1) 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
2) The Bankruptcy Reform Act contains chapters which deal with:
I. Individuals.
II. Corporations.
III. Municipal governments.
A.Only I and II
B.Only II and III
C.Only I and III
D.I, II, and III
3) Usually, an investment of 20 to 50 percent in another company’s voting stock is
reported under the:
A.cost method
B.equity method
C.full consolidation method
D.fair value method
4) Note: This is a Kaplan CPA Review Question
Gains from remeasuring a foreign subsidiary’s financial statements from the local
currency, which is not the functional currency, into the company’s functional currency
should be reported as a(an)
A.Deferred foreign exchange gain
B.Part of continuing operations
C.Separate component of stockholders’ equity
D.Extraordinary item, net of income taxes
5) An analysis of Abbey Company’s operating segments provides the following
information:
Refer to the above information. Which of the operating segments above are reportable
segments?
A.B, C, and D
B.A, B, D, and E
C.B, D, and E
D.A, B, C, D, and E
6) Which term refers to the practice of revaluing an acquired subsidiary’s assets and
liabilities to their fair values directly on that subsidiary’s books at the date of
acquisition?
A.Fair value accounting
B.Push-down accounting
C.Fully adjusted method
D.Reciprocal ownership
7) 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
8) Blue Company owns 70 percent of Black Company’s outstanding common stock. On
December 31, 20X8, Black sold equipment to Blue at a price in excess of Black’s
carrying amount, but less than its original cost. On a consolidated balance sheet at
December 31, 20X8, the carrying amount of the equipment should be reported at:
A.Blue’s original cost
B.Black’s original cost
C.Blue’s original cost less Black’s recorded gain
D.Blue’s original cost less 70 percent of Black’s recorded gain
9) Mortar Corporation acquired 80 percent of Granite Corporation’s voting common
stock on January 1, 20X7. On December 31, 20X8, Mortar received $390,000 from
Granite for equipment Mortar had purchased on January 1, 20X5, for $400,000. The
equipment is expected to have a 10-year useful life and no salvage value. Both
companies depreciate equipments on a straight-line basis.
Based on the preceding information, in the preparation of the 20X9 consolidated
income statement, depreciation expense will be:
A.debited for $25,000 in the eliminating entries
B.credited for $15,000 in the eliminating entries
C.debited for $15,000 in the eliminating entries
D.credited for $25,000 in the eliminating entries
10) Chicago based Corporation X has a number of exporting transactions with
companies based in Sweden. Exporting activities result in receivables. If the settlement
currency is the Swedish Krona, which of the following will happen by changes in the
direct or indirect exchange rates?
A.Option A
B.Option B
C.Option C
D.Option D
11) 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 1, 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 using the effective interest method. 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 modified 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.
12) A joint venture may be organized as a:
I. Partnership.
II. Corporation.
III. Undivided interest.
A.I only
B.II only
C.I or III only
D.I, II, or III
13) 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
14) Which of the following is true? When companies employ push-down accounting:
A.the subsidiary revalues assets and liabilities to their fair values as of the acquisition
date
B.a special account called Revaluation Capital will appear in the consolidated balance
sheet
C.all consolidation elimination entries are made on the books of the subsidiary rather
than in consolidated worksheets
D.the subsidiary is not substantially wholly owned by the parent
15) Zeta Corporation and its subsidiary reported consolidated net income of $320,000
for the year ended December 31, 20X8. Zeta owns 80 percent of the common shares of
its subsidiary, acquired at book value. Noncontrolling interest was assigned income of
$30,000 in the consolidated income statement for 20X8. What is the amount of separate
operating income reported by Zeta for the year?
A. $170,000
B. $150,000
C. $120,000
D. $200,000
16) Note: This is a Kaplan CPA Review Question
Fixed assets of an enterprise fund should be accounted for in the
A.Enterprise fund but no depreciation on the fixed assets should be recorded
B.General fixed asset account group but no depreciation on the fixed assets should be
recorded
C.General fixed asset account group and depreciation on the fixed assets should be
recorded
D.Enterprise fund and depreciation on the fixed assets should be recorded
17) Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in
partnership profits and losses. Shue’s capital account had a net decrease of $100,000
during 20X8. During 20X8, Shue withdrew $240,000 as withdrawals and contributed
equipment valued at $50,000 to the partnership. What was the net income of the
Financial Brokers Partnership for 20X8?
