for $70,000; credit cash for $70,000.
c. debit interest expense for $35,000; credit cash for $35,000.
d. debit interest expense for $35,000: credit interest payable for $35,000.
c. debit interest expense for $35,000; credit cash for $35,000.
Accounting Rule: interest paid is calculated by multiplying principal by the stated interest
rate. Since the bonds were issued at par, all the interest paid semi-annually will be
$35,000. When interest is paid, the cash account is credited. When interest accrues, the
interest payable account is credited.
The corporate charter sometimes is known as (a)
a. articles of incorporation.
, b. statement of organization.
c. by-laws.
d. registration statement.
a. articles of incorporation.
Accounting Rule: the corporate form of business organization begins with the submitting
of articles of incorporation to the state in which incorporation is desired. Assuming the
requirements are properly fulfilled, the corporation charter is issued, and the corporation
is recognized as a legal entity subject to state law. The laws of the state of incorporation
that govern owners’ equity transactions are normally set out in the state’s business
corporation act.
The preemptive right of a common stockholder is the right to
a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preferred stockholders.
d. exclude preferred stockholders from voting rights.
b. share proportionately in any new issues of stock of the same class.
Accounting Rule: preemptive rights are a contractual clause giving a shareholder the
right to buy additional shares in any future issue of the company's common stock before
the shares are available to the general public. A preemptive right is sometimes called an
"anti-dilution provision." It gives the investor the option of maintaining a certain
percentage of ownership of the company as it grows.
A company's balance sheet displays common stock of $150,000, preferred stock
of $50,000, additional paid-in capital from common stock of $100,000 and retained
earnings of $80,000.
Which amount represents stockholders' equity?
a. $100,000
b. $300,000
c. $330,000
d. $380,000
d. $380,000
Accounting Rule: stockholders’ equity is comprised of
