During its inception, Devon Company purchased land for $100,000 and a building for
$180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a
newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan’s
$10 par value stock. Devon uses straight-line depreciation. Useful life for the building
is 30 years, with zero residual value. An appraisal revealed that the building has a fair
value of $200,000.
Based on the information provided, what amount would be reported by Devon
Company as investment in Regan Company common stock?
A. $312,000
B. $180,000
C. $330,000
D. $150,000
The capital projects fund of Hysham completed construction of a new building. The
building should be reported in the:
I. government-wide statement of net assets.
II. capital projects fund.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
The general fund of Hatteras acquired a fire truck during the fiscal year ended June 30,
20X9. The purchase order for the fire truck was recorded on February 15, 20X9.
Hatteras’ acquisition of the fire truck required which of the following sequences of
accounting activities?
I. Appropriation
II. Encumbrance
III. Expenditure
A. II, I, III.
B. I, III, II.
C. III, II, I.
D. I, II, III.
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.
On January 3, 20X9, Jane Company acquired 75 percent of Miller Company’s
outstanding common stock for cash. The fair value of the noncontrolling interest was
equal to a proportionate share of the book value of Miller Company’s net assets at the
date of acquisition. Selected balance sheet data at December 31, 20X9, are as follows:
Based on the preceding information, what amount will Jane Company report as
common stock outstanding in its consolidated balance sheet at December 31, 20X9?
A. $120,000
B. $180,000
C. $156,000
D. $264,000
Goshen City acquires $36,000 of inventory on November 1, 20X5, having held no
inventory previously. On December 31, 20X5, the end of Goshen City’s fiscal year, a
physical count shows $7,000 still in stock. During 20X6, $5,000 of this inventory is
used, resulting in a $2,000 remaining balance of supplies on December 31, 20X6.
Based on the preceding information, which of the following would be the correct
account balances for 20X5 if Goshen City used the consumption method of accounting
for inventories?
Expenditures Inventory of Supplies
A. $29,000 $0
B. $36,000 $0
C. $29,000 $7,000
D. $36,000 $7,000
Fox, Greg, and Howe are partners with average capital balances during 20X1 of
$120,000, $60,000, and $40,000, respectively. Partners receive 10% interest on their
average capital balances. After deducting salaries of $30,000 to Fox and $20,000 to
Howe, the residual profit or loss is divided equally. In 20X1 the partnership sustained a
$33,000 loss before interest and salaries to partners. By what amount should Fox’s
capital account change?
A. $7,000 increase
B. $11,000 decrease
C. $35,000 decrease
D. $42,000 increase
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
Which of the following describes a situation when a parent company would not
consolidate a foreign subsidiary?
A. Restrictions on foreign exchange in the foreign country.
B. Restrictions on transfers of property in the foreign country.
C. Other governmentally imposed uncertainties.
D. All of the above
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
A budgetary fund balance – assigned in excess of a balance of encumbrances indicates
A. A recording error.
B. An excess of vouchers payable over encumbrances.
C. An excess of purchase orders over invoices received.
D. An excess of appropriations over encumbrances.
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
On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by
purchasing 40,000 shares of Siena’s common stock. There was no differential related to
this transaction. The noncontrolling interest had a fair value equal to 20 percent of book
value. The book value of Siena on December 31, 20X7 was as follows:
On January 1, 20X8, Pisa purchased an additional 12,500 shares directly from Siena for
$25 per share.
Based on the preceding information, by what amount did the Investment in Siena account
change?
A. Increase of $296,500
B. Decrease of $296,500
C. Increase of $64,000
D. Decrease of $64,000
Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1,
20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1
and July 1. Mortar Corporation purchased $140,000 of Granite’s bonds from the
original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of
Granite’s voting common stock. Granite’s partial bond amortization schedule is as
follows:
Based on the information given above, what amount of premium on bonds payable will be
eliminated in the preparation of the 20X9 year-end consolidated financial statements?
A. $4,276
B. $3,568
C. $5,097
D. $6,108
Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1,
20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1
and July 1. Mortar Corporation purchased $140,000 of Granite’s bonds from the
original purchaser on December 31, 20X8, for $125,000. Mortar owns 75 percent of
Granite’s voting common stock. Granite’s partial bond amortization schedule is as
follows:
Based on the information given above, what amount of interest income will be eliminated
in the preparation of the December 31, 20X9 consolidated financial statements?
