On the statement of operations prepared for a private, not-for-profit hospital, patient
service revenue earned during the year is reported net of amounts for which of the
following items?
I. Contractual adjustments
II. Bad debts expense
A. I only
B. II only
C. I and II
D. Neither I nor II
Mint Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign entity is
located. On November 2, 20X8, Mint sold confectionary items to a foreign company at
a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account
has not been settled as of December 31, 20X8, when the exchange rate has increased to
1 LCU = $1.10. The foreign exchange gain or loss on Mint’s records at year-end for this
transaction will be:
A. $460 loss
B. $387 loss
C. $387 gain
D. $460 gain
Partners Dennis and Lilly have decided to liquidate their business. The following
information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of
liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable
is paid. During the second month, the rest of the inventory is sold for $45,000, 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 payments schedule, how much
cash will be distributed to Dennis at the end of the second month?
A. $18,000
B. $27,000
C. $36,000
D. $60,000
James Dixon, a partner in an accounting firm, decided to withdraw from the
partnership. Dixon’s share of the partnership profits and losses was 20%. Upon
withdrawing from the partnership he was paid $74,000 in final settlement for his
interest. The total of the partners’ capital accounts before recognition of partnership
goodwill prior to Dixon’s withdrawal was $210,000. After his withdrawal the remaining
partners’ capital accounts, excluding their share of goodwill, totaled $160,000. The total
agreed upon goodwill of the firm was
A. $250,000
B. $140,000
C. $160,000
D. $120,000
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 is the income assigned to the noncontrolling
interest in the 20X8 consolidated income statement?
A. $10,000
B. $7,000
C. $11,800
D. $4,800
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 must be
reported in the consolidated income statement for 20X8?
A. $2,765,000
B. $1,620,000
C. $1,422,000
D. $2,963,000
Mercury Company is a subsidiary of Neptune Company and is located in Valparaso,
Chile, where the currency is the Chilean Peso. Data on Mercury’s inventory and
purchases are as follows:
The beginning inventory was acquired during the fourth quarter of 20X7, and the ending
inventory was acquired during the fourth quarter of 20X8. Purchases were made evenly
over the year. Exchange rates were as follows:
Based on the preceding information, the translation of cost of goods sold for 20X8,
assuming that the Spanish peseta is the functional currency is:
A. $1,700.
B. $1,760.
C. $1,680.
D. $1,692.
Neptune Corporation owns 70 percent of Pluto Company’s stock. On July 1, 20X4,
Neptune sold a piece of equipment to Pluto for $56,350. Neptune had purchased this
equipment on January 1, 20X1, for $63,000. The equipment’s original 15-year
estimated total economic life remains unchanged. Both companies use straight-line
depreciation. The equipment’s residual value is considered negligible.
Based on the information provided, the gain on the sale of the equipment eliminated in
the consolidated financial statements for 20X4 is
A. $5,950.
B. $8,050
C. $10,150
D. $14,700
Barcode Corporation acquired 70% of the common stock of a Russian company on
January 1, 20X6. The goodwill associated with this acquisition was $12,520. Exchange
rates at various dates during 20X6 follow:
January 1, 20X6 1 ruble = $0.0313
December 31, 20X6 1 ruble = $0.0308
Average for 20X6 1 ruble = $0.031
Goodwill suffered an impairment of 25 percent during the year. If the functional
currency is the U.S. dollar, how much goodwill impairment loss should be reported on
Barcode’s consolidated statement of income for 20X6?
A. $3,080
B. $3,090
C. $3,100
D. $3,130
FASB has specified a “75% percent consolidated revenue test”.
Required:
a) What is the 75% test?
b) How is the 75% test impacted by the “10% Significance Rule”?
Chapter 7 of the Bankruptcy Code provides for:
I. Reorganization.
II. Liquidation.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
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, 20X8?
A. $230,400
B. $180,000
C. $234,000
D. $203,400
On January 1, 20X2, Ephraim Corporation acquired 80 percent of Lilac Corporation for
$200,000 cash. Lilac reported net income of $25,000 each year and dividends of $5,000
each year for 20X2, 20X3, and 20X4. On January 1, 20X2, Lilac reported common
stock outstanding of $160,000 and retained earnings of $40,000, and the fair value of
the noncontrolling interest was $50,000. It held land with a book value of $90,000 and a
market value of $100,000, and equipment with a book value of $40,000 and a market
value of $48,000 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 eight years. All depreciable assets held by Lilac at the date of
acquisition had a remaining economic life of eight years. Ephraim uses the equity
method in accounting for its investment in Lilac.
