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INTERMEDIATE ACCOUNTING, 11TH EDITION
Comprehensive Test Bank Exam Questions with Detailed
Answers & Rationales Based on Spiceland, Nelson,
Thomas & Winchel | 9781264134526 | GAAP & FASB
Updates
This test bank contains 100 expert-level multiple-choice questions spanning
the complete Intermediate Accounting curriculum. Questions are deliberately
mixed across topics and ordered from most conceptually challenging to
foundational. Each question includes a detailed rationale explaining the
underlying accounting principle, calculation, or standard.
1. A company enters into a lease agreement classified as a finance lease. The
lease term is 5 years, the present value of lease payments is $100,000, and the
fair value of the asset is $120,000. The implicit rate is 8%. The lessee should
initially record the right-of-use asset at:**
- A) $100,000
- B) $120,000
- C) $108,000
- D) The higher of the present value of lease payments or fair value
Answer: A
Rationale: Under ASC 842, the lessee initially records the right-of-use asset
and lease liability at the present value of the lease payments. The asset is not
recorded at fair value unless the present value exceeds fair value (which
,2
would indicate impairment). Since $100,000 (PV) is less than $120,000 (fair
value), the asset is recorded at $100,000.
2. A company reports the following information: Net income = $500,000;
Depreciation expense = $80,000; Increase in accounts receivable = $30,000;
Decrease in inventory = $20,000; Increase in accounts payable = $15,000; Gain
on sale of equipment = $25,000. Using the indirect method, cash provided by
operating activities is:
- A) $560,000
- B) $540,000
- C) $520,000
- D) $580,000
Answer: A
Rationale: Operating cash flows = Net income + Non-cash expenses – Non-
operating gains + Changes in working capital. $500,000 + $80,000
(depreciation) – $25,000 (gain) – $30,000 (A/R increase) + $20,000 (inventory
decrease) + $15,000 (A/P increase) = $560,000.
3. A company has a defined benefit pension plan. The projected benefit
obligation (PBO) at the beginning of the year was $2,000,000. Service cost for
the year was $250,000, interest cost was $160,000, benefits paid were
$180,000, and the actuary's revised assumption increased the PBO by $90,000.
The ending PBO is:
- A) $2,320,000
,3
- B) $2,410,000
- C) $2,320,000
- D) $2,500,000
Answer: A
Rationale: Ending PBO = Beginning PBO + Service cost + Interest cost +
Actuarial loss – Benefits paid. $2,000,000 + $250,000 + $160,000 + $90,000 –
$180,000 = $2,320,000.
4. Under the revenue recognition standard (ASC 606), a performance
obligation is satisfied over time if:**
- A) The customer consumes the benefit as the entity performs
- B) The entity has a right to payment for work completed to date
- C) The asset being created has no alternative use to the entity
- D) All of the above
Answer: D
Rationale: ASC 606 specifies three criteria for over-time satisfaction: (1)
customer consumes benefit as entity performs; (2) entity has an enforceable
right to payment for work completed; (3) asset has no alternative use and
entity has right to payment. If any one criterion is met, performance is over
time.
, 4
5. A company issues 1,000 shares of $1 par value common stock for $15 per
share. The company also incurs $500 in direct issuance costs. The journal entry
to record the issuance would include:
- A) Debit Cash $15,000; Credit Common Stock $15,000
- B) Debit Cash $14,500; Credit Common Stock $1,000; Credit Additional Paid-
in Capital $13,500
- C) Debit Cash $14,500; Credit Common Stock $1,000; Credit Additional Paid-
in Capital $14,000
- D) Debit Cash $14,500; Credit Common Stock $14,500
Answer: B
Rationale: Cash received = 1,000 × $15 – $500 = $14,500. Common Stock is
credited for par value (1,000 × $1 = $1,000). Additional Paid-in Capital is
credited for the excess over par ($14,000) less issuance costs ($500) = $13,500.
*6. A company sells a product with a warranty. Historical experience shows
that 3% of sales will require warranty repairs. Sales for the year are
$2,000,000, and actual warranty costs incurred during the year are $45,000.
