1) What account is debited in a debt service fund when it records matured interest
payable?
I. Interest Expense
II. Expenditures
A.I only
B.II only
C.Either I or II
D.Neither I nor II
2) On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of
$31,000 to a Thai company. The transaction is denominated in Thai bahts. The payment
is received on May 10. The exchange rates were:
What entry is required to revalue foreign currency payable to U.S. dollar equivalent
value on May 10?
A.Option A
B.Option B
C.Option C
D.Option D
3) At the end of the year, a parent acquires a wholly owned subsidiary’s bonds from
unaffiliated parties at a cost less than the subsidiary’s carrying value. The consolidated
net income for the year of acquisition should include the parent’s separate operating
income plus:
A.the subsidiary’s net income increased by the gain on constructive retirement of debt
B.the subsidiary’s net income decreased by the loss on constructive retirement of debt
C.the subsidiary’s net income increased by the gain on constructive retirement of debt,
and decreased by the subsidiary’s bond interest expense
D.the subsidiary’s net income decreased by the loss on constructive retirement of debt,
and decreased by the subsidiary’s bond interest expense
4) Note: This is a Kaplan CPA Review Question
Tecumseh Co. (Tecumseh), a publicly owned corporation, assesses performance and
makes operating decisions using the following information for its reportable segments:
Total revenues $768,000
Total profit and loss $40,600
Included in the total profit and loss are intersegment profits of $6,100. In addition,
Tecumseh has $500 of common costs for its reportable segments that are not allocated
in reports used internally. For purposes of segment reporting, Tecumseh should report
total combined segment profit of:
A.$35,000
B.$34,500
C.$40,600
D.$46,700
E.$41,100
5) The management approach to the definition of segments for financial reporting
expects a company to:
I. Report disaggregated information on the same organizational basis as used by the
company’s internal decision makers.
II. Report disaggregated information for at least ten segments.
A.I
B.II
C.Both I and II
D.Neither I nor II
6) Identify the regulation that created an entity which insures investors from possible
losses if an investment house enters bankruptcy.
A.Federal Deposit Insurance Protection Act
B.Securities Investor Protection Act
C.Investment Advisers Act
D.Federal Bankruptcy Acts
7) As defined by the Bankruptcy Code, creditors with priority:
I. have collateral claim against specific assets.
II. are unsecured creditors who have priority over other unsecured creditors.
III. are the first to be paid from any proceeds available to unsecured creditors.
A.I only
B.II only
C.I, II and II
D.Both II and III
8) Light Corporation owns 80 percent of Sound Company’s voting shares. On January
1, 20X7, Sound sold bonds with a par value of $300,000 at 95. Light purchased two
thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten
years and pay an annual interest rate of 6 percent. Interest is paid semiannually on
January 1 and July 1.
Based on the information given above, what amount of interest receivable will be
recorded by Light Corporation on December 31, 20X8, in its separate financial
statements?
A.$5,000
B.$6,500
C.$10,000
D.$6,000
9) Consolidated financial statements are being prepared for Behemoth Corporation and
its two wholly-owned subsidiaries that have intercompany loans of $50,000 and
intercompany profits of $100,000. How much of these intercompany loans and profits
should be eliminated?
A.intercompany loans – $0; intercompany profits – $0
B.intercompany loans – $50,000; intercompany profits – $0
C.intercompany loans – $50,000; intercompany profits – $100,000
D.intercompany loans – $0; intercompany profits – $100,000
10) X Corporation owns 80 percent of Y Corporation’s common stock and 40 percent of
Z Corporation’s common stock. Additionally, Y Corporation owns 35 percent of Z
Corporation’s common stock. The acquisitions were made at book values. The
following information is available for 20X8:
Based on the information provided, what amount will be reported as dividends declared
in X Corporation’s 20X8 consolidated retained earnings statement?
A.$30,000
B.$50,000
C.$60,000
D.$0
11) Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs
(SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1,
20X8, the company also entered into a 60-day forward contract to purchase 100,000
Swiss francs. The forward contract is not designated as a hedge. The rates were as
follows:
Based on the preceding information, the entries on December 31, 20X8, include a:
A.Credit to Foreign Currency Payable to Exchange Broker, $4,000
B.Debit to Foreign Currency Receivable from Exchange Broker, $6,000
C.Debit to Foreign Currency Receivable from Exchange Broker, $186,000
D.Debit to Foreign Currency Transaction Gain, $4,000
12) Which of the following is true about the Foreign Corrupt Practices Act of 1977
(FCPA)?
I. Publicly held companies should maintain an adequate system of internal control.
II. Individuals associated with U.S. companies are prohibited from bribing foreign
officials for the purpose of securing a contract.