A. $8,184
B. $16,296
C. $12,704
D. $18,988
Parisian Co. is a French company located in Paris. Yankee Corp., located in New York
City, acquires Parisian Co. Parisian has the Euro as its local currency and the Swiss
Franc as its functional currency. Yankee has the U.S. dollar as its local currency and the
U.S. dollar as its functional currency.
Required:
a) The year-end consolidated financial statements will be prepared in which currency?
b) Explain which method is appropriate to use to use at year-end: Translation or
Remeasurement?
ABC Corporation owns 75 percent of XYZ Company’s voting shares. During 20X8,
ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for
$90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior
to December 31, 20X8, and sold the remainder in early 20X9 to unaffiliated companies
for $130 each. Both companies use perpetual inventory systems.
Based on the information given above, what amount of cost of goods sold did XYZ
record in 20X8?
A. $2,765,000
B. $1,620,000
C. $1,422,000
D. $2,963,000
Berlin, Inc. holds 100 percent of the common stock of Sea Company, an investment
acquired for $520,000. Immediately following the combination, Berlin’s net assets have
a book value of $900,000 and a fair value of $1,050,000. The book and fair value of
Sea’s net assets on the date of combination are $350,000 and $425,000, respectively.
Immediately following the combination, a consolidated balance sheet is prepared.
Based on the information given above, at what amount will Berlin’s investment in Sea
stock be reported in a consolidated balance?
A. $520,000
B. $170,000
C. $95,000
D. $0
The information below is for the second quarter of Tampa Company for 20X8:
Required:
Prepare an interim income statement for the second quarter for Tampa Company.
Assume the LIFO liquidation is expected to be restored by the end of 20X8.
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
A voluntary health and welfare organization received unrestricted cash donations of
$20,000 from donors who attended a dinner held for the benefit of the organization. The
costs of the dinner, including room rental, and other expenses, amounted to $7,000. On
the statement of activities prepared for the voluntary health and welfare organization,
the expenses of the dinner should be:
A. reported as management and general expenses.
B. netted against the $20,000 of contribution revenue.
C. reported as fund raising costs.
D. reported as programmatic expenses.
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 of income will be assigned to the
controlling interest in the 20X8 consolidated income statement?
A. $130,750
B. $150,000
C. $141,250
D. $157,000
Which of the following divisions of the SEC regulates national securities exchanges,
brokers, and dealers of securities?
A. Division of Investment Management
B. Division of Corporation Finance
C. Division of Corporation Regulation
D. Division of Market Regulation
Bill, Page, Larry, and Scott have decided to terminate their partnership. The
partnership’s balance sheet at the time they decide to wind up is as follows:
During the winding up of the partnership, the other assets are sold for $150,000 and the
accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are
personally insolvent. The partners share profits and losses in the ratio of 4:2:1:3.
Based on the preceding information, what amount will be paid out to Scott upon
liquidation of the partnership?
A. $0
B. $2,500
C. $25,000
D. $65,000
All of the following are benefits the U.S. will gain from the adoption of globally
consistent accounting standards except for:
A. Reduction in reporting costs as the need for multiple sets of financial statements
decreases.
B. Increased quality of information available to investors.
C. Continued expansion of capital markets across national borders, facilitating more
efficient use of global capital.
D. Nearly seamless transition with minimal expenses related to corporate governance
considerations.
In 20X6, Dorian City received $15,000,000 of bond proceeds to be used for capital
projects. Of this amount, $3,000,000 was expended in 20X6. Expenditures for the
$12,000,000 balance were expected to be incurred in 20X7. These bond proceeds
should be recorded in capital projects funds for:
A. $3,000,000 in 20X6 and $12,000,000 in 20X7.
B. $3,000,000 in 20X6 and in the general fund for $12,000,000 in 20X6.
C. $15,000,000 in 20X6.
D. $15,000,000 in 20X7.
Which of the following financial statements would not be prepared for an enterprise
fund?
