1) Dividends paid to noncontrolling shareholders:
I. are reported as a cash outflow in the consolidated cash flow statement.
II. represent funds that are no longer available to the consolidated entity.
III. are reported in the consolidated retained earnings statement.
A.Observation I alone is true
B.Observation III alone is true
C.Observations I and II are true
D.Observations I, II, and II are true
2) Jones and Smith formed a partnership with each partner contributing the following
items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities
assumed by the Jones and Smith partnership.
Refer to the above information. What is the balance in each partner’s capital account for
financial accounting purposes?
A.Option A
B.Option B
C.Option C
D.Option D
3) On September 30, 20X8, Wilfred Company sold inventory to Jackson Corporation,
its Canadian subsidiary. The goods cost Wilfred $30,000 and were sold to Jackson for
$40,000, payable in Canadian dollars. The goods are still on hand at the end of the year
on December 31. The Canadian dollar (C$) is the functional currency of the Canadian
subsidiary. The exchange rates follow:
Based on the preceding information, what amount of unrealized intercompany gross
profit is eliminated in preparing the consolidated financial statements for the year?
A.$0
B.$5,000
C.$10,000
D.$15,000
4) When there are intercompany sales of inventory during the year and a three-part
consolidation worksheet is prepared, elimination entries related to the intercompany
sales:
I. Always are needed.
II. Are not needed if the entire inventory is resold to unrelated parties prior to the end of
the year.
A.I
B.II
C.Both I and II
D.Either I or II
5) The City of Ames uses the consumption method to report its inventory of supplies on
its general fund balance sheet. What account is debited in the general fund when Ames
acquires supplies?
A.Expenditures
B.Inventory of Supplies
C.Supplies Expense
D.Fund BalanceNonspendable
6) Catalyst Corporation acquired 90 percent of Trigger Corporation’s common stock on
September 30, 20X8 for $225,000. At that date, the fair value of the noncontrolling
interest was $25,000. On January 1, 20X8, Trigger reported the following stockholders’
equity balances:
Trigger reported net income of $80,000 in 20X8, earned uniformly throughout the year,
and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,
20X8. Catalyst reported retained earnings of $250,000 on January 1, 20X8, and had
20X8 income of $120,000 from its separate operations. Catalyst paid dividends of
$50,000 on December 31, 20X8. Catalyst accounts for its investment in Trigger
Corporation using the fully adjusted equity method.
Based on the information provided, what is the consolidated net income reported for the
year 20X8?
A.$120,000
B.$138,000
C.$140,000
D.$192,000
7) Which of the following observations refers to the term differential?
A.Excess of consideration exchanged over fair value of net identifiable assets
B.Excess of fair value over book value of net identifiable assets
C.Excess of consideration exchanged over book value of net identifiable assets
D.Excess of fair value over historical cost of net identifiable assets
8) Small-Town Retail owns 70 percent of Supplier Corporation’s common stock. For the
current financial year, Small-Town and Supplier reported sales of $450,000 and
$300,000 and expenses of $290,000 and $240,000, respectively.
Based on the preceding information, what is the amount of net income to be reported in
the consolidated income statement for the year under the proprietary theory approach?
A. $210,000
B. $202,000
C. $160,000
D. $200,000
9) Which of the following observations is NOT consistent with the use of push-down
accounting?
A.The revaluation capital account is part of the subsidiary’s stockholders’ equity
B.No differential arises in the consolidation process
C.Revaluation Capital account is eliminated in preparing consolidated statements
D.Eliminating entries related to the differential are needed in the worksheets
10) The costs of enterprise fund activities are recovered
A.from special tax levies
B.from federal or state governmental grants
C.by user charges
D.by private donations
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 will be reported as total stockholders’
equity in the consolidated balance sheet prepared immediately after the business
combination?
11) A.$445,000
B.$205,000
C.$565,000
D.$550,000
12) Under which nonjudicial action do creditors agree to assist the debtor in managing
the most efficient payment of creditors’ claims?
