Intermediate Accounting I - OA2 Comprehensive Exam 2026 UPDATE
1. Which of the following items should be classified as a cash equivalent on the balance
sheet?
A. A money market fund with no withdrawal restrictions
B. Equity securities intended for short-term trading
C. A 6-month Certificate of Deposit
D. Restricted cash for a plant expansion project
Answer: A
Rationale: Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and are so near their maturity (usually within 90
days) that they present insignificant risk of changes in value. Money market funds are
classic cash equivalents.
2. Under the allowance method, when a specific account receivable is written off as
uncollectible, what is the effect on the net realizable value of accounts receivable?
A. Net realizable value increases
B. Net realizable value decreases
C. Net realizable value stays the same
D. Total assets decrease
,Answer: C
Rationale: A write-off reduces both Gross Accounts Receivable and the Allowance for
Doubtful Accounts by the same amount. Since Net Realizable Value is Gross AR minus
Allowance, the net amount remains unchanged.
3. Company X uses the periodic LIFO inventory method. During a period of rising prices, which
of the following is true?
A. Ending inventory is higher than under FIFO
B. Net income is lower than under FIFO
C. Cost of Goods Sold is lower than under FIFO
D. Income tax expense is higher than under FIFO
Answer: B
Rationale: In a period of rising prices, LIFO assigns the most recent (higher) costs to COGS
and the oldest (lower) costs to ending inventory. Higher COGS results in lower net income
and lower taxes.
4. Which cost should NOT be capitalized as part of the cost of land?
A. Cost of a new parking lot lighting system
B. Cost of leveling and grading the land
C. Attorney fees for title search
D. Purchase price of the land
, Answer: A
Rationale: Parking lot lighting is considered a Land Improvement because it has a limited
useful life and is subject to depreciation, unlike the land itself.
5. A company purchases a machine for $100,000 with a $10,000 salvage value and a 5-year
useful life. Using the double-declining-balance method, what is the depreciation expense for
Year 2?
A. $40,000
B. $18,000
C. $24,000
D. $20,000
Answer: C
Rationale: Year 1 DDB: $100,000 * 40% (2/5) = $40,000. Book value start of Year 2:
$60,000. Year 2 DDB: $60,000 * 40% = $24,000.
6. When should a company recognize an impairment loss on a long-lived asset to be held and
used?
A. When the fair value is less than the book value
B. Whenever market interest rates increase
C. When the discounted future cash flows are less than the book value
D. When the undiscounted future cash flows are less than the book value
1. Which of the following items should be classified as a cash equivalent on the balance
sheet?
A. A money market fund with no withdrawal restrictions
B. Equity securities intended for short-term trading
C. A 6-month Certificate of Deposit
D. Restricted cash for a plant expansion project
Answer: A
Rationale: Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and are so near their maturity (usually within 90
days) that they present insignificant risk of changes in value. Money market funds are
classic cash equivalents.
2. Under the allowance method, when a specific account receivable is written off as
uncollectible, what is the effect on the net realizable value of accounts receivable?
A. Net realizable value increases
B. Net realizable value decreases
C. Net realizable value stays the same
D. Total assets decrease
,Answer: C
Rationale: A write-off reduces both Gross Accounts Receivable and the Allowance for
Doubtful Accounts by the same amount. Since Net Realizable Value is Gross AR minus
Allowance, the net amount remains unchanged.
3. Company X uses the periodic LIFO inventory method. During a period of rising prices, which
of the following is true?
A. Ending inventory is higher than under FIFO
B. Net income is lower than under FIFO
C. Cost of Goods Sold is lower than under FIFO
D. Income tax expense is higher than under FIFO
Answer: B
Rationale: In a period of rising prices, LIFO assigns the most recent (higher) costs to COGS
and the oldest (lower) costs to ending inventory. Higher COGS results in lower net income
and lower taxes.
4. Which cost should NOT be capitalized as part of the cost of land?
A. Cost of a new parking lot lighting system
B. Cost of leveling and grading the land
C. Attorney fees for title search
D. Purchase price of the land
, Answer: A
Rationale: Parking lot lighting is considered a Land Improvement because it has a limited
useful life and is subject to depreciation, unlike the land itself.
5. A company purchases a machine for $100,000 with a $10,000 salvage value and a 5-year
useful life. Using the double-declining-balance method, what is the depreciation expense for
Year 2?
A. $40,000
B. $18,000
C. $24,000
D. $20,000
Answer: C
Rationale: Year 1 DDB: $100,000 * 40% (2/5) = $40,000. Book value start of Year 2:
$60,000. Year 2 DDB: $60,000 * 40% = $24,000.
6. When should a company recognize an impairment loss on a long-lived asset to be held and
used?
A. When the fair value is less than the book value
B. Whenever market interest rates increase
C. When the discounted future cash flows are less than the book value
D. When the undiscounted future cash flows are less than the book value