III. Compensating or agents’ fees are disallowed under all circumstances.
A.I and II
B.II and II
C.I and III
D.I, II, and III
13) Samuel Corporation foresees a downturn in its business in the medium term. It
expects to sustain an operating loss of $160,000 for the full year ending December 31,
20X8. Samuel’s tax rate is 35 percent. Anticipated tax credits for 20X8 total $8,000. No
permanent differences are expected. Realization of the full tax benefit of the expected
operating loss and realization of anticipated tax credits are assured beyond any
reasonable doubt because they will be carried back. For the first quarter ended March
31, 20X8, Samuel reported an operating loss of $30,000. How much of a tax benefit
should Samuel report for the interim period ended March 31, 20X8?
A.$8,000
B.$12,000
C.$13,500
D.$15,500
14) Light Corporation owns 80 percent of Sound Company’s voting shares. On January
1, 20X7, Sound sold bonds with a par value of $300,000 at 95. Light purchased two
thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten
years and pay an annual interest rate of 6 percent. Interest is paid semiannually on
January 1 and July 1.
Based on the information given above, what amount of interest expense should be
reported in the 20X8 consolidated income statement?
A.$6,000
B.$6,500
C.$5,000
D.$10,000
15) According to ASC 958, the statement of financial position of a private university
should report the excess of the university’s assets over its liabilities as:
A.fund balance
B.unrestricted and restricted fund balance
C.retained earnings
D.unrestricted, temporarily restricted, and permanently restricted net assets
16) Parent Corporation purchased land from S1 Corporation for $220,000 on December
26, 20X8. This purchase followed a series of transactions between P-controlled
subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a
nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19,
20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has
control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, what amount of gain or loss on sale of land should
be reported in the consolidated income statement for 20X8?
A.$60,000
B.$0
C.$75,000
D.$23,000
17) In order to avoid inequalities in the liquidation process the legal doctrine of setoff
effectively treats loans from partners to the partnership as:
A.outside debt that can offset a deficit capital account balance
B.inside debt that can offset a deficit capital account balance
C.additional capital investments that can offset a deficit capital account balance
D.additional capital investments that can offset a partnership loss
18) The APB partnership agreement specifies that partnership net income be allocated
as follows:
Average capital balances for the current year were $50,000 for A, $30,000 for P, and
$20,000 for B.
Refer to the information given. Assuming a current year net income of $50,000, what
amount should be allocated to each partner?
A.Option A
B.Option B
C.Option C
D.Option D
19) Micron Corporation owns 75 percent of the common shares and 60 percent of the
preferred shares of Stanley Company, all acquired at underlying book value on January
1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley’s common
stock was equal to 25 percent of the book value of its common stock. The balance
sheets of Micron and Stanley immediately after the acquisition contained these
balances:
Stanley’s preferred stock pays a 12 percent dividend and is cumulative. For 20X8,
Stanley reports net income of $40,000 and pays no dividends. Micron reports income
from its separate operations of $75,000 and pays dividends of $30,000 during 20X8.
Based on the preceding information, what amount is reported as preferred stock
outstanding reported in the consolidated balance sheet as of January 1, 20X8?
A.$0
B.$40,000
C.$50,000
D.$44,000
20) Cinema Company acquired 70 percent of Movie Corporation’s shares on December
31, 20X5, at underlying book value of $98,000. At that date, the fair value of the
noncontrollinginterest was equal to 30 percent of the book value of Movie Corporation.
Movie’s balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares
from Nonaffiliated Corporation for $6 per share.
Based on the preceding information, what is the increase in the book value of the equity
attributable to the parent as a result of the repurchase of shares by Movie Corporation?
A.$19,375
B.$6,125
C.$2,625
D.$9,000
21) On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden
Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends
of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common
stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of
the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a
market value of $35,000 and equipment with a book value of $50,000 and a market
value of $60,000 at the date of combination. The remainder of the differential at
acquisition was attributable to an increase in the value of patents, which had a
remaining useful life of five years. All depreciable assets held by Wisden at the date of
acquisition had a remaining economic life of five years. Climber uses the equity method
in accounting for its investment in Wisden.
Based on the preceding information, what balance would Climber report as its
investment in Wisden at January 1, 20X9?
A.$251,100
B.$224,100
C.$215,100
D.$234,000
22) Winner Corporation acquired 80 percent of the common shares and 70 percent of
the preferred shares of First Corporation at underlying book value on January 1, 20X9.
At that date, the fair value of the noncontrolling interest in First’s common stock was
equal to 20 percent of the book value of its common stock. First’s balance sheet at the
time of acquisition contained the following balances:
The preferred shares are cumulative and have a 10 percent annual dividend rate and are
four years in arrears on January 1, 20X9. All of the $5 par value preferred shares are
callable at $6 per share. During 20X9, First reported net income of $100,000 and paid
no dividends.