A.$633,334
B.$466,666
C.$300,000
D.$190,000
18) Proxy statements are:
A.filed by an entity that acquires a beneficial ownership of more than 5 percent in a
company
B.interim financial statements need not be audited
C.materials submitted to shareholders for votes on corporate matters
D.used to disclose unscheduled material events
19) What account should be debited in the debt service fund to recognize an installment
payment currently due on general obligation serial bonds?
I. Matured Bonds Payable.
II. Expenditures-Principal.
A.I
B.II
C.Either I or II
D.Neither I nor II
20) On January 1, 20X9, A Company acquired 85 percent of B Company’s voting
common stock for $425,000. At that date, the fair value of the noncontrolling interest of
B Company was $75,000. Immediately after A Company acquired its ownership, B
Company acquired 75 percent of C Company’s stock for $150,000. The fair value of the
noncontrolling interest of C Company was $50,000 at that date. At January 1, 20X9, the
stockholders’ equity sections of the balance sheets of the companies were as follows:
During 20X9, A Company reported operating income of $175,000 and paid dividends
of $50,000. B Company reported operating income of $125,000 and paid dividends of
$40,000. C Company reported net income of $100,000 and paid dividends of $25,000.
Based on the information provided, what amount of income will be assigned to the
noncontrolling interest in the consolidated income statement for 20X9?
A.$55,000
B.$25,000
C.$30,000
D.$43,750
21) 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 when the market rate was 7
percent. 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 June 30 and Dec 31.
Based on the information given above, what amount of interest expense will be
eliminated in the preparation of the 20X8 consolidated financial statements?
A.$13,096
B.$13,023
C.$8,730
D.$8,682
22) Pursuing an inorganic growth strategy, Wilson Company acquired Venus
Company’s net assets and assigned them to four separate reporting divisions. Wilson
assigned total goodwill of $134,000 to the four reporting divisions as given below:
Based on the preceding information, for Gamma:
A.no goodwill should be reported at year-end
B.goodwill impairment of $30,000 should be recognized at year-end
C.goodwill impairment of $20,000 should be recognized at year-end
D.goodwill of $30,000 should be reported at year-end
23) 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 first month?
A.$64,000
B.$60,000
C.$24,000
D.$36,000
24) The BIG Partnership has decided to liquidate at December 31, 20X8. The capital
and loan balances of the partners at December 31, 20X8, are provided below:
If you were to calculate the Loss Absorption Power for each partner, how would the
partners rank (from highest to lowest LAP)?
A.B, I, G
B.I, B, G
C.B, G, I
D.G, I, B
25) 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.
“Basis of accounting for private NFPs” describes which term listed above?
26) 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, 20X 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, 20X 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 information provided, what amount will be reported as the noncontrolling
interest in the consolidated balance sheet on January 1, 20X9?
A.$70,000
B.$130,000
C.$118,000
D.$142,000
27) In the JAW partnership, Jane’s capital is $100,000, Anne’s is $80,000, and William’s
is $75,000. They share income in a 3:2:1 ratio, respectively. William is retiring from the
partnership.
Required:
Prepare journal entries to record William’s withdrawal according to each of the
following independent assumptions:
a. William is paid $80,000, and no goodwill is recorded.
b. William is paid $85,000, and only his share of the goodwill is recorded.
c. William is paid $78,000, and all implied goodwill is recorded.
28) Denver Corporation owns 25 percent of the voting shares of Alamos Corporation.
In 20X8, Alamos reported net income of $120,000 and paid dividends of $30,000.
Denver uses the equity method to account for this investment. Denver reported taxable
income of $160,000 on its separate operations and has an effective tax rate of 40
percent. There is an 80 percent exemption on intercompany dividends.
Based on the preceding information, income taxes payable for Denver for the year
20X8 will be:
A.$67,000
B.$64,600
C.$64,000
D.$76,000
29) 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:
Refer the information provided above. Assuming the U.S. dollar is the functional
currency, what is the amount of Mercury’s cost of goods sold remeasured in U.S.
dollars?
A.$1,680
B.$1,712
C.$1,700
D.$1,692