Based on the preceding information, the increase in the fair value of patents held by
Lilac is
A. $10,000
B. $18,000
C. $32,000
D. $50,000
A not-for-profit organization received a donation temporarily restricted as to use. The
donated amount was later spent in accordance with the restriction. In which
category(ies) of net assets should the related revenues and expenses be recognized?
The general fund of Sun City was billed $7,000 for using the services of one of its
internal service funds. The general fund should account for this transaction as a(n)
A. interfund transfer.
B. interfund loan.
C. interfund service.
D. interfund reimbursement for services rendered.
Fixed assets and investments are reported in which of the following funds?
A. I, II, III
B. II, IV, V
C. I, II, V
D. II, III, IV
Which of the following statements concerning pro forma disclosures is not true?
A. They show the effects of major transactions that occur after the end of the fiscal
period.
B. They show the effects of major transactions that have occurred during the year but
are not fully reflected in the company’s historical cost financial statements.
C. The SEC requires these to be presented only when the company has made an unusual
asset exchange, or a restructuring of existing indebtedness.
D. They often take the form of summarized financial statements.
In the AD partnership, Allen’s capital is $140,000 and Daniel’s is $40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following questions is independent of the others.
Refer to the information provided above. David directly purchases a one-fifth interest
by paying Allen $34,000 and Daniel $10,000. The land account is increased before
David is admitted. What are the capital balances of Allen and Daniel after David is
admitted into the partnership?
A. Option A
B. Option B
C. Option C
D. Option D
Davis Company uses LIFO for all of its inventories. During its second quarter of 20X9,
Davis experienced a LIFO liquidation. Davis fully expects to replace the liquidated
inventory in the early part of the third quarter. How should Davis report the inventory
temporarily liquidated on its income statement for the second quarter?
A. Cost of goods sold for the second quarter should include the acquisition cost of the
goods temporarily liquidated.
B. Cost of goods sold for the second quarter should include the expected replacement
cost of the goods temporarily liquidated.
C. Cost of goods sold for the second quarter should not include the expected
replacement cost of the goods temporarily liquidated.
D. Cost of goods sold for the second quarter is not affected by the temporary liquidation
of LIFO inventory.
Lea Company acquired all of Tenzing Corporation’s stock on January 1, 20X6 for
$150,000 cash. On December 31, 20X8, the trial balances of the two companies were as
follows:
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. At December 31, 20X8, Tenzing owed Lea $4,000 for services provided.
Based on the preceding information, what amount will be reported for total accounts
payable in the consolidated balance sheet for the year 20X8?
A. $56,000
B. $46,000
C. $60,000
D. $42,000
Briefly explain the following terms associated with accounting for foreign entities:
a) Functional Currency
b) Translation
c) Remeasurement
The trial balance of WM Partnership is as follows:
Wilfred and Mike decide to incorporate their partnership. The partnership’s books will
be closed, and new books will be used for W & M Corporation. The following
additional information is available:
1) The estimated fair values of the assets follow:
2)All assets and liabilities are transferred to the corporation.
3) The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares.
4) The partners share profits and losses in the ratio 7:3.
Based on the preceding information, the journal entry on the partnership’s books to
record the Investment in W&M Corporation Stock will be debited for:
A. $181,000
B. $131,000
C. $200,000
D. $150,000
During the liquidation of the FGH partnership, a cash distribution was made to all the
partners, who share profits and losses 60 percent, 20 percent, and 20 percent,
respectively. Assuming that the cash distribution referred to was made properly, how
much would G receive if an additional $60,000 was distributed?
A. $60,000
B. $20,000
C. $17,000
D. $12,000
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 Bill upon
liquidation of the partnership?
A. $0
B. $25,000
C. $11,667
D. $2,500
During the fiscal year ended June 30, 20X9, a private, not-for-profit hospital acquired
equipment costing $75,000, with cash contributed by donors who restricted their
contributions for this purpose. On the hospital’s statement of cash flows for the year
ended June 30, 20X9, the equipment acquisition should be reported in which of the
following sections?
