1) If the functional currency is determined to be the U.S. dollar and its financial
statements are prepared in the local currency, SFAS 52, requires which of the following
procedures to be followed?
a.Translate the financial statements into U.S. dollars using the current rate method
b.Remeasure the financial statements into U.S. dollars using the temporal method
c.Translate the financial statements into U.S. dollars using the temporal method
d.Remeasure the financial statements into U.S. dollars using the current rate method
2) Which of the following statements would not be a valid or logical reason for entering
into a business combination?
a.to increase market share
b.to avoid becoming a takeover target
c.to reduce risk by acquiring established product lines
d.the operating costs of the combined entity would be more than the sum of the separate
entities
3) Which of the following is true about the FASB after the mandatory adoption of IFRS
by US companies?
a.The FASB will serve in an advisory capacity to the IASB
b.The FASB will remain the designated standard-setter for US companies, but
incorporate IFRS into US GAAP
c.The role of the FASB post-IFRS adoption has not been determined
d.The FASB will cease to exist
4) On April 1, 2014, Manatee Company entered into two forward exchange contracts to
purchase 300,000 euros each in 90 days. The relevant exchange rates are as follows:
Forward Rate
Spot rateFor Aug. 1, 2014
April 1, 20141.161.17
April 30, 2014 (year-end)1.201.18
The second forward contract was strictly for speculation. On April 30, 2014, what
amount of foreign currency transaction gain should Manatee report in income.
a.$0
b.$3,000
c.$9,000
d.$12,000
5) Pamela Company acquired 80% of the outstanding common stock of Silt Company
on January 1, 2011, for $396,000. At the date of purchase, Silt Company had a balance
in its $2 par value common stock account of $360,000 and retained earnings of
$90,000. On January 1, 2013, Silt Company issued 45,000 shares of its previously
unissued stock to noncontrolling stockholders for $3 per share. On this date, Silt
Company had a retained earnings balance of $152,000. The difference between cost and
book value relates to subsidiary land. No dividends were paid in 2013. Silt Company
reported income of $30,000 in 2013.
Required:
A.Prepare the journal entry on Pamelas books to record the effect of the issuance
assuming the equity method.
B.Prepare the eliminating entries needed for the preparation of a consolidated
statements workpaper on December 31, 2013, assuming the equity method.
6) On January 2, 2013, Palomine Corporation purchased 80% of the outstanding
common stock and 30% of the outstanding cumulative, nonparticipating, preferred
stock of Sour Company for $800,000 and $140,000, respectively. At this date, Sour
Company reported account balances of $800,000 in common stock, $400,000 in
preferred stock and $200,000 in retained earnings. No other contributed capital
accounts exist. The difference between implied and book value of the common stock is
attributable to under- or overvalued land. Dividends on the 12% cumulative preferred
stock (par $10) were not paid during 2012.
PalomineSour
Corporation Company
1/2/2013 Retained Earnings$ 90,000$200,000
2013 Reported Net Income169,200180,000
2013 Dividends Declared50,000100,000
Required:
A.Prepare the journal entries made by Palomine Corporation in 2013 to account for the
investments assuming the partial equity method is used.
B.Compute the noncontrolling interest in Sour Companys net income.
C.Prepare the 2013 workpaper entries related to the foregoing investments assuming the
partial equity method is used to account for the investment.