A. A statement of cash flows.
B. A statement of revenues, expenses, and changes in fund net assets.
C. A balance sheet.
D. A statement of revenues, expenditures, and changes in fund balance.
In the RST partnership, Ron’s capital is $80,000, Stella’s is $75,000, and Tiffany’s is
$50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the
partnership. Each of the following questions is independent of the others.
Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. In
the journal entry to record Tiffany’s withdrawal:
A. Tiffany, Capital will be credited for $60,000.
B. Ron, Capital will be debited for $5,000.
C. Stella, Capital will be debited for $4,000.
D. Cash will be debited for $60,000.
During the fiscal year ended June 30, 20X9, Global Charities, a voluntary health and
welfare organization, received unrestricted cash contributions of $500,000 and
temporarily restricted cash contributions of $300,000. All of the temporarily restricted
contributions were restricted by the donors for equipment acquisitions. During the year
ended June 30, 20X9, equipment costing $250,000 was acquired with the restricted
contributions. As a result of these two contributions, Global Charities’ statement of cash
flows, prepared for the year ended June 30, 20X9, would report an increase in net cash
provided by operating activities of:
A. $500,000.
B. $800,000.
C. $750,000.
D. $550,000.
The City of Warwick received $4,000,000 from one of its most prominent citizens
during the year ended June 30, 20X9. The donor stipulated that the $4,000,000 be
invested permanently, and that interest and dividends earned on the investments be used
to support the homeless people of Warwick. During the year ended June 30, 20X9,
dividends received from stock investments amounted to $20,000, while interest
received from bond investments amounted to $40,000. At June 30, 20X9, $10,000 of
interest was earned, but it will not be received until July of 20X9. The fair value of the
securities in which the $4,000,000 was invested had increased $8,000 by June 30,
20X9.
Refer to the above information. For the year ended June 30, 20X9, what amount should
the trust fund report as investment earnings on the statement of revenues, expenses, and
changes in fund balance?
A. $60,000
B. $68,000
C. $70,000
D. $78,000
A citizen of York purchased a truck in 20X3 for $50,000. On June 10, 20X9, she
donated the truck to York. The fair value of the truck on the date of donation was
$30,000. How should York report the truck in its government-wide Statement of Net
Assets?
A. Machinery and equipment should be increased $50,000.
B. Machinery and equipment should be increased $30,000.
C. Machinery and equipment should be decreased $20,000.
D. No asset should be reported because no expenditures were made to acquire the truck.
Bill, Page, Larry, and Scott have decided to terminate their partnership. The
partnership’s balance sheet at the time they decide to wind up is as follows:
During the winding up of the partnership, the other assets are sold for $150,000 and the
accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are
personally insolvent. The partners share profits and losses in the ratio of 3:2:1:4.
Based on the preceding information, what amount will be paid out to Scott upon
liquidation of the partnership?
A. $0
B. $2,500
C. $5,000
D. $6,429
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Basis for measuring investments in financial statements” describes which term listed
above?
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Basis for measuring expenditures for contributed services requiring special skills”
describes which term listed above?
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:
Assume the U.S. dollar is the functional currency, not the pound. Prepare a schedule
providing a proof of the remeasurement gain or loss. Assume that the British subsidiary
had the following monetary assets and liabilities at January 1, 2008:
What are the conditions necessary for using fresh start reporting in reorganization?
On December 31, 20X9, Thessaly Corporation acquired all of Ionian Company’s
common shares, for $570,000 cash. On that date, Ionian’s balance sheet appeared as
follows:
The fair values of all of Ionian’s assets and liabilities were equal to their book values
except for the following:
In recording this acquisition, push-down accounting was used.
Required:
1) Record the acquisition of Ionian’s stock on Thessaly’s books on December 31, 20X9.
2) Record any entries that would be made on December 31, 20X9, on Ionian’s books
related to the business combination.
3) Present all consolidating entries that would appear in the worksheet to prepare a
consolidated balance sheet immediately after the combination.
Operand Corporation reported consolidated revenues of $30,000,000 on its income
statement for 20X4. The management of the corporation identified three industry
segments, X, Y, and Z. These segments had the following intersegment sales and
transfers during 20X4:
Operating Segment Intersegment Sales and Transfers
X $1,000,000
Y $3,000,000
Z $1,500,000
For Operand Corporation, the revenue test would be satisfied if any of its industry
segments had revenue equal to or greater than which of the following?
