1) Note: This is a Kaplan CPA Review Question
On January 1, 20X1, Poe Corp. sold a machine for $900,000 to Saxe Corp., its
wholly-owned subsidiary. Poe paid $1,100,000 for this machine, which had
accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and
depreciated the machine on the straight-line method over 20 years, a policy which Saxe
continued. In Poe’s December 31, 20X1, consolidated balance sheet, this machine
should be included in cost and accumulated depreciation as:
A.Option A
B.Option B
C.Option C
D.Option D
2) Note: This is a Kaplan CPA Review Question
Pine City’s year end is June 30. Pine levies property taxes in January of each year for
the calendar year. One-half of the levy is due in May and one-half is due in October.
Property tax revenue is budgeted for the period in which payment is due. The following
information pertains to Pine’s property taxes for the period from July 1, 20X4, to June
30, 20X5:
The $40,000 balance due for the May 20X5 installments was expected to be collected in
August 20X5. What amount should Pine recognize for property tax revenue for the year
ended June 30, 20X5?
A.$2,160,000
B.$2,200,000
C.$2,360,000
D.$2,400,000
3) 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 gain or loss on constructive
bond retirement will be reported in the December 31, 20X8 consolidated financial
statements?
A.$8,892 loss
B.$81,108 loss
C.$19,276 gain
D.$81,108 gain
4) Simon Company has two foreign subsidiaries. One is located in France, the other in
England. Simon has determined the U.S. dollar is the functional currency for the French
subsidiary, while the British pound is the functional currency for the English subsidiary.
Both subsidiaries maintain their books and records in their respective local currencies.
What methods will Simon use to convert each of the subsidiary’s financial statements
into U.S. dollars?
A.Option A
B.Option B
C.Option C
D.Option D
5) A private, not-for-profit hospital received a contribution of $40,000 on June 15,
20X8. The donor restricted the contribution to funding research activities currently
being performed by the hospital. For the year ended December 31, 20X8, the hospital
spent $30,000 of the contribution on research activities. The hospital expended the
remaining $10,000 on research activities in January of 20X9.
Refer to the above information. On the statement of changes in net assets prepared for
the year ended December 31, 20X8, the events described would
A.increase temporarily restricted net assets by $10,000
B.decrease temporarily restricted net assets by $10,000
C.increase unrestricted net assets by $10,000
D.decreaseunrestricted net assets by $10,000
6) In the ABC partnership (to which Daniel seeks admittance), the capital balances of
Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are:
Based on the preceding information, if no goodwill or bonus is recorded, how much
should Daniel invest for a 20 percent interest?
A.$400,000
B.$200,000
C.$300,000
D.$250,000
7) Flyer Corporation holds 90 percent of Kite Company’s common shares but none of
its preferred shares. On the date of acquisition, the fair value of the noncontrolling
interest was equal to 10 percent of the book value of Kite Company. Summary balance
sheets for the companies on December 31, 20X8, are as follows:
Flyer’s preferred pays a 8 percent annual dividend, and Kite’s preferred pays a 10
percent dividend. Kite’s preferred shares can be converted into 20,000 shares of
common stock at any time. Kite reported net income of $35,000 and paid a total of
$10,000 of dividends in 20X8. Flyer reported income from its separate operations of
$80,000 and paid total dividends of $25,000 in 20X8.
Based on the information provided, what is the basic earnings per share for the
consolidated entity for 20X8?
A.5.04
B.5.24
C.3.80
D.5.18
8) When a new partner is admitted into a partnership and the old partners’ goodwill is
recognized, the goodwill is allocated to:
I. all the partners in their profit-and-loss-sharing ratio.
II. the old partners in their profit and loss sharing ratio.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
9) Note: This is a Kaplan CPA Review Question
A state government collected income taxes of $8,000,000 for the benefit of one of its
cities that imposes an income tax on its residents. The state remitted these collections
periodically to the city. The state should account for the $8,000,000 in the
A.General fund
B.Agency funds
C.Internal service funds
D.Special assessment funds
10) Note: This is a Kaplan CPA Review Question
The following information pertains to property taxes levied by Oak City for 20X4:
What amount should Oak report for 20X4 net property tax revenues?
A.$690,000
B.$700,000
C.$600,000
D.$500,000
11) Which of the following observations is true of the shelf registration rule?