7) A municipality’s capital projects fund is similar to a university’s
a.renewals and replacements fund
b.retirement of indebtedness fund
c.investment in plant fund
d.none of these
8) In a business combination accounted for as an acquisition, registration costs related
to common stock issued by the parent company are
a.expensed as incurred
b.deducted from other contributed capital
c.included in the investment cost
d.deducted from the investment cost
9) P Company owns an 80% interest in S Company. During 2014, S sells merchandise
to P for $150,000 at a profit of $30,000. On December 31, 2014, 50% of this
merchandise is included in Ps inventory. Income statements for P and S are summarized
below:
P __ S__
Sales$900,000$450,000
Cost of Sales (450,000) (300,000)
Operating Expenses (225,000) ( 60,000)
Net Income (2014)$225,000$ 90,000
Controlling interest in consolidated net income for 2014 is:
a.$225,000
b.$285,000
c.$297,000
d.$315,000
10) When preparing consolidated financial statement workpapers, unrealized
intercompany gains, as a result of equipment or inventory sales by affiliates, are
allocated proportionately by percent of ownership between parent and subsidiary only
when the selling affiliate is
a.the parent and the subsidiary is less than wholly owned
b.a wholly owned subsidiary
c.the subsidiary and the subsidiary is less than wholly owned
d.the parent of a wholly owned subsidiary
11) P Corp. owns 90% of the outstanding common stock of S Company. On December
31, 2014, S sold equipment to P for an amount greater than the equipments book value
but less than its original cost. The equipment should be reported on the December 31,
2014 consolidated balance sheet at
a.Ps original cost less 90% of Ss recorded gain
b.Ps original cost less Ss recorded gain
c.Ss original cost
d.Ps original cost
Robbie and Ruben are partners operating a portable toilet lease and maintenance
operation. For 2014, net income was $50,000 (without taking into consideration the
salary allowances). Robbie and Ruben have salary allowances of $90,000 and $60,000,
respectively, and remaining profits and losses are shared 6:4.12) If their agreement
specifies that salaries are allowed only to the extent of income, based on a prorata share
of their salary allowances, the division of profits would be:
a.$20,000 and $30,000
b.$50,000 and $-0-
c.$30,000 and $20,000
d.$25,000 and $25,000
13) In an advance plan for installment distributions of cash to partners of a liquidating
partnership, each partner’s loss absorption potential is computed by
a.dividing each partner’s capital account balance by the percentage of that partner’s
capital account balance to total partners’ capital
b.multiplying each partner’s capital account balance by the percentage of that partner’s
capital account balance to total partners’ capital
c.dividing the total of each partner’s capital account less receivables from the partner
plus payables to the partner by the partner’s profit and loss percentage
d.some other method
14) The first step in determining goodwill impairment involves comparing the
a.implied value of a reporting unit to its carrying amount (goodwill excluded)
b.fair value of a reporting unit to its carrying amount (goodwill excluded)
c.implied value of a reporting unit to its carrying amount (goodwill included)
d.fair value of a reporting unit to its carrying amount (goodwill included)
15) SFAS No. 131 requires the disclosure of information on an enterprise’s operations
in different industries for
1>each annual period presented
2>each interim period presented
3>the current period only
a.1
b.2
c.3
d.both 1 and 2
16) An advance cash distribution plan is prepared
a.each time cash is distributed to partners in an installment liquidation
b.each time a partnership asset is sold in an installment liquidation
c.to determine the order and amount of cash each partner will receive as it becomes
available for distribution
d.none of these
17) On January 1, 2013, Pent Company and Shelter Company had condensed balanced
sheets as follows:
Pent Shelter
Current assets $ 210,000 $ 60,000
Noncurrent assets 270,000 120,000
Total assets $480,000 $180,000
Current liabilities $ 90,000 $ 30,000
Long-term debt 150,000 -0-
Stock holders’ equity 240,000 150,000
Total liabilities & stockholders’ equity $ 480,000 $ 180,000
On January 2, 2013 Pent borrowed $180,000 and used the proceeds to purchase 90% of
the outstanding common stock of Shelter. This debt is payable in 10 equal annual
principal payments, plus interest, starting December 30, 2013. Any difference between
book value and the value implied by the purchase price relates to land.
On Pent’s January 2, 2013 consolidated balance sheet,
Current liabilities should be
a.$150,000
b.$138,000
c.$120,000
d.$90,000
18) In January 2008, S Company, an 80% owned subsidiary of P Company, sold
equipment to P Company for $990,000. S Companys original cost for this equipment
was $1,000,000 and had accumulated depreciation of $100,000. P Company continued
to depreciate the equipment over its 9 year remaining life using the straight-line
method. This equipment was sold to a third party on January 1, 2014 for $720,000.
What amount of gain should P Company record on its books in 2014?
a.$30,000
b.$60,000
c.$120,000
d.$180,000
19) Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net
income of $600,000 and paid dividends totaling $225,000 during Year 3. Year 3
amortization of differences between current fair values and carrying amounts of
Sleepy’s identifiable net assets at the date of the business combination was $112,500.
