Intermediate Accounting II (Units 4–6) Assessment 2026 UPDATE
1. On January 1, a company issued $100,000 of 6% bonds at 98. The bonds pay interest
annually. What is the amount of the discount on these bonds?
A. $98,000
B. $6,000
C. $2,000
D. $4,000
Answer: C
Rationale: Bonds issued at 98 means they were issued at 98% of face value ($100,000 *
0.98 = $98,000). The discount is the face value minus the issue price ($100,000 - $98,000 =
$2,000).
2. Which of the following describes a ‘loss contingency’ that should be accrued in the financial
statements?
A. The loss is remote but can be estimated.
B. The loss is reasonably possible but not estimable.
C. The loss is probable and can be reasonably estimated.
D. The loss is probable but cannot be estimated.
,Answer: C
Rationale: According to GAAP, a loss contingency is accrued only if it is both probable that
a liability has been incurred and the amount of the loss can be reasonably estimated.
3. When using the effective-interest method of amortization, the periodic interest expense is
calculated by multiplying the:
A. Face value by the stated interest rate.
B. Carrying value by the market interest rate.
C. Face value by the market interest rate.
D. Carrying value by the stated interest rate.
Answer: B
Rationale: Interest expense is the carrying value of the bond at the beginning of the period
multiplied by the market (effective) interest rate at the time of issuance.
4. Under the cost method, when a company reacquires its own shares (Treasury Stock), the
account is:
A. Credited for the par value of the shares.
B. Debited for the cost of the shares.
C. Debited for the par value of the shares.
D. Credited for the cost of the shares.
Answer: B
, Rationale: In the cost method, Treasury Stock is debited for the full amount paid to
reacquire the shares, regardless of par value.
5. A ‘small’ stock dividend is defined as one that is less than:
A. 20-25% of previously outstanding shares.
B. 10% of previously outstanding shares.
C. 50% of previously outstanding shares.
D. 5% of previously outstanding shares.
Answer: A
Rationale: Accounting standards generally define a small stock dividend as less than 20-
25% of the shares outstanding, requiring the use of fair market value for recording.
6. Which type of investment is reported at fair value with unrealized gains and losses
included in Net Income?
A. Trading debt securities.
B. Available-for-Sale debt securities.
C. Held-to-Maturity debt securities.
D. Equity Method investments.
Answer: A
Rationale: Trading securities are debt securities bought and held primarily for sale in the
near term; unrealized gains/losses are reported in the income statement.
1. On January 1, a company issued $100,000 of 6% bonds at 98. The bonds pay interest
annually. What is the amount of the discount on these bonds?
A. $98,000
B. $6,000
C. $2,000
D. $4,000
Answer: C
Rationale: Bonds issued at 98 means they were issued at 98% of face value ($100,000 *
0.98 = $98,000). The discount is the face value minus the issue price ($100,000 - $98,000 =
$2,000).
2. Which of the following describes a ‘loss contingency’ that should be accrued in the financial
statements?
A. The loss is remote but can be estimated.
B. The loss is reasonably possible but not estimable.
C. The loss is probable and can be reasonably estimated.
D. The loss is probable but cannot be estimated.
,Answer: C
Rationale: According to GAAP, a loss contingency is accrued only if it is both probable that
a liability has been incurred and the amount of the loss can be reasonably estimated.
3. When using the effective-interest method of amortization, the periodic interest expense is
calculated by multiplying the:
A. Face value by the stated interest rate.
B. Carrying value by the market interest rate.
C. Face value by the market interest rate.
D. Carrying value by the stated interest rate.
Answer: B
Rationale: Interest expense is the carrying value of the bond at the beginning of the period
multiplied by the market (effective) interest rate at the time of issuance.
4. Under the cost method, when a company reacquires its own shares (Treasury Stock), the
account is:
A. Credited for the par value of the shares.
B. Debited for the cost of the shares.
C. Debited for the par value of the shares.
D. Credited for the cost of the shares.
Answer: B
, Rationale: In the cost method, Treasury Stock is debited for the full amount paid to
reacquire the shares, regardless of par value.
5. A ‘small’ stock dividend is defined as one that is less than:
A. 20-25% of previously outstanding shares.
B. 10% of previously outstanding shares.
C. 50% of previously outstanding shares.
D. 5% of previously outstanding shares.
Answer: A
Rationale: Accounting standards generally define a small stock dividend as less than 20-
25% of the shares outstanding, requiring the use of fair market value for recording.
6. Which type of investment is reported at fair value with unrealized gains and losses
included in Net Income?
A. Trading debt securities.
B. Available-for-Sale debt securities.
C. Held-to-Maturity debt securities.
D. Equity Method investments.
Answer: A
Rationale: Trading securities are debt securities bought and held primarily for sale in the
near term; unrealized gains/losses are reported in the income statement.
