Below is an example revision test covering key topics you might encounter in
Chapters 12–22 of Accounting Volume 2 (8th Edition). Each question is followed
by its answer and a brief rationale explaining the concept behind it. You can
adjust or expand these questions to better match the specific chapter content of
your text.
Revision Test: Accounting Volume 2 (Chapters 12–22)
Note: The following questions are designed to test your understanding of common intermediate
accounting topics. They are not taken verbatim from the text but are modeled on typical subject matter
such as revenue recognition, receivables, inventory, fixed assets, long‐term liabilities, income taxes,
equity transactions, cash flow statements, financial analysis, and ethical issues.
Question 1: Revenue Recognition & Multiple-Element Arrangements
A company sells a product bundled with installation and extended service support. Under the revenue
recognition principle, how should the company account for the bundled arrangement?
a) Recognize all revenue at the point of sale.
b) Allocate revenue to each component based on their relative standalone selling prices and recognize
each as its performance obligation is satisfied.
c) Defer all revenue until the service support is completed.
d) Recognize revenue only when the installation is complete.
Answer:
b) Allocate revenue to each component based on their relative standalone selling prices and recognize
each as its performance obligation is satisfied.
Rationale:
Accounting standards require that in arrangements with multiple deliverables, the total transaction
price be allocated among the separate performance obligations. Revenue is then recognized as each
distinct obligation is fulfilled. This method ensures that revenue recognition reflects the timing and
pattern of benefits delivered.
Question 2: Accounting for Receivables
When using the allowance method for doubtful accounts, what is the effect of writing off a specific
receivable on net income?
a) Net income decreases because of a loss on the write-off.
b) Net income increases because the expense is reversed.
c) Net income is unaffected because the write-off is recorded against the allowance account.
d) Net income decreases only if the allowance account is insufficient.
, Answer:
c) Net income is unaffected because the write-off is recorded against the allowance account.
Rationale:
Under the allowance method, estimated bad debts are expensed in the period of sale. When a specific
account is written off, it is removed from accounts receivable by debiting the allowance account rather
than recognizing a new expense. Thus, net income remains unchanged at the time of the write-off.
Question 3: Inventory Valuation Methods
A company using the FIFO method during a period of rising prices will generally report which of the
following compared to a company using the LIFO method?
a) Lower net income and lower ending inventory value.
b) Higher net income and higher ending inventory value.
c) Lower cost of goods sold and lower net income.
d) Higher cost of goods sold and lower ending inventory value.
Answer:
b) Higher net income and higher ending inventory value.
Rationale:
Under FIFO (First-In, First-Out), the oldest (and usually lower cost) items are recorded as sold first. In an
environment of rising prices, this results in lower cost of goods sold and higher net income. Additionally,
the ending inventory is valued at the more recent (higher) costs.
Question 4: Fixed Assets & Depreciation Methods
Which of the following statements best explains the effect of choosing an accelerated depreciation
method (such as double-declining balance) compared to straight-line depreciation?
a) Accelerated depreciation results in lower expenses in the early years of an asset’s life.
b) Accelerated depreciation results in higher book values at the end of the asset’s useful life.
c) Accelerated depreciation results in higher depreciation expense in early years and lower expense
later, affecting net income accordingly.
d) Both methods result in identical net income over the asset's life, with no timing differences.
Answer:
c) Accelerated depreciation results in higher depreciation expense in early years and lower expense
later, affecting net income accordingly.
Rationale:
Accelerated depreciation methods front-load the depreciation expense, which reduces net income more
in the early years compared to the straight-line method. Over the full useful life, total depreciation
remains the same, but the timing of expense recognition differs.
Chapters 12–22 of Accounting Volume 2 (8th Edition). Each question is followed
by its answer and a brief rationale explaining the concept behind it. You can
adjust or expand these questions to better match the specific chapter content of
your text.
Revision Test: Accounting Volume 2 (Chapters 12–22)
Note: The following questions are designed to test your understanding of common intermediate
accounting topics. They are not taken verbatim from the text but are modeled on typical subject matter
such as revenue recognition, receivables, inventory, fixed assets, long‐term liabilities, income taxes,
equity transactions, cash flow statements, financial analysis, and ethical issues.
Question 1: Revenue Recognition & Multiple-Element Arrangements
A company sells a product bundled with installation and extended service support. Under the revenue
recognition principle, how should the company account for the bundled arrangement?
a) Recognize all revenue at the point of sale.
b) Allocate revenue to each component based on their relative standalone selling prices and recognize
each as its performance obligation is satisfied.
c) Defer all revenue until the service support is completed.
d) Recognize revenue only when the installation is complete.
Answer:
b) Allocate revenue to each component based on their relative standalone selling prices and recognize
each as its performance obligation is satisfied.
Rationale:
Accounting standards require that in arrangements with multiple deliverables, the total transaction
price be allocated among the separate performance obligations. Revenue is then recognized as each
distinct obligation is fulfilled. This method ensures that revenue recognition reflects the timing and
pattern of benefits delivered.
Question 2: Accounting for Receivables
When using the allowance method for doubtful accounts, what is the effect of writing off a specific
receivable on net income?
a) Net income decreases because of a loss on the write-off.
b) Net income increases because the expense is reversed.
c) Net income is unaffected because the write-off is recorded against the allowance account.
d) Net income decreases only if the allowance account is insufficient.
, Answer:
c) Net income is unaffected because the write-off is recorded against the allowance account.
Rationale:
Under the allowance method, estimated bad debts are expensed in the period of sale. When a specific
account is written off, it is removed from accounts receivable by debiting the allowance account rather
than recognizing a new expense. Thus, net income remains unchanged at the time of the write-off.
Question 3: Inventory Valuation Methods
A company using the FIFO method during a period of rising prices will generally report which of the
following compared to a company using the LIFO method?
a) Lower net income and lower ending inventory value.
b) Higher net income and higher ending inventory value.
c) Lower cost of goods sold and lower net income.
d) Higher cost of goods sold and lower ending inventory value.
Answer:
b) Higher net income and higher ending inventory value.
Rationale:
Under FIFO (First-In, First-Out), the oldest (and usually lower cost) items are recorded as sold first. In an
environment of rising prices, this results in lower cost of goods sold and higher net income. Additionally,
the ending inventory is valued at the more recent (higher) costs.
Question 4: Fixed Assets & Depreciation Methods
Which of the following statements best explains the effect of choosing an accelerated depreciation
method (such as double-declining balance) compared to straight-line depreciation?
a) Accelerated depreciation results in lower expenses in the early years of an asset’s life.
b) Accelerated depreciation results in higher book values at the end of the asset’s useful life.
c) Accelerated depreciation results in higher depreciation expense in early years and lower expense
later, affecting net income accordingly.
d) Both methods result in identical net income over the asset's life, with no timing differences.
Answer:
c) Accelerated depreciation results in higher depreciation expense in early years and lower expense
later, affecting net income accordingly.
Rationale:
Accelerated depreciation methods front-load the depreciation expense, which reduces net income more
in the early years compared to the straight-line method. Over the full useful life, total depreciation
remains the same, but the timing of expense recognition differs.
