1) Creditors may file which type of petition when seeking remedy under the Bankruptcy
Code?
I. Voluntary
II. Involuntary
A.I only
B.II only
C.Either I or II
D.Neither I nor II
2) Paco Company acquired 100 percent of the stock of Garland Corp. on December 31,
20X8. The stockholder’s equity section of Garland’s balance sheet at that date is as
follows:
Paco financed the acquisition by using $880,000 cash and giving a note payable for
$400,000. Book value approximated fair value for all of Garland’s assets and liabilities
except for buildings which had a fair value $60,000 more than its book value and a
remaining useful life of 10 years. Any remaining differential was related to goodwill.
Paco has an account payable to Garland in the amount of $30,000.
Required:
1> Present all eliminating entries needed to prepare a consolidated balance sheet
immediately following the acquisition.
2> What additional eliminating entry must be prepared at December 31, 20X9?
Bristle Corporation acquired 75 percent of Silver Corporation’s common stock on
December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that
date was determined to be $100,000. Silver’s balance sheet immediately before the
combination reflected the following balances:
A careful review of the fair value of Silver’s assets and liabilities indicated that
inventory, land, and buildings and equipment (net) had fair values of $65,000,
$100,000, and, $300,000 respectively. Goodwill is assigned proportionately to Bristle
and the noncontrolling shareholders.
Based on the preceding information, what amount will be reported as noncontrolling
interest in the consolidated balance sheet immediately following the acquisition?
3) A.$0
B.$70,000
C.$83,750
D.$100,000
4) On June 30, 20X9, a voluntary health and welfare organization received pledges
from donors amounting to $50,000. The donors did not place any time or use
restrictions on the amount pledged. It was estimated that 10 percent of the pledges
would not be collected. How should the voluntary health and welfare organization
report these pledges on its financial statements prepared at the end of its fiscal year,
June 30, 20X9?
A.As fund balance for $45,000
B.As contribution revenue-unrestricted for $45,000
C.As contribution revenue-unrestricted for $50,000
D.As fund balance-unrestricted for $50,000
5) 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:
Effects of Transactions on Statement of Activities
A. Increases unrestricted net assets.
B. Decreases unrestricted net assets.
C. Increases temporarily restricted net assets.
D. Decreases temporarily restricted net assets.
E. Increases permanently restricted net assets.
F. Decreases permanently restricted net assets.
G. Transaction is not reported on the statement of activities.
The governing board designated assets for plant expansion.
6) 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 and assuming a 13.166 percent market rate, what
amount of interest income will be eliminated in the preparation of the 20X9
consolidated financial statements?
A.$16,420
B.$11,494
C.$16,103
D.$11,291
7) Vision Corporation acquired 75 percent of the stock of Meta Company on January 1,
20X7, for $225,000.At that date, the fair value of the noncontrolling interest was
$75,000. Meta’s balance sheet contained the following amounts at the time of the
combination:
During each of the next three years, Meta reported net income of $30,000 and paid
dividends of $10,000. On January 1, 20X9, Vision sold 1,500 shares of Meta’s $10 par
value shares for $60,000 in cash. Vision used the fully adjusted equity method in
accounting for its ownership of Meta Company.
Based on the preceding information, in the journal entry recorded by Vision for sale of
shares, Additional Paid-in Capital will be credited for:
A.$0
B.$15,000
C.$9,000
D.$45,000
8) 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 8-K
9) Lemon Corporation acquired 80 percent of Bricks Corporation’s common shares on
January 1, 20X7, at underlying book value. At that date, the fair value of the
noncontrolling interest was equal to 20 percent of the book value of Bricks Corporation.
Bricks prepared the following balance sheet as of December 31, 20X8:
On January 1, 20X9, Bricks declares a stock dividend of 9,000 shares on its $5 par
value common stock. The current market price per share of Bricks stock on January 1,
20X9, is $20.
Based on the preceding information, the investment elimination entry required to
prepare a consolidated balance sheet immediately after the stock dividend is issued will
include a debit to Retained Earnings for:
A.$200,000
B.$65,000
C.$155,000
D.$20,000
10) On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping
Corporation’s voting shares, at underlying book value. Plimsol uses the cost method in
accounting for its investment in Shipping. Shipping’s retained earnings was $75,000 on
the date of acquisition. On December 31, 20X4, the trial balance data for the two
companies are as follows:
Based on the information provided, what amount of total assets will be reported in the
consolidated balance sheet prepared on December 31, 20X4?
A.$425,000
B.$525,000
C.$650,000
D.$630,000
11) Which division of the SEC develops and administers the disclosure requirements
for the securities acts and reviews all registration statements and other issue-oriented
disclosures?
A.Division of Enforcement
B.Division of Corporation Finance
C.Division of Investment Management
D.Division of Market Regulation
12) 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.
Based on the information given above, what amount of premium on bonds payable will
be eliminated in the preparation of the 20X9 consolidated financial statements?