The noncontrolling interest in consolidated net income of Sleepy for Year 3 was
a.$146,250
b.$33,750
c.$67,500
d.$180,000
20) In accounting for loan funds, revenue is recorded when the
a.contribution is received
b.loan is made to students
c.loan is repaid by students
d.students graduate
21) Tuition waivers for which there is no intention of collection from the student should
be classified by a college as:
RevenueExpenditures
a.NoNo
b.NoYes
c.YesYes
d.YesNo
22) Gain or loss resulting from an intercompany sale of equipment between a parent
and a subsidiary is
a.recognized in the consolidated statements in the year of the sale
b.considered to be realized over the remaining useful life of the equipment as an
adjustment to depreciation in the consolidated statements
c.considered to be unrealized in the consolidated statements until the equipment is sold
to a third party
d.amortized over a period not less than 2 years and not greater than 40 years
23) During 2014, a U.S. company purchased inventory from a foreign supplier. The
transaction was denominated in the local currency of the seller. The direct exchange rate
increased from the date of the transaction to the balance sheet date. The exchange rate
decreased from the balance sheet date to the settlement date in 201 For the years 2014
and 2015, transaction gains or losses should be recognized as:
20142015
a.gaingain
b.gainloss
c.lossloss
d.lossgain
24) When following the parent company concept in the preparation of consolidated
financial statements, noncontrolling interest in combined income is considered a(n)
a.prorated share of the combined income
b.addition to combined income to arrive at consolidated net income
c.expense deducted from combined income to arrive at consolidated net income
d.deduction from current assets in the balance sheet
25) On October 1, 2014, Perma Company acquired for cash all of the voting common
stock of Street Company. The purchase price of Streets stock equaled the book value
and fair value of Streets net assets. The separate net income for each company,
excluding Permas share of income from Street was as follows:
PermaStreet
Twelve months ended 12/31/14$4,500,000$2,700,000
Three months ended 12/31/14495,000450,000
During September, Street paid $150,000 in dividends to its stockholders. For the year
ended December 31, 2014, Perma issued parent company only financial statements.
These statements are not considered those of the primary reporting entity. Under the
partial equity method, what is the amount of net income reported in Permas income
statement?
a.$7,200,000
b.$4,650,000
c.$4,950,000
d.$1,800,000
26) Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing
14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on
January 1, 2013. Suburbia reported net income in 2013 of $90,000 and in 2014 of
$120,000 earned evenly throughout the respective years. Prime received no bold –
inconsistent$24,000 dividends from Suburbia in 2013 and $36,000 in 2014. Prime uses
the equity method to record its investment.
The balance of Primes Investment in Suburbia account at December 31, 2014 is:
a.$210,000
b.$285,000
c.$297,000
d.$315,000
27) Which of the following does not have to be disclosed in interim reports?
a.Seasonal costs or expenses
b.Significant changes in estimates
c.Disposal of a segment of a business
d.All of these must be disclosed
28) Joey and Rachel are partners whose capital balances are $400,000 and $300,000
and who share profits 3:2. Due to a shortage of cash, Joey and Rachel agree to admit
Ross to the firm.
Required:
Prepare the journal entries required to record Rosss admission under each of the
following assumptions:
(a)Ross invests $200,000 for a 1/4 interest. The total firm capital is to be $900,000.
(b)Ross invests $300,000 for a 1/4 interest. Goodwill is to be recorded.
(c)Ross invests $150,000 for a 1/5 interest. Goodwill is to be recorded.
(d)Ross purchases a 1/4 interest in the firm, with 1/4 of the capital of each old partner
transferred to the account of the new partner. Ross pays the partners cash of $250,000,
which they divide between themselves.
29) An entity is permitted to aggregate operating segments if the segments are similar
regarding the
a.nature of the production processes
b.types or class of customers
c.methods used to distribute products or provide services
d.all of these
30) P Company owns an 80% interest in S Company. During 2014, S sells merchandise
to P for $200,000 at a profit of $40,000. On December 31, 2014, 50% of this
merchandise is included in Ps inventory. Income statements for P and S are summarized
below:
P __ S__
Sales$1,200,000$600,000
Cost of Sales (600,000) (400,000)
Operating Expenses (300,000) ( 80,000)
Net Income (2014) $300,000 $120,000
Controlling interest in consolidated net income for 2014 is:
a.$300,000
b.$380,000
c.$396,000
d.$420,000
31) Contrast the consolidated effects of the parent company concept and the economic
entity con-cept concept in terms of:
(a)The treatment of noncontrolling interests.
(b)The elimination of intercompany profits.
(c)The valuation of subsidiary net assets in the consolidated financial statements.
(d)The definition of consolidated net income.