I. Operating activities
II. Financing activities
III. Investing activities
A. I
B. II
C. III
D. I, II, III
Paccu Corporation acquired 100 percent of Sallee Company’s common stock on
January 1, 20X7. Balance sheet data for the two companies immediately following the
acquisition follow:
Paccu Sallee
Cash $50,000 $30,000
Accounts Receivable 60,000 35,000
Inventory 130,000 45,000
Land 75,000 60,000
Buildings and Equipment 310,000 170,000
Less: Accumulated Depreciation (130,000) (30,000)
Investment in Sallee Company Stock 250,000
Total Assets $745,000 $310,000
Accounts Payable $40,000 $35,000
Taxes Payable 30,000 12,000
Bonds Payable 250,000 50,000
Common Stock 75,000 75,000
Retained Earnings 350,000 138,000
Total Liabilities and Stockholders’ Equity $745,000 $310,000
At the date of the business combination, the book values of Sallee’s assets and liabilities
approximated fair value except for inventory, which had a fair value of $55,000, and
land, which had a fair value of $65,000. The fair value of land for Paccu Corporation
was estimated at $90,000 immediately prior to the acquisition.
Based on the preceding information, what amount of goodwill will be reported in the
consolidated balance sheet prepared immediately after the business combinations?
A. $37,000
B. $22,000
C. $15,000
D. $0,000
Plummet Corporation reported the book value of its net assets at $400,000 when Zenith
Corporation acquired 100 percent ownership. The fair value of Plummet’s net assets
was determined to be $510,000 on that date.
Based on the preceding information, what amount of goodwill will be reported in
consolidated financial statements presented immediately following the combination if
Zenith paid $550,000 for the acquisition?
A. $0
B. $50,000
C. $150,000
D. $40,000
According to the provisions of the Sarbanes-Oxley Act,
A. accounting firms can provide both audit and non-audit services to the same
company.
B. the auditor should report directly to, and have its work overseen by, the company’s
management.
C. audit committees should be composed of non-management members of a company’s
board of directors.
D. both the lead audit partner and the audit review partner for publicly held companies
should be rotated at least every two years.
On the statement of activities for a private, not-for-profit literary society, expenses
decrease which of the following classes of net assets?
I. temporarily restricted net assets
II. unrestricted net assets
A. I only
B. II only
C. Either I or II
D. Neither I nor II
Lea Company acquired all of Tenzing Corporation’s stock on January 1, 20X6 for
$150,000 cash. On December 31, 20X8, the trial balances of the two companies were as
follows:
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. At December 31, 20X8, Tenzing owed Lea $4,000 for services provided.
Based on the preceding information, what amount will be reported as total assets in the
consolidated balance sheet for 20X8?
A. $666,000
B. $747,000
C. $651,000
D. $946,000
In the AD partnership, Allen’s capital is $140,000 and Daniel’s is $40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following questions is independent of the others.
Refer to the information provided above. David invests $40,000 for a one-fifth interest
in the total capital of $220,000. The journal to record David’s admission into the
partnership will include:
A. a credit to Cash for $40,000.
B. a debit to Allen, Capital for $3,000.
C. a credit to David, Capital for $40,000.
D. a credit to Daniel, Capital for $1,000.
Company X denominated a December 1, 20X9, purchase of goods in a currency other
than its functional currency. The transaction resulted in a payable fixed in terms of the
amount of foreign currency, and was paid on the settlement date, January 10, 2010.
Exchange rates moved unfavorably at December 31, 20X9, resulting in a loss that
should:
A. be included as a separate component of stockholders’ equity at Dec. 31, 20X9.
B. be included as a component of income from continuing operations for 20X9.
C. be included as a deferred charge at December 31, 20X9.
D. not be reported until January 10, 2010, the settlement date.
Each of the following questions names an item. Select the correct description of the
item from this list. Indicate your selection by entering the letter of the description.
Descriptions
a. Provides preliminary information to investors about an upcoming issue.
b. Informs investors of an upcoming offering.
c. Required annual filing to the SEC.
d. Discloses unscheduled material events.
e. Includes amendments to the Securities Act, additional disclosure requirements, and
other current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination by the SEC of a registration statement.
g. Issued by the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities may be offered or sale.
h. Quarterly report to SEC.
i. Includes new or revised administrative practices and interpretations used in reviewing
financial statements.
j. Includes the results of actions taken against accountants or other participants because
false or misleading statements were filed.
k. Includes Regulations S-X and S-K.
Form 10-Q
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 amounts will be distributed to Page and
Larry upon liquidation of the partnership?
A. Option A
B. Option B
C. Option C
D. Option D
On January 1, 20X6, Joseph Company acquired 80% of Salt Company’s outstanding
stock for cash. The fair value of the noncontrolling interest was equal to a proportionate
share of the book value of Salt Company’s net assets at the date of acquisition. Selected
balance sheet data at December 31, 20X6 are as follows:
Joseph Salt
Total Assets $564,000 $241,000
Liabilities $180,000 $65,000
Common Stock 150,000 80,000
Retained Earnings 234,000 96,000
$564,000 $241,000
Based on the preceding information, what amount will Joseph Company report as
common stock outstanding in its consolidated balance sheet at December 31, 20X6?