A.$3,500
B.$2,800
C.$5,000
D.$2,500
13) Note: This is a Kaplan CPA Review Question
The following balances are included in the subsidiary records of Burwood Village’s
Parks and Recreation Department at March 31st:
How much does the Department have available for additional purchases of supplies?
A.$0
B.$2,250
C.$3,000
D.$6,750
14) Consolidated financial statements tend to be most useful for:
A. Creditors of a consolidated subsidiary
B. Investors and long-term creditors of the parent company
C. Short-term creditors of the parent company
D. Stockholders of a consolidated subsidiary
Bristle Corporation acquired 75 percent of Silver Corporation’s common stock on
December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that
date was determined to be $100,000. Silver’s balance sheet immediately before the
combination reflected the following balances:
A careful review of the fair value of Silver’s assets and liabilities indicated that
inventory, land, and buildings and equipment (net) had fair values of $65,000,
$100,000, and, $300,000 respectively. Goodwill is assigned proportionately to Bristle
and the noncontrolling shareholders.
Based on the preceding information, what amount of land will be included in the
consolidated balance sheet immediately following the acquisition?
15) A.$0
B.$10,000
C.$90,000
D.$100,000
16)
Refer to the above information. Which statement below is correct if a new partner
purchases an interest in capital directly from the old partners?
A.C < D
B.C = D
C.C = D and B = A
D.C < D and B = A
17) Public Equity Corporation acquired Lenore Company through an exchange of
common shares. All of Lenore’s assets and liabilities were immediately transferred to
Public Equity. Public’s common stock was trading at $20 per share at the time of
exchange. Following selected information is also available.
Based on the preceding information, what is the fair value of Lenore’s net assets, if
goodwill of $56,000 is recorded?
A.$306,000
B.$244,000
C.$194,000
D.$300,000
18) 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, 20X9.
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, 20X9. 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 preceding information, what is First’s contribution to consolidated net
income for 20X9?
A.$80,000
B.$100,000
C.$90,000
D.$50,000
19) 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 Bill upon
liquidation of the partnership?
A.$0
B.$5,000
C.$25,000
D.$2,500
20) 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
21) The restricted funds of a not-for-profit hospital are often termed “______” funds
because they must hold the restricted assets and transfer expendable resources to the
general fund for expenditure.
A.specific
B.controlled
C.limited
D.holding
22) Note: This is a Kaplan CPA Review Question
Hunt Co. purchased merchandise for 300,000 British pounds from a vendor in London
on November 30, 20X1. Payment in British pounds was due on January 30, 20X2. The
exchange rates to purchase one pound were as follows:
In its December 31, Year One, income statement, what amount should Hunt report as
foreign exchange gain?
A.$9,000
B.$12,000
C.$6,000
D.$0
23) On January 1, 20X8, Bristol Company acquired 80 percent of Animation
Company’s common stock for $280,000 cash. At that date, Animation reported common
stock outstanding of $200,000 and retained earnings of $100,000, and the fair value of
the noncontrolling interest was $70,000. The book values and fair values of Animation’s
assets and liabilities were equal, except for other intangible assets which had a fair
value $50,000 greater than book value and an 8-year remaining life. Animation reported
the following data for 20X8 and 20X9:
Bristol reported net income of $100,000 and paid dividends of $30,000 for both the
years.
Based on the preceding information, what is the amount of consolidated comprehensive
income reported for 20X9?
A.$145,000
B.$135,000
C.$138,750
D.$128,750
24) When a new partner is admitted into a partnership and the new partner receives a
capital credit greater than the tangible assets contributed, which of the following
explains the difference?
I. The old partners’ goodwill is being recognized.
II. The new partner’s goodwill is being recognized.
A.I only
B.II only
C.Either I or II
D.Both I and II
25) An internal service fund had the following transactions during the year ended June
30, 20X9, its first year of existence:
(1) Received $1,000,000 contribution from the general fund.
(2) Acquired fleet of cars for $950,000, paying cash.
(3) Billed departments in other funds $500,000 for using cars.
(4) Incurred operating costs, exclusive of depreciation, of $240,000.
(5) Depreciation expense amounted to $250,000.
Refer to the above information. On the internal service fund’s balance sheet at June 30,
20X9, net assets-unrestricted should be reported at:
A.$260,000
B.$310,000
C.$550,000
D.$1,250,000
26) Parent Co. purchases 100 percent of Son Company on January 1, 20X1, when
Parent’s retained earnings balance is $520,000 and Son’s is $150,000. During 20X1, Son
reports $15,000 of net income and declares $6,000 of dividends. Parent reports
$105,000 of separate operating earnings plus $15,000 of equity-method income from its
100 percent interest in Son; Parent declares dividends of $40,000.
Based on the preceding information, what is Parent’s post-closing retained earnings
balance on December 31, 20X1?
A.$485,000
B.$505,000
C.$525,000
D.$600,000
27)
Refer to the above information. Which statement below is correct if a new partner
receives a bonus upon contributing assets into the partnership?