Based on the preceding information, the amount assigned to noncontrolling
stockholders’ share of preferred stock interest in the preparation of a consolidated
balance sheet on January 1, 20X9, is:
A.$40,000
B.$42,000
C.$36,000
D.$48,000
23) On January 1, 20X8, Blake Company acquired all of Frost Corporation’s voting
shares for $280,000 cash.On December 31, 20X9, Frost owed Blake $5,000 for services
provided during the year. When consolidated financial statements are prepared for
20X9, which entry is needed to eliminate intercompany receivables and payables in the
consolidation worksheet?
A.Option A
B.Option B
C.Option C
D.Option D
24) In 20X6 and 20X7, each of Putney Company’s four operating segments met one of
the three quantitative tests for segment reporting. In 20X8, Segment B failed to qualify
under the prescribed tests because of abnormal financial conditions. The other three
segments qualified for reporting. For 20X8, Segment B:
A.should be excluded from segment disclosure but referred to in the management letter
to shareholders
B.should be distinctly separated from the other three segments and listed as a
“nonqualifying” segment
C.should be combined with one of the other three segments and reported
D.should be included in the segment disclosures at the discretion of management
25) The balance in Newsprint Corp.’s foreign exchange loss account was $10,000 on
December 31, 20X8, before any necessary year-end adjustment relating to the
following:
(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the
accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X8.
(2) Newsprint had an account payable to an unrelated foreign supplier, payable in the
supplier’s local currency unit (LCU) on January 15, 20X The U.S. dollar-equivalent of
the payable was $50,000 on the December 1, 20X8, invoice date and $53,000 on
December 31, 20X8.
Based on the information provided, in Newsprint’s 20X8 consolidated income
statement, what amount should be included as foreign exchange loss in computing net
income, if the U.S. dollar is the functional currency and the remeasurement method is
appropriate?
A.$15,000
B.$10,000
C.$25,000
D.$28,000
26) On January 1, 20X8, Bristol Company acquired 80 percent of Animation
Company’s common stock for $280,000 cash. At that date, Animation reported common
stock outstanding of $200,000 and retained earnings of $100,000, and the fair value of
the noncontrolling interest was $70,000. The book values and fair values of Animation’s
assets and liabilities were equal, except for other intangible assets which had a fair
value $50,000 greater than book value and an 8-year remaining life. Animation reported
the following data for 20X8 and 20X9:
Bristol reported net income of $100,000 and paid dividends of $30,000 for both the
years.
Based on the preceding information, what is the amount of comprehensive income
attributable to the controlling interest for 20X9?
A.$138,750
B.$131,000
C.$128,750
D.$135,000
27) When a capital projects fund transfers a premium from the issuance of general
obligation bonds to another fund, the transfer should be accounted for as which type of
interfund transaction or transfer?
A.As a loan
B.As an interfund transfer
C.As revenue
D.As a reimbursement
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s
common stock for $160,000 cash. The fair value of the noncontrolling interest at that
date was determined to be $40,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of
$45,000, and land, which had a fair value of $60,000.
Based on the preceding information, what amount of total liabilities will be reported in
the consolidated balance sheet prepared immediately after the business combination?
28) A.$395,000
B.$280,000
C.$275,000
D.$195,000
29) On January 1, 20X7, Gild Company acquired 60 percent of the outstanding
common stock of Leeds Company at the book value of the shares acquired. On that
date, the fair value of noncontrolling interest was equal to 40 percent of book value of
Leeds. At the time of purchase, Leeds had common stock of $1,000,000 outstanding
and retained earnings of $800,000.
On December 31, 20X7, Gild purchased 50 percent of Leeds’ bonds outstanding which
were originally issued on January 2, 20X4, at 99. The total bond issue has a face value
of $600,000, pays 10 percent interest annually, and has a 10-year maturity. Any
premium or discount is amortized on a straight-line basis. Gild paid $306,000 for its
investment in Leeds’ bonds and intends to hold the bonds until maturity.
Income and dividends for Gild and Leeds for 20X7 and 20X8 are as follows:
Assume Gild accounts for its investment in Leeds stock using the fully adjusted equity
method.
Required:
A) Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X7.
B) Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X8.
30) Required financial statements of funds may include the following, among others:
I. Statement of net assets
II. Statement of revenues, expenditures, and changes in fund balances
III. Balance sheet
IV. Statement of cash flows
The financial statements that should be issued by governmental funds and by
proprietary funds include the following:
A.Option A
B.Option B
C.Option C
D.Option D
31) William Corporation, which has a fiscal year ending January 31, had the following
pretax accounting income and estimated effective annual income tax rates for the first
three quarters of the year ended January 31, 20X8:
William’s income tax expenses in its interim income statement for the third quarter are:
A.$36,000
B.$73,500
C.$46,500
D.$120,000