A.Debt restructuring arrangement
B.Creditors’ committee management
C.Transfer of assets
D.Composition agreement
13) Note: This is a Kaplan CPA Review Question
The statement of financial position for a private not-for-profit college should show
separate dollar amounts for
A.Unrestricted net assets, temporarily restricted net assets, and permanently restricted
net assets
B.All accounts in its equity section
C.Unrestricted net assets only
D.Unrestricted net assets and temporarily restricted net assets
14) In accounting for governmental funds, which of the following items could appear
only on government-wide financial statements?
I. Fixed assets
II. Long-term debt
III. Investments
A.I only
B.I and II
C.I and III
D.I, II, III
15) Upon completion of construction and full payment of all construction costs in a
capital projects fund, the entry to record the transfer of any remaining cash should
include a debit to:
I. Contract Payable-Retained Percentage.
II. Transfer Out to Debt Service Fund.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
16) Note: This is a Kaplan CPA Review Question
On January 1, 20X1, Big Company (Big) bought 30% of the outstanding stock of Little
Company (Little) for $110,000 which provided Big with the ability to significantly
influence the decisions of Little. Little reported assets of $400,000 and liabilities of
$100,000 on that date. As part of its analysis before buying these shares, Big
determined that Little owned a patent that had not been recorded despite having a
remaining useful life of five years and a value of $20,000. During 20X1, Little reported
net income of $70,000 and paid cash dividends of $30,000. What investment income
should Big report for 20X1?
A.$9,000
B.$19,800
C.$17,000
D.$21,000
17) A private, not-for-profit geographic society received cash contributions which were
restricted by the donors for the acquisition of fixed assets. In which section of the
statement of cash flows would these cash contributions be reported?
A.Financing activities
B.Investing activities
C.Operating activities
D.Capital and related financing activities
18) Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
A. Fair value
B. Unrestricted net assets
C. GASB
D. FASB
E. Statement of Revenues, Expenditures, and Changes in Fund Balance
F. Lower of cost or market
G. Accrual method
H. Statement of Activities
I. General fund, restricted fund, endowment fund
J. Modified accrual method
K. Permanently restricted net assets
L. Temporarily restricted net assets
M. Endowment fund
N. Unrestricted, temporarily restricted, permanently restricted
O. Depreciation
P. Works of art and other historical treasures
Q. General fund
R. Cost
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
“Financial statement of a private NFP entity” describes which term listed above?
19) New Life Corporation has just finished preparing a consolidated balance sheet,
income statement, and statement of changes in retained earnings for 20X9. The
following items are proposed for inclusion in the consolidated cash flow statement:
New Life holds 75 percent of the voting stock of Shane Pharmaceuticals, acquired at
book value on June 21, 20X6. On the date of the acquisition, the fair value of the
noncontrolling interest was equal to 25 percent of the book value of Shane.
Based on the preceding information, what amount will be reported in the consolidated
cash flow statement as net cash used in investing activities for 20X9?
A.$200,000
B.$142,000
C.$155,000
D.$130,000
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A
consolidated balance sheet was prepared immediately. Partial balance sheet data for the
two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet
paid for them. There were no other receivables or payables between the companies at
December 31, 20X8.
Based on the information given, what was the fair value of Y Company as a whole at
the date of acquisition?
20) A.$155,000
B.$110,000
C.$115,000
D.$135,000
21) Gotham City acquires $25,000 of inventory on November 1, 20X7, having held no
inventory previously. On December 31, 20X7, the end of Gotham City’s fiscal year, a
physical count shows $8,000 still in stock. During 20X8, $6,500 of this inventory is
used, resulting in a $1,500 remaining balance of supplies on December 31, 20X8.
Based on the preceding information, which of the following would be the correct
account balances for 20X8 if Gotham City used the purchase method of accounting for
inventories?
A.Option A
B.Option B
C.Option C
D.Option D
22) On January 1, 20X8, William Company acquired 30 percent of eGate Company’s
common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2
par value, 5 percent cumulative preferred stock outstanding. No dividends are in
arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of
$72,000. William uses the equity method to account for this investment.
Based on the preceding information, what amount would be reported by William
Company as the balance in its investment account on December 31, 20X8?
A.$100,000
B.$123,400
C.$120,400
D.$142,000
23) A debtor may file which type of petition when seeking judicial protection under the
Bankruptcy Reform Act?