The beginning warranty liability was $20,000. The ending warranty liability
should be:
- A) $35,000
- B) $20,000
- C) $60,000
INTERMEDIATE ACCOUNTING, 11TH EDITION
Comprehensive Test Bank Exam Questions with Detailed
Answers & Rationales Based on Spiceland, Nelson,
Thomas & Winchel | 9781264134526 | GAAP & FASB
Updates
This test bank contains 100 expert-level multiple-choice questions spanning
the complete Intermediate Accounting curriculum. Questions are deliberately
mixed across topics and ordered from most conceptually challenging to
foundational. Each question includes a detailed rationale explaining the
underlying accounting principle, calculation, or standard.
1. A company enters into a lease agreement classified as a finance lease. The
lease term is 5 years, the present value of lease payments is $100,000, and the
fair value of the asset is $120,000. The implicit rate is 8%. The lessee should
initially record the right-of-use asset at:**
- A) $100,000
- B) $120,000
- C) $108,000
- D) The higher of the present value of lease payments or fair value
Answer: A
Rationale: Under ASC 842, the lessee initially records the right-of-use asset
and lease liability at the present value of the lease payments. The asset is not
recorded at fair value unless the present value exceeds fair value (which
,2
would indicate impairment). Since $100,000 (PV) is less than $120,000 (fair
value), the asset is recorded at $100,000.
2. A company reports the following information: Net income = $500,000;
Depreciation expense = $80,000; Increase in accounts receivable = $30,000;
Decrease in inventory = $20,000; Increase in accounts payable = $15,000; Gain
on sale of equipment = $25,000. Using the indirect method, cash provided by
operating activities is:
- A) $560,000
- B) $540,000
- C) $520,000
- D) $580,000
Answer: A
Rationale: Operating cash flows = Net income + Non-cash expenses – Non-
operating gains + Changes in working capital. $500,000 + $80,000
(depreciation) – $25,000 (gain) – $30,000 (A/R increase) + $20,000 (inventory
decrease) + $15,000 (A/P increase) = $560,000.
3. A company has a defined benefit pension plan. The projected benefit
obligation (PBO) at the beginning of the year was $2,000,000. Service cost for
the year was $250,000, interest cost was $160,000, benefits paid were
$180,000, and the actuary's revised assumption increased the PBO by $90,000.
The ending PBO is:
- A) $2,320,000
,3
- B) $2,410,000
- C) $2,320,000
- D) $2,500,000
Answer: A
Rationale: Ending PBO = Beginning PBO + Service cost + Interest cost +
Actuarial loss – Benefits paid. $2,000,000 + $250,000 + $160,000 + $90,000 –
$180,000 = $2,320,000.
4. Under the revenue recognition standard (ASC 606), a performance
obligation is satisfied over time if:**
- A) The customer consumes the benefit as the entity performs
- B) The entity has a right to payment for work completed to date
- C) The asset being created has no alternative use to the entity
- D) All of the above
Answer: D
Rationale: ASC 606 specifies three criteria for over-time satisfaction: (1)
customer consumes benefit as entity performs; (2) entity has an enforceable
right to payment for work completed; (3) asset has no alternative use and
entity has right to payment. If any one criterion is met, performance is over
time.
, 4
5. A company issues 1,000 shares of $1 par value common stock for $15 per
share. The company also incurs $500 in direct issuance costs. The journal entry
to record the issuance would include:
- A) Debit Cash $15,000; Credit Common Stock $15,000
- B) Debit Cash $14,500; Credit Common Stock $1,000; Credit Additional Paid-
in Capital $13,500
- C) Debit Cash $14,500; Credit Common Stock $1,000; Credit Additional Paid-
in Capital $14,000
- D) Debit Cash $14,500; Credit Common Stock $14,500
Answer: B
Rationale: Cash received = 1,000 × $15 – $500 = $14,500. Common Stock is
credited for par value (1,000 × $1 = $1,000). Additional Paid-in Capital is
credited for the excess over par ($14,000) less issuance costs ($500) = $13,500.
*6. A company sells a product with a warranty. Historical experience shows
that 3% of sales will require warranty repairs. Sales for the year are
$2,000,000, and actual warranty costs incurred during the year are $45,000.
The beginning warranty liability was $20,000. The ending warranty liability
should be:
- A) $35,000
- B) $20,000
- C) $60,000
