Intermediate Accounting I - OA2 Comprehensive Exam 2026 UPDATE
1. Under the revenue recognition standard, which of the following is the second step in the
five-step process?
A. Identify the separate performance obligations in the contract.
B. Identify the contract with the customer.
C. Determine the transaction price.
D. Allocate the transaction price to the performance obligations.
Answer: A
Rationale: The five steps are: 1) Identify contract, 2) Identify performance obligations, 3)
Determine price, 4) Allocate price, 5) Recognize revenue when obligations are satisfied.
2. Which qualitative characteristic of financial information is satisfied when different
knowledgeable and independent observers can reach a consensus?
A. Comparability
B. Understandability
C. Timeliness
D. Verifiability
Answer: D
,Rationale: Verifiability implies that different observers could reach similar conclusions
regarding whether a particular representation is a faithful representation.
3. When using the allowance method for bad debts, what is the effect of writing off a specific
customer’s uncollectible account on net income?
A. It has no effect on net income.
B. It increases net income.
C. It decreases net income.
D. It decreases gross profit.
Answer: A
Rationale: Under the allowance method, the expense is recognized when the allowance is
created, not when the specific account is written off. The write-off reduces both Accounts
Receivable and the Allowance for Doubtful Accounts, resulting in no change to Net
Realizable Value or Net Income.
4. A company uses the LIFO periodic inventory method. During a period of rising prices, which
of the following is true?
A. Ending inventory is higher than under FIFO.
B. Cost of goods sold is lower than under FIFO.
C. Net income is lower than under FIFO.
D. Tax expense is higher than under FIFO.
, Answer: C
Rationale: In rising prices, LIFO assigns the most recent (higher) costs to COGS, resulting
in lower net income and lower taxes compared to FIFO.
5. Which of the following costs should be capitalized as part of the cost of a new machine?
A. Insurance premiums for the first year of operation.
B. Costs of training employees to use the machine.
C. Repair costs for damage occurred during unloading.
D. Freight-in and installation costs.
Answer: D
Rationale: Capitalized costs include all expenditures necessary to get the asset ready for
its intended use, such as freight and installation. Training and post-setup insurance are
expensed.
6. How should a change in the estimated useful life of a building be accounted for?
A. By restating prior years’ financial statements.
B. As a prior period adjustment to retained earnings.
C. Prospectively in the current and future periods.
D. Retrospectively as a cumulative effect change.
Answer: C
1. Under the revenue recognition standard, which of the following is the second step in the
five-step process?
A. Identify the separate performance obligations in the contract.
B. Identify the contract with the customer.
C. Determine the transaction price.
D. Allocate the transaction price to the performance obligations.
Answer: A
Rationale: The five steps are: 1) Identify contract, 2) Identify performance obligations, 3)
Determine price, 4) Allocate price, 5) Recognize revenue when obligations are satisfied.
2. Which qualitative characteristic of financial information is satisfied when different
knowledgeable and independent observers can reach a consensus?
A. Comparability
B. Understandability
C. Timeliness
D. Verifiability
Answer: D
,Rationale: Verifiability implies that different observers could reach similar conclusions
regarding whether a particular representation is a faithful representation.
3. When using the allowance method for bad debts, what is the effect of writing off a specific
customer’s uncollectible account on net income?
A. It has no effect on net income.
B. It increases net income.
C. It decreases net income.
D. It decreases gross profit.
Answer: A
Rationale: Under the allowance method, the expense is recognized when the allowance is
created, not when the specific account is written off. The write-off reduces both Accounts
Receivable and the Allowance for Doubtful Accounts, resulting in no change to Net
Realizable Value or Net Income.
4. A company uses the LIFO periodic inventory method. During a period of rising prices, which
of the following is true?
A. Ending inventory is higher than under FIFO.
B. Cost of goods sold is lower than under FIFO.
C. Net income is lower than under FIFO.
D. Tax expense is higher than under FIFO.
, Answer: C
Rationale: In rising prices, LIFO assigns the most recent (higher) costs to COGS, resulting
in lower net income and lower taxes compared to FIFO.
5. Which of the following costs should be capitalized as part of the cost of a new machine?
A. Insurance premiums for the first year of operation.
B. Costs of training employees to use the machine.
C. Repair costs for damage occurred during unloading.
D. Freight-in and installation costs.
Answer: D
Rationale: Capitalized costs include all expenditures necessary to get the asset ready for
its intended use, such as freight and installation. Training and post-setup insurance are
expensed.
6. How should a change in the estimated useful life of a building be accounted for?
A. By restating prior years’ financial statements.
B. As a prior period adjustment to retained earnings.
C. Prospectively in the current and future periods.
D. Retrospectively as a cumulative effect change.
Answer: C