I. Voluntary
II. Involuntary
A.I only
B.II only
C.Either I or II
D.Neither I nor II
24) On January 1, 20X8, Colorado Corporation acquired 75 percent of Denver
Company’s voting common stock for $90,000 cash. At that date, the fair value of the
noncontrolling interest was $30,000. Denvers’s balance sheet at the date of acquisition
contained the following balances:
At the date of acquisition, the reported book values of Denver’s assets and liabilities
approximated fair value. Eliminating entries are being made to prepare a consolidated
balance sheet immediately following the business combination.
Based on the preceding information, in the entry to eliminate the investment balance,
A.retained earnings will be credited for $20,000
B.additional paid-in-capital will be credited for $20,000
C.retained earnings will be credited for $10,000
D.noncontrolling interest will be debited for 30,000
25) The partnership of X and Y shares profits and losses in the ratio of 60 percent to X
and 40 percent to Y. For the year 20X8, partnership net income was double X’s
withdrawals. Assume X’s beginning capital balance was $80,000, and ending capital
balance (after closing) was $140,000. Partnership net income for the year was:
A.$120,000
B.$300,000
C.$500,000
D.$600,000
26) For which of the following funds are the principles and accounting most like those
of the general fund?
A.Debt service fund
B.Internal service fund
C.Special revenue fund
D.Investment trust fund
27) Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent Hunter bonds from
Cruse Corporation for $115,000. Hunter originally issued the bonds to Cruse on January
1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue and
pay interest semiannually on June 30 and December 31 each year. Moss’ reported net
income of $65,000 for 20X8, and Hunter reported income (excluding income from
ownership of Moss’s stock) of $90,000. Hunter’s partial bond amortization schedule is
as follows:
Based on the information given above, what gain or loss on the retirement of bonds
should be reported in the 20X8 consolidated income statement?
A.$6,326 gain
B.$6,813 gain
C.$6,813 loss
D.$6,326 loss
28) On December 31, 20X8, Melkor Corporation acquired 80 percent of Sydney
Company’s common stock for $160,000. At that date, the fair value of the
noncontrolling interest was $40,000. Of the $75,000 differential, $10,000 related to the
increased value of Sydney’s inventory, $20,000 related to the increased value of its land,
and $25,000 related to the increased value of its equipment that had a remaining life of
10 years from the date of combination. Sydney sold all inventory it held at the end of
20X8 during 20X9. The land to which the differential related was also sold during 20X9
for a large gain. At the date of combination, Sydney reported retained earnings of
$75,000 and common stock outstanding of $50,000. In 20X9, Sydney reported net
income of $60,000, but paid no dividends. Melkor accounts for its investment in
Sydney using the equity method.
Based on the preceding information, what is the amount of write-off of differential
associated with this acquisition recorded by Melkor during 20X9?
A.$0
B.$32,500
C.$26,000
D.$20,000
29) All of the following funds have a financial resources measurement focus with the
exception of which fund?
A.debt service fund
B.special revenue fund
C.capital projects fund
D.private-purpose trust fund
30) One of the major objectives of ASC 958 is to
A.emphasize the different fund structures that currently exist for all private, nonprofit
organizations
B.change the reporting for governmental organizations so that their reporting is
comparable to that of private, nonprofit organizations
C.report combined financial statements, instead of individual fund financial statements,
for all private, nonprofit organizations
D.bring about greater uniformity in the financial statements of all private, not-for-profit
organizations
31) On January 1, 20X8, Transport Corporation acquired 75 percent interest in
Steamship Company for $300,000. Steamship is a Norwegian company. The local
currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of
cost-over-book value of $25,000 due solely to a patent having a remaining life of 5
years. Transport uses the fully adjusted equity method to account for its investment.
Steamship’s December 31, 20X8, trial balance has been translated into U.S. dollars,
requiring a translation adjustment debit of $8,000. Steamship’s net income translated
into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1,
20X8. Relevant exchange rates are as follows:
Assume the kroner is the functional currency.
Based on the preceding information, in the journal entry to record parent’s share of
subsidiary’s translation adjustment:
A.Other Comprehensive IncomeTranslation Adjustment will be debited for $8,000
B.Other Comprehensive IncomeTranslation Adjustment will be credited for $6,000
C.Investment in Steamship Company will be credited for $6,000
D.Investment in Steamship Company will be debited for $8,000
32) Pie Company acquired 75 percent of Strawberry Company’s stock at the underlying
book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest
was equal to 25 percent of the book value of Strawberry Company. Strawberry
Company reported shares outstanding of $350,000 and retained earnings of $100,000.