32) On January 1, 2009, Parent Company purchased 32,000 of the 40,000 outstanding
common shares of Sub Company for $1,520,000. On January 1, 2013, Parent Company
sold 4,000 of its shares of Sub Company on the open market for $90 per share. Sub
Companys stockholders equity on January 1, 2009, and January 1, 2013, was as
follows:
1/1/061/1/091/1/101/1/13
Common stock, $10 par value$400,000$ 400,000
Other contributed capital400,000400,000
Retained earnings 800,000 1,400,000
$1,600,000$2,200,000
The difference between implied and book value is assigned to Sub Companys land. The
amount of the gain on sale of the 4,000 shares that should be recorded on the books of
Parent Company is
a.$68,000
b.$170,000
c.$96,000
d.$200,000
e.None of these
33) Special entities are not-for-profit organizations that are
a.government owned
b.privately owned
c.publicly owned
d.either government owned or privately owned
Military Family Center is a voluntary welfare organization funded by contributions
from the general public. During 2013 unrestricted pledges of $800,000 were received,
half of which were payable in 2013 with the other half payable in 2014 for use in 2014.
It was estimated that 10% of these pledges would be uncollectible. How much should
National report as net contribution revenue for 2013 with respect to the pledges?34) a.
$800,000
b.$720,000
c.$360,000
d.$0
35) Failure to eliminate intercompany sales would result in an overstatement of
consolidated
a.net income
b.gross profit
c.cost of sales
d.all of these
36) Under GASB Statement No. 34, a government-wide financial statement should
include a:
a.statement of revenues & and expenses
b.statement of activities
c.statement of financial position
d.notes to the financial statements
37) On January 1, 2009, Pine Corporation purchased 24,000 of the 30,000 outstanding
common shares of Summit Company for $1,140,000. On January 1, 2013, Pine
Corporation sold 3,000 of its shares of Summit Company on the open market for $90
per share. Summit Companys stockholders equity on January 1, 2009, and January 1,
2013, was as follows:
1/1/061/1/091/1/101/1/13
Common stock, $10 par value$ 300,000$ 300,000
Other contributed capital300,000300,000
Retained earnings 600,000 1,050,000
$1,200,000$1,650,000
The difference between implied and book value is assigned to Summit Companys land.
As a result of the sale, Pine Corporations Investment in Summit account should be
credited for
a.$165,000
b.$206,250
c.$120,000
d.$142,500
e.None of these
38) On November 1, 2014, National Company sold inventory to a foreign customer.
The account will be settled on March 1 with the receipt of 200,000 foreign currency
units (FCU). On November 1, National also entered into a forward contract to hedge the
exposed asset. The forward rate is $0.80 per unit of foreign currency. National has a
December 31 fiscal year-end. Spot rates on relevant dates were:
Per Unit of
DateForeign Currency
November 1$0.83
December 310.81
March 10.84
What will be the adjusted balance in the Accounts Receivable account on December 31,
and how much gain or loss was recorded as a result of the adjustment?
Receivable BalanceGain/Loss Recorded
a.$170,000$4,000 gain
b.$162,000$4,000 loss
c.$168,000$2,000 gain
d.$164,000$2,000 loss
39) The following events were recorded on the books of Free Hospital for the year
ended December 31, 2014.
1>Revenue from patient services totaled $12,000,000. The allowance for uncollectibles
was established at $2,500,000. Of the $12,000,000 revenue, $4,500 was recognized
under cost reimbursement agreements. This revenue is subject to audit and retroactive
adjustment by third-party payors.
2>Patient service revenue is accounted for at established rates on the accrual basis.
3>Other operating revenue totaled $260,000, of which $120,000 was from specific
purpose funds.
4>Free received $310,000 in unrestricted gifts and bequests. They are recorded at fair
market value when received.
5>Endowment funds earned $120,000 in unrestricted income.
6>Board designated funds earned $62,000 in income.
7>Frees operating expenses for the year amounted to $10,030,000. This included
$380,000 in straight-line depreciation.
Required:
Prepare a statement of activities for Free Hospital for the year ended December 31,
2014.
40) Contributions to NNOS include gifts of cash, pledges, donated services, and gifts of
noncash assets. Explain how contributions are recorded by NNOS.
41) What is the rationale for the harmonization of international accounting standards?
42) For what types of companies would segmented financial reports have the most
significance? Why?
43) How might a partner withdrawing in violation of the partnership agreement and
without the con-sent of the other partners be treated? What about a partner who is
forced to withdraw?