A.It is an option available to all listed companies
B.Shelf registration is limited to 25 percent of the company’s currently outstanding
stock
C.It allows private placements of an unlimited amount of securities
D.It allows large companies to select the optimal time to sell their stock
12) Tower Corporation’s controller has just finished preparing a consolidated balance
sheet, income statement, and statement of changes in retained earnings for the year
ended December 31, 20X Tower owns 80 percent of Network Corporation’s stock,
which it acquired at underlying book value on November 1, 20X6. At that date, the fair
value of the noncontrolling interest was equal to 20 percent of Network Corporation’s
book value. The following information is available:
Consolidated net income for 20X9 was $160,000.
Network reported net income of $50,000 for 20X
Tower paid dividends of $30,000 in 20X
Network paid dividends of $10,000 in 20X
Tower issued common stock on February, 18, 20X9, for a total of $100,000.
Consolidated wages payable decreased by $6,000 in 20X
Consolidated depreciation expense for the year was $15,000.
Consolidated accounts receivable decreased by $20,000 in 20X
Bonds payable of Tower with a book value of $102,000 were retired for $100,000 on
December 31, 20X
Consolidated amortization expense on patents was $10,000 for 20X
Tower sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June
10, 20X
Consolidated accounts payable decreased by $7,000 during 20X
Total purchases of equipment by Tower and Network during 20X9 were $180,000.
Consolidated inventory increased by $36,000 during 20X
There were no intercompany transfers between Tower and Network in 20X9 or prior
years except for Network’s payment of dividends. Tower uses the indirect method in
preparing its cash flow statement.
Based on the preceding information, what was the change in cash balance for the
consolidated entity for 20X9?
A.Increase of $49,000
B.Decrease of $66,000
C.Increase of $17,000
D.Increase of $32,000
13) Good Care Hospital, which is operated by a religious organization, received
contributions of $1,000,000 from donors who stipulated that the cash be used to
construct an addition to the hospital. As of the balance sheet date, none of the
contributions had been expended for construction. On the hospital’s balance sheet, the
cash contributions would be disclosed in which of the following classes of net assets?
A.Temporarily restricted net assets
B.Donor restricted net assets
C.Assets whose use is limited
D.Permanently restricted net assets
14) Following its acquisition of the net assets of Dan Company, Empire Company
assigned goodwill of $60,000 to one of the reporting divisions. Information for this
division follows:
Based on the preceding information, what amount of goodwill impairment will be
recognized for this division if its fair value is determined to be $195,000?
A.$5,000
B.$30,000
C.$60,000
D.$55,000
15) 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, the amount of goodwill reported in the
consolidated financial statements prepared immediately after the combination is:
A.$0
B.$32,500
C.$26,000
D.$20,000
16) On a partner’s personal statement of changes in net worth, what type(s) of income
is(are) recognized?
I. Realized
II. Unrealized
A.I only
B.II only
C.Both I and II
D.Neither I nor II
17) According to the latest GASB exposure draft, which of the following is the only
governmental fund type that may report an unassigned fund balance?
A.General fund
B.Special revenue fund
C.Capital projects fund
D.Permanent fund
18) When a partnership is liquidated on a piecemeal basis and cash has been distributed
properly to all partners as noncash assets have been turned into cash, all future cash
distributions should be made:
I. In the profit and loss ratio.
II. According to the balances in the partners’ capital accounts.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
19) Which of the financial statements described below is prepared by the general fund
of a state or local government?
A.A statement of cash flows
B.An income statement
C.A statement of revenues, expenses, and changes in retained earnings
D.A statement of revenues, expenditures, and changes in fund balance
20) In the issuer’s annual report, how many years of audited financial statements must
be presented?
I. Three years of audited income statements
II. Two years of audited balance sheets
III. Three years of audited statements of cash flows
A.I and II
B.II and III
C.I and III
D.I, II, and III
21) When a partnership is formed, noncash assets contributed by partners should be
recorded:
I. at their respective book values for income tax purposes.
II. at their respective fair values for financial accounting purposes.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
22) A reorganization value in excess of amounts assignable to identifiable assets is:
A.not reported
B.reported as an intangible asset called Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets
C.reported as Goodwill Associated with Exit or Disposal Activities
D.passed on to prior shareholders of the company
23) Spiralling crude oil prices prompted AMAR Company to purchase call options on
oil as a price-risk-hedging device to hedge the expected increase in prices on an
anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for
20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1,
20X9, call date. The following is the pricing information for the term of the call:
The information for the change in the fair value of the options follows:
On February 1, 20X9, AMAR sells the options at their value on that date and acquires
20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112
per barrel.