A. $214,000
B. $150,000
C. $184,000
D. $230,000
Alpha Company acquired 100 percent of the voting common shares of Gamma
Corporation by issuing bonds with a par value and fair value of $200,000. Immediately
prior to the acquisition, Alpha reported total assets of $600,000, liabilities of $370,000,
and stockholders’ equity of $230,000. At that date, Gamma reported total assets of
$500,000, liabilities of $300,000, and stockholders’ equity of $200,000. Included in
Gamma’s liabilities was an account payable to Alpha in the amount of $50,000, which
Alpha included in its accounts receivable.
Based on the preceding information, what amount of total assets was reported in the
consolidated balance sheet immediately after acquisition?
A. $600,000
B. $800,000
C. $1,050,000
D. $1,150,0000
Follett Company incurred a first quarter operating loss before income tax effect of
$2,000,000. This is a normal occurrence for Follett because of seasonal fluctuations.
Experience has demonstrated the income earned during the remaining quarters far
exceeds the first quarter losses each year. Follett estimates its annual income tax rate
will be 35 percent. What net loss should Follett report for the first quarter?
A. $0
B. $700,000
C. $1,300,000
D. $2,000,000
Why are consolidation entries used?
Clocktower Corporation reported net income for the current year of $370,000 and paid
cash dividends of $50,000. Slide Company holds 40 percent of the outstanding voting
stock of Clocktower. However, another corporation holds the other 60 percent
ownership and does not take Slide’s wants and wishes into consideration when making
financing and operating decisions for Clocktower. What investment income should
Slide recognize for the current year?
A. $0
B. $20,000
C. $128,000
D. $148,000
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.
”Classification of contributions restricted by purpose” describes which term listed
above?
Top Corporation acquired 80 percent of Bottom Corporation’s common stock on
January 1, 20X8, for $520,000. At that date, Bottom reported common stock
outstanding of $250,000 and retained earnings of $375,000. Assume the fair value of
the noncontrolling interest on January 1, 20X8 was $130,000. The book values and fair
values of Bottom’s assets and liabilities were equal on the acquisition date, except for
other intangible assets, which had a fair value $25,000 greater than book value and a
5-year remaining life. Top and Bottom reported the following data for 20X8 and 20X9:
a. Compute consolidated comprehensive income for 20X8 and 20X9.
b. Compute comprehensive income attributable to the controlling interest for 20X8
and 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.
”Net asset classifications per FAC 6” describes which term listed above?
Magellan Corporation acquired 80 percent ownership of Dipper Corporation on January
1, 20X8, for $200,000. At that date, Dipper reported common stock outstanding of
$75,000 and retained earnings of $150,000. The fair value of the noncontrolling interest
was $50,000. The differential is assigned to equipment, which had a fair value $25,000
greater than book value and a remaining economic life of five years at the date of the
business combination. Dipper reported net income of $40,000 and paid dividends of
$20,000 in 20X8.
Required:
1) Provide the journal entries recorded by Magellan during 20X8 on its books if it
accounts for its investment in Dipper using the equity method.
2) Give the consolidating entries needed at December 31, 20X8, to prepare consolidated
financial statements.
The ABC partnership had net income of $100,000 for 20X9. They allocate profits and
losses in the ratio 5:3:2. After closing the 12/31/20X9 books they discovered that
$30,000 was spent on a piece of land in December 20X9 and was expensed. What
should happen?
Dragon Company has two reportable segments, A and B. Segment A made $3,000,000
of sales to external customers and $200,000 of sales to other operating segments.
Segment B made sales of $5,000,000 to external customers and $1,200,000 of sales to
other operating segments. Dragon Company reported $9,600,000 of revenues on its
consolidated income statement. What calculation below correctly determines whether
Dragon Company’s reportable segments satisfy the 75% revenue test?
A. $8,000,000/$9,600,000
B. $8,000,000/$11,000,000
C. $9,400,000/$9,600,000
D. $9,400,000/$11,000,000
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.
Prior to closing the accounts at the end of the most recent fiscal year, the Town of
Sonora reports the following amounts (in thousands):
Required:
Applying the criteria specified in GASB 34, determine which of the above funds should
be classified as major funds for reporting purposes.
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:
Income was earned from investments of assets that the board previously designated for
plant expansion.