A.B < A and D = C – A
B.B > A and D = C + A
C.A = B and A = D + C
D.B > A and C = D + A
28) Which accounts described below would have non-zero balances after the accounts
are closed in the general fund of a state or local government?
I. Estimated Revenues Control.
II. Appropriations Control.
III. Budgetary Fund Balance Unreserved.
IV. Deferred Revenue.
V. Due to Internal Service Fund.
VI. Fund Balance-Reserved for Inventories.
A.I, II, III
B.I, II, IV
C.IV, V, VI
D.III, IV, V
29) Eagle Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The following information has been assembled for this
statement:
What amount will be paid to the fully secured creditors and the creditors with priority?
A.Option A
B.Option B
C.Option C
D.Option D
30) In which of the following cases would consolidation be inappropriate?
A. The subsidiary is in bankruptcy
B. Subsidiary’s operations are dissimilar from those of the parent
C. The parent owns 90 percent of the subsidiary’s common stock, but all of the
subsidiary’s nonvoting preferred stock is held by a single investor
D. Subsidiary is foreign
31) Consolidated net income for a parent and its 80 percent owned subsidiary should be
computed by eliminating:
A.all unrealized profit in downstream intercompany inventory sales, and unrealized
profit in upstream intercompany inventory sales made during the current year
B.all unrealized profit in downstream intercompany inventory sales, and the
noncontrolling interest’s share of unrealized profit in upstream inventory sales made
during the current year
C.the controlling interest’s share of unrealized profit in downstream intercompany sales,
and the controlling interest’s share of unrealized profit in upstream sales made during
the current year
D.all unrealized profit in downstream intercompany sales, and the noncontrolling
interest’s share of unrealized profit in upstream sales made during the current year
32) 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 was the change in cash balance for the
consolidated entity for 20X9?
A.Decrease of $153,000
B.Increase of $450,000
C.Increase of $293,000
D.Increase of $150,000
33) Pace Corporation acquired 100 percent of Spin Company’s common stock on
January 1, 20X9. Balance sheet data for the two companies immediately following the
acquisition follow:
At the date of the business combination, the book values of Spin’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of
$60,000, and land, which had a fair value of $50,000. The fair value of land for Pace
Corporation was estimated at $80,000 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 combination?
A.$0
B.$21,000
C.$6,000
D.$15,000
34) Perfect Corporation acquired 70 percent of Trevor Company’s shares on December
31, 2008, for $140,000. At that date, the fair value of the noncontrolling interest was
$60,000. On January 1, 2010, Perfect acquired an additional 10 percent of Trevor’s
common stock for $32,500. Summarized balance sheets for Trevor on the dates
indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the fully
adjusted equity method in accounting for its investment in Trevor and amortizes all
differentials over 5 years against the related investment income. All differentials are
assigned to patents in the consolidated financial statements.
Based on the preceding information, what was the balance in Perfect’s Investment in
Trevor Company Stock account on December 31, 2010?
A.$211,500
B.$218,000
C.$173,000
D.$216,000
35) Company A holds 70 percent of the voting shares of Company B. During 20X8,
Company B sold land with a book value of $125,000 to Company A for $150,000.
Company A continues to hold the land at the end of the year. The companies file
separate tax returns and are subject to a 40 percent tax rate. Assume that Company A
uses the fully adjusted equity method in accounting for its investment in Company B.
Use the information given, but also assume that Company A holds the land at the end of
20X9. The eliminating entry relating to the intercorporate sale of land to be entered in
the consolidation worksheet prepared at the end of 20X9 will include a debit to
Investment in Company B for:
A.$4,500
B.$7,500
C.$15,000
D.$10,500
36) Master Corporation owns 85 percent of Servant Corporation’s voting shares. On
January 1, 20X8, Master Corporation sold $200,000 par value 8 percent bonds to
Servant when the market interest rate was 5 percent. The bonds mature in 10 years and
pay interest semiannually on June 30 and Dec 31.
Based on the information given above, in the preparation of the 20X8 consolidated
financial statements, premium on bonds payable will be:
A.debited for $46,767 in the eliminating entries
B.credited for $43,060 in the eliminating entries
C.debited for $43,060 in the eliminating entries
D.credited for $46,767 in the eliminating entries
37) 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 expense will be
eliminated in the preparation of the December 31, 20X9 consolidated financial
statements?
A.$13,292
B.$18,988
C.$16,296
D.$9,483
38) Infinity Corporation acquired 80 percent of the common stock of an Egyptian
company on January 1, 20X8. The goodwill associated with this acquisition was
$18,350. Exchange rates at various dates during 20X8 follow:
Goodwill suffered an impairment of 20 percent during the year. If the functional
currency is the U.S. dollar, how much goodwill impairment loss should be reported on
Infinity’s consolidated statement of income for 20X8?
A.$3,680
B.$3,670
C.$3,690
D.$3,700