A. $2,450,000
B. $3,000,000
C. $3,550,000
D. $5,500,000
Partners David and Goliath have decided to liquidate their business. The following
information is available:
Cash $100,000
Inventory $200,000
$300,000
Accounts Payable $80,000
David, Capital $140,000
Goliath, Capital $80,000
$300,000
David and Goliath share profits and losses in a 3:1 ratio, respectively. During the first
month of liquidation, half the inventory is sold for $70,000, and $50,000 of the
accounts payable are paid. During the second month, the rest of the inventory is sold for
$55,000, and the remaining accounts payable are paid. Cash is distributed at the end of
each month, and the liquidation is completed at the end of the second month.
Refer to the information provided above. How much cash will be distributed to David at
the end of the second month?
A. $75,000
B. $60,000
C. $41,250
D. $33,750
ASC 805 is related to the Consolidation of Variable Interest Entities. Describe what a
Variable Interest Entity is and discuss why the FASB has difficulty in prescribing when
these entities are consolidated?
Partners David and Goliath have decided to liquidate their business. The following
information is available:
Cash $100,000
Inventory $200,000
$300,000
Accounts Payable $80,000
David, Capital $140,000
Goliath, Capital $80,000
$300,000
David and Goliath share profits and losses in a 3:1 ratio, respectively. During the first
month of liquidation, half the inventory is sold for $70,000, and $50,000 of the
accounts payable are paid. During the second month, the rest of the inventory is sold for
$55,000, and the remaining accounts payable are paid. Cash is distributed at the end of
each month, and the liquidation is completed at the end of the second month.
Refer to the information provided above. Using a safe payment schedule, how much
cash will be distributed to Goliath at the end of the first month?
A. $7,500
B. $25,000
C. $47,500
D. $72,500
Chicago Company, a calendar-year corporation, had the following actual income before
income tax expense and estimated effective annual income tax rates for the first three
quarters in 20X2:
Estimated Effective Annual Tax
Quarter Income Before Income Tax Expense Rate at the End of Each Quarter
First $70,000 28%
Second 90,000 26%
Third 120,000 30%
Chicago’s income tax expense in its interim income statement for the third quarter
should be
A. $36,000
B. $41,000
C. $42,400
D. $84,000
The following information is contained in the funds which are used to account for the
transactions of the Hope Hospital, which is operated by a nonprofit, religious
organization. The balances in the accounts are as of June 30, 20X9, the end of the
hospital’s fiscal year. Credit amounts are in parentheses.
Additional information:
The $64,000 in the specific purpose fund is restricted for research activities to be
conducted by the hospital.
Required:
Prepare a balance sheet for Hope Hospital as of June 30, 20X9.
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Responsible for establishing accounting standards for private NFP entities” describes
which term listed above?
The transactions described in the following questions occurred in a voluntary health and
welfare organization during the year ended December 31, 20X8. For each transaction,
indicate its effect(s) on the organization’s statement of activities prepared for the year
ended December 31, 20X8. List all effects of transactions affecting more than one class
of net assets. Indicate your choice(s) by entering the letter corresponding to the effects
listed here:
Received cash contributions restricted by donors for equipment.
Required financial statements of funds may include the following, among others:
The financial statements that should be issued by governmental funds and by
proprietary funds include the following:
Accounting processes differ between a for-profit entity and a governmental entity.
Discuss three differences between a governmental entity and a for-profit entity.
On December 31, 20X8, Defoe Corporation acquired 80 percent of Crusoe Company’s
common stock for $104,000 cash. The fair value of the noncontrolling interest at that
date was determined to be $26,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
On that date, the book values of Crusoe’s assets and liabilities approximated fair value
except for inventory, which had a fair value of $45,000, and buildings and equipment,
which had a fair value of $100,000. At December 31, 20X8, Defoe reported accounts
payable of $15,000 to Crusoe, which reported an equal amount in its accounts
receivable.
Required:
1) Provide the consolidating entries needed to prepare a consolidated balance sheet
immediately following the business combination.
2) Prepare a consolidated balance sheet worksheet.