Based on the preceding information, which of the following adjusting entries would be
required on December 31, 20X8?
A.Option A
B.Option B
C.Option C
D.Option D
24) When one company purchases the debt of an affiliate from an unrelated party, a
gain or loss on the constructive retirement of debt is recognized by which of the
following?
A.Option A
B.Option B
C.Option C
D.Option D
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 balance in accounts receivable did Y Company
report at December 31, 20X8?
25) A.$28,000
B.$48,000
C.$40,000
D.$38,000
26) Mortar Corporation acquired 80 percent of Granite Corporation’s voting common
stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 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 equipment 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 $40,000 in the eliminating entries
B.Credited for $10,000 in the eliminating entries
C.Debited for $10,000 in the eliminating entries
D.Credited for $40,000 in the eliminating entries
27) The general fund of Athens ordered computer equipment on December 1, 20X8, for
$32,000. The order was appropriately encumbered on this date. Athens received the
computer equipment on January 25, 20X9, and issued a voucher to pay the vendor
$32,400. Athens uses the calendar year for reporting, and all outstanding encumbrances
lapse at year-end. Athens’ governing board honors all outstanding encumbrances by
including them in the following year’s appropriations. On January 25, 20X9, the general
fund of Athens should debit:
A.Encumbrances for $32,000
B.Fund Balanceassigned for Encumbrances for $32,400
C.Expenditures-20X8 for $32,400
D.Expenditures for $32,400
28) Big Company acquired the following assets and liabilities of Little Company (fair
values listed below) for $470,000 cash.
Assuming these items are all recorded at their acquisition date fair values, what
additional item needs to be recorded and how will it be accounted for in the future?
A.$30,000 Goodwill, capitalized and tested for impairment
B.$30,000 Bargain purchase, recognized in current earnings
C.$30,000 Bargain purchase, capitalized and recognized over time
D.$30,000 Goodwill, capitalized and amortized over time
29) Which financial statement is(are) required for a voluntary health and welfare
organization which is not required for a private, not-for-profit hospital?
I. A statement of operations.
II. A statement of functional expenses.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
30) 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 total stockholder’s equity will be
reported in the consolidated balance sheet prepared immediately after the business
combination?
A.$300,000
B.$479,000
C.$315,000
D.$350,000
31) Which of the following accounts could be found in the PQ partnership’s general
ledger?
I. Due from P
II. P, Drawing
III. Loan Payable to Q
A.I, II
B.I, III
C.II, III
D.I, II, and III
32) Reporting requirements of other not-for-profit entities (ONPOs) are similar to those
of which of the following entities?
A.A public university
B.A voluntary health and welfare organization
C.An enterprise fund of a state or local government
D.A hospital operated by a county government
33) Crisfield Company has two reportable segments, C and D. Segment C made
$4,000,000 of sales to external customers and $400,000 of sales to other operating
segments. Segment D, on the other hand, made sales of $8,000,000 to external
customers and $1,600,000 of sales to other operating segments. Crisfield Company
reported $13,200,000 of revenues on its consolidated income statement. What
calculation below correctly determines whether Crisfield Company’s reportable
segments satisfy the 75% revenue test?
A.$14,000,000/$15,200,000
B.$14,000,000/$13,200,000
C.$12,000,000/$13,200,000
D.$12,000,000/$15,200,000
34) In a statement of realization and liquidation, unusual revenue items are reported
under:
A.assets
B.extraordinary items
C.supplementary items
D.These are never reported
35) 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 cost 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.
36) Which of the following statements is(are) correct?
I. The amount assigned to the noncontrolling interest may be affected by a constructive
retirement of bonds.
II. A constructive retirement of bonds normally results in an extraordinary gain or loss.
III. In constructive retirement, the entity would still consider the bonds outstanding,
even though they are treated as if they were retired in preparing consolidated financial
statements.
A.I
B.II
C.I and III
D.I, II, and III
37) 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, what would be the total amount of goodwill that
Wilson should report at year-end?
A.$0
B.$69,000
C.$79,000
D.$94,000
38) Sigma Company develops and markets organic food products to natural foods
retailers. The following information is available for the company for the year 20X8:
Based on the preceding information, what amount will be reported by the company as
cash payments to suppliers for 20X8?
A.$292,000
B.$305,000
C.$262,000
D.$258,000