WGU D105 OA2 Intermediate Accounting III (Units 5–9) Practice Quiz 2026 UPDATE
1. Under ASC 842, which of the following is a criterion for a lessee to classify a lease as a
finance lease?
A. The lease term is for 50% or more of the remaining economic life of the underlying asset.
B. The asset is of a common nature and can be used by other lessees without modification.
C. The present value of the sum of lease payments equals or exceeds 75% of the fair value
of the asset.
D. The lease contains a purchase option that the lessee is reasonably certain to exercise.
Answer: D
Rationale: A lease is classified as a finance lease if any of the five criteria are met: transfer
of ownership, purchase option reasonably certain to be exercised, lease term is for the
major part of the remaining economic life (usually 75%), present value is substantially all
of the fair value (usually 90%), or the asset is specialized.
2. How is the interest cost component of the net periodic pension cost calculated?
A. Expected return on plan assets multiplied by the discount rate.
B. Beginning balance of the Projected Benefit Obligation (PBO) multiplied by the settlement
(discount) rate.
C. Actual return on plan assets multiplied by the corridor percentage.
,D. Fair value of plan assets multiplied by the discount rate.
Answer: B
Rationale: Interest cost is the increase in the Projected Benefit Obligation (PBO) due to the
passage of time, calculated by multiplying the beginning PBO by the discount rate.
3. In a statement of cash flows (indirect method), how is an increase in Accounts Receivable
handled?
A. Added to net income in the operating activities section.
B. Subtracted from net income in the operating activities section.
C. Reported as a cash outflow in the investing activities section.
D. Reported as a cash inflow in the financing activities section.
Answer: B
Rationale: An increase in a current asset like Accounts Receivable implies that revenue
was recognized but cash was not yet collected; therefore, it must be subtracted from net
income to arrive at cash flow from operations.
4. A change from the LIFO inventory method to the FIFO inventory method is classified as a:
A. Change in accounting principle.
B. Change in accounting entity.
C. Change in accounting estimate.
D. Correction of an error.
, Answer: A
Rationale: A change from one generally accepted accounting principle to another (like
LIFO to FIFO) is a change in accounting principle, which requires retrospective application.
5. When calculating Basic Earnings Per Share (EPS), what is the treatment for preferred stock
dividends on non-cumulative preferred stock?
A. Add the dividends to net income.
B. Subtract the dividends whether they were declared or not.
C. Subtract the dividends only if they were declared during the period.
D. Ignore the dividends entirely.
Answer: C
Rationale: For non-cumulative preferred stock, dividends are only subtracted from net
income in the numerator if they have been declared. If it were cumulative, the current
year’s dividend would be subtracted regardless of declaration.
6. Which of the following is NOT a component of the Right-of-Use (ROU) asset initial
measurement?
A. Executory costs such as insurance and taxes paid directly to third parties.
B. Lease payments made to the lessor at or before commencement.
C. Initial direct costs incurred by the lessee.
D. Initial lease liability.
1. Under ASC 842, which of the following is a criterion for a lessee to classify a lease as a
finance lease?
A. The lease term is for 50% or more of the remaining economic life of the underlying asset.
B. The asset is of a common nature and can be used by other lessees without modification.
C. The present value of the sum of lease payments equals or exceeds 75% of the fair value
of the asset.
D. The lease contains a purchase option that the lessee is reasonably certain to exercise.
Answer: D
Rationale: A lease is classified as a finance lease if any of the five criteria are met: transfer
of ownership, purchase option reasonably certain to be exercised, lease term is for the
major part of the remaining economic life (usually 75%), present value is substantially all
of the fair value (usually 90%), or the asset is specialized.
2. How is the interest cost component of the net periodic pension cost calculated?
A. Expected return on plan assets multiplied by the discount rate.
B. Beginning balance of the Projected Benefit Obligation (PBO) multiplied by the settlement
(discount) rate.
C. Actual return on plan assets multiplied by the corridor percentage.
,D. Fair value of plan assets multiplied by the discount rate.
Answer: B
Rationale: Interest cost is the increase in the Projected Benefit Obligation (PBO) due to the
passage of time, calculated by multiplying the beginning PBO by the discount rate.
3. In a statement of cash flows (indirect method), how is an increase in Accounts Receivable
handled?
A. Added to net income in the operating activities section.
B. Subtracted from net income in the operating activities section.
C. Reported as a cash outflow in the investing activities section.
D. Reported as a cash inflow in the financing activities section.
Answer: B
Rationale: An increase in a current asset like Accounts Receivable implies that revenue
was recognized but cash was not yet collected; therefore, it must be subtracted from net
income to arrive at cash flow from operations.
4. A change from the LIFO inventory method to the FIFO inventory method is classified as a:
A. Change in accounting principle.
B. Change in accounting entity.
C. Change in accounting estimate.
D. Correction of an error.
, Answer: A
Rationale: A change from one generally accepted accounting principle to another (like
LIFO to FIFO) is a change in accounting principle, which requires retrospective application.
5. When calculating Basic Earnings Per Share (EPS), what is the treatment for preferred stock
dividends on non-cumulative preferred stock?
A. Add the dividends to net income.
B. Subtract the dividends whether they were declared or not.
C. Subtract the dividends only if they were declared during the period.
D. Ignore the dividends entirely.
Answer: C
Rationale: For non-cumulative preferred stock, dividends are only subtracted from net
income in the numerator if they have been declared. If it were cumulative, the current
year’s dividend would be subtracted regardless of declaration.
6. Which of the following is NOT a component of the Right-of-Use (ROU) asset initial
measurement?
A. Executory costs such as insurance and taxes paid directly to third parties.
B. Lease payments made to the lessor at or before commencement.
C. Initial direct costs incurred by the lessee.
D. Initial lease liability.