During 20X8, Strawberry Company reported net income of $60,000 and paid dividends
of $3,000. In 20X9, Strawberry Company reported net income of $90,000 and paid
dividends of $15,000. The following transactions occurred between Pie Company and
Strawberry Company in 20X8 and 20X9:
Strawberry Co. sold equipment to Pie Co. for a $42,000 gain on December 31, 20X8.
Strawberry Co. had originally purchased the equipment for $140,000 and it had a
carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Pie Co.
estimated that the equipment still had a seven-year remaining useful life.
Pie Co. sold land costing $90,000 to Strawberry Co. on June 28, 20X9, for $110,000.
Required:
Give all eliminating entries needed to prepare a consolidation worksheet for 20X9
assuming that Pie Co. uses the fully adjusted equity method to account for its
investment in Strawberry Company.
33) Lea Company acquired all of Tenzing Corporation’s stock on January 1, 20X6 for
$150,000 cash. On December 31, 20X7, the balance sheets of the two companies
showed the following amounts:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.
The difference between the acquisition price and underlying book value is assigned to
buildings and equipment with a remaining economic life of five years from the date of
acquisition.
Required:
1> Give the appropriate eliminating entry or entries needed to prepare a consolidated
balance sheet as of December 31, 20X7.
2> Prepare a consolidated balance sheet worksheet as of December 31, 20X7.
34) On January 1, 2008, Orion Company acquired 70 percent of Simplex Company’s
stock at underlying book value. At that date, the fair value of thenoncontrolling interest
was equal to 30 percent of the book value of Simplex Company. On December 31,
2009, Simplex acquired 15 percent of Orion’s stock. Balance sheets for the two
companies on December 31, 2009, are as follows:
Required:
Assuming that the treasury stock method is used in reporting Orion’s shares held by
Simplex, prepare the elimination entries and a consolidated balance sheet worksheet for
December 31, 2009.
35) On January 1, 2008, Pace Company acquired all of the outstanding stock of Spin
PLC, a British Company, for $350,000. Spin’s net assets on the date of acquisition were
250,000 pounds (£). On January 1, 2008, the book and fair values of the Spin’s
identifiable assets and liabilities approximated their fair values except for property,
plant, and equipment and trademarks. The fair value of Spin’s property, plant, and
equipment exceeded its book value by $25,000. The remaining useful life of Spin’s
equipment at January 1, 2008, was 10 years. The remainder of the differential was
attributable to a trademark having an estimated useful life of 5 years. Spin’s trial
balance on December 31, 2008, in pounds, follows:
Additional Information
1> Spin uses the FIFO method for its inventory. The beginning inventory was acquired
on December 31, 2007, and ending inventory was acquired on December 26, 2008.
Purchases of £300,000 were made evenly throughout 2008.
2> Spin acquired all of its property, plant, and equipment on March 1, 2006, and uses
straight-line depreciation.
3> Spin’s sales were made evenly throughout 2008, and its operating expenses were
incurred evenly throughout 2008.
4> The dividends were declared and paid on November 1, 2008.
5> Pace’s income from its own operations was $150,000 for 2008, and its total
stockholders’ equity on January 1, 2008, was $1,000,000. Pace declared $50,000 of
dividends during 2008.
6> Exchange rates were as follows:
Required:
1> Prepare a schedule translating the trial balance from British pounds into U.S. dollars.
Assume the pound is the functional currency.
2> Assume that Pace uses the fully adjusted equity method. Record all journal entries
that relate to its investment in the British subsidiary during 2008. Provide the necessary
documentation and support for the amounts in the journal entries, including a schedule
of the translation adjustment related to the differential.
3> Prepare a schedule that determines Pace’s consolidated comprehensive income for
2008.
36) The CFO of a “Not-for-Profit” hospital is making a presentation at your college.
The presentation is for Business and Health-Science majors. During the presentation the
CFO mentions assets being reported “above the line.” On the way out your roommate a
health-science major asks, you an accounting major, to explain what the CFO was
referring to. What do you respond?