In a statement of revenues, expenditures, and changes in fund balance, the unassigned
fund balance will be increased by:
I. a decrease in the fund balance—Nonspendable
II. an excess of other financing sources over other financing uses.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
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
As defined by the Bankruptcy Code, creditors with priority:
I. have collateral claim against specific assets.
II. are unsecured creditors who have priority over other unsecured creditors.
III. are the first to be paid from any proceeds available to unsecured creditors.
A. I only
B. II only
C. I, II and II
D. Both II and III
An investor purchases a put option with a strike price of $100 for $3. This option is
considered “in the money” if the underlying is trading:
A. below $100.
B. at $100.
C. above $100.
D. above $103.
On December 1, 20X8, Winston Corporation acquired 100 shares of Linked
Corporation at a cost of $40 per share. Winston classifies them as available-for-sale
securities. On this same date, it decides to hedge against a possible decline in the value
of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the
100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:
Assume that Winston exercises the put option and sells Linked shares on February 20,
20X9.
Based on the preceding information, what is the market price of Linked Corporation stock
on February 20, 20X9?
A. $35
B. $37
C. $36
D. $40
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 distributed to Page and Larry
upon liquidation of the partnership?
A. Option A
B. Option B
C. Option C
D. Option D
What does an underwriter typically require from an accountant which indicates that the
company has fulfilled all the accounting requirements in the registration process?
A. A comment letter
B. An audit opinion
C. A “red herring” prospectus
D. A comfort letter
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 of total retained earnings will be
reported in the consolidated balance sheet for the year 20X8?
A. $330,000
B. $450,000
C. $430,000
D. $370,000
Mercury Corporation acquired 100 percent of the stock of Jupiter Company when the
book value of Jupiter’s net assets was $250,000. The fair value of Jupiter’s net assets
was $280,000 on the acquisition date.
Based on the preceding information, what amount of goodwill will be reported in
consolidated financial statements presented immediately following the combination if
Mercury paid $275,000 for the acquisition?
A. ($5,000)
B. $0
C. $5,000
D. $25,000
Which governmental fund includes resources that are legally restricted so that the
governmental entity must maintain the principal and can use only the earnings from the
fund’s resources to benefit the government’s programs for all of its citizens?
A. General fund
B. Special revenue fund
C. Capital projects fund
D. Permanent fund
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
The following condensed balance sheet is presented for the partnership of Fisher, Taylor
and Simon who share profits and losses in the ratio of 6:2:2, respectively:
The assets and liabilities are fairly valued on the above balance sheet, and it was agreed to
by all the partners that the partnership would be liquidated after selling the other assets.
What would each of the partners receive at this time if the other assets are sold for
$80,000?
Fisher Taylor Simon
A. $12,500 $37,500 $0
B. $13,000 $37,000 $0
C. $14,000 $38,000 $2,000
D. $50,000 $50,000 $10,000
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, in the entry to record the increase in the intrinsic
value of the options on December 31, 20X8,
A. Purchased Call Options will be credited for $100,000.
B. Purchased Call Options will be debited for $130,000.
C. Retained Earnings will be credited for $100,000.
D. Other Comprehensive Income will be credited for $100,000.
Cutler Company owns 80 percent of the common stock of Marina Inc. Cutler acquires
some of Marina’s bonds from an unrelated party for less than the carrying value on
Marina’s books and holds them as a long-term investment. For consolidated reporting
purposes, how is the acquisition of Marina’s bonds treated?
A. As a decrease in the Bonds Payable account on Marina’s books.
B. As an increase in noncurrent assets.
C. Everything related to the bonds is eliminated in the consolidation worksheet, and
nothing related to the bonds appears in the consolidated financial statements.
D. As a retirement of bonds.
Which of the following is true about the Foreign Corrupt Practices Act of 1977
(FCPA)?
I. Publicly held companies should maintain an adequate system of internal control.
II. Individuals associated with U.S. companies are prohibited from bribing foreign
officials for the purpose of securing a contract.
III. Compensating or agents’ fees are disallowed under all circumstances.
A. I and II
B. II and II
C. I and III
D. I, II, and III
In accordance with ASC 958, contributions from donors which are to be permanently
invested should be disclosed on the statement of activities of a private university as an
increase in:
A. Permanently restricted net assets.
B. Permanently restricted fund balance.
C. Endowment fund balance.
D. Deferred revenues.
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:
January 1, 20X8 1 E = $0.1835
December 31, 20X8 1 E = 0.1850
Average for 20X8 1 E = 0.1840
Goodwill suffered an impairment of 20 percent during the year. If the functional
currency is the Egyptian Pound, how much goodwill impairment loss should be
reported on Infinity’s consolidated statement of income for 20X8?
A. $3,670
B. $3,700
C. $3,680
D. $3,690
The Canadian subsidiary of a U.S. company reported cost of goods sold of 50,000 C$,
for the current year ended December 31. The beginning inventory was 15,000 C$, and
the ending inventory was 10,000 C$. Spot rates for various dates are as follows:
Date beginning inventory was acquired $1.08 = 1C$
Rate at beginning of the year $1.10 = 1C$
Weighted average rate for the year $1.12 = 1C$
Date ending inventory was acquired $1.13 = 1C$
Assuming the U.S. dollar is the functional currency of the Canadian subsidiary, the
remeasured amount of cost of goods sold that should appear in the consolidated income
statement is
A. $50,000
B. $55,300
C. $56,000
D. $56,500
On January 1, 20X8, Colorado Corporation acquired 75 percent of Denver Company’s
voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling
interest was $30,000. Denvers’s balance sheet at the date of acquisition contained the
following balances:
At the date of acquisition, the reported book values of Denver’s assets and liabilities
approximated fair value. Consolidating entries are being made to prepare a consolidated
balance sheet immediately following the business combination.
Based on the preceding information, the amount of goodwill reported is:
A. $0.
B. $10,000.
C. $15,000.
D. $20,000.
The general ledger of Broadway contains the following selected account balances:
Broadway wants to order additional goods and services before the fiscal year end. What
is the unencumbered balance of the budget that may be expended by Broadway?
A. $850,000
B. $760,000
C. $180,000
D. $130,000
Quid Corporation acquired 60 percent of Pro Company’s common stock on December
31, 20X4. Goodwill (attributable to Quid’s acquisition of Pro shares) of $150,000 was
calculated under the proprietary theory approach. What is the amount of goodwill that
should be reported under entity theory approach?
A. $150,000
B. $200,000
C. $250,000
D. $100,000
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 received from customers during the year?
A. $455,000
B. $475,000
C. $450,000
D. $425,000
On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company’s
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial
balances of the two companies are as follows:
Based on the preceding information, what amount would be reported as total liabilities
in the consolidated balance sheet at December 31, 20X9?
A. $330,000
B. $712,000
C. $318,000
D. $130,000
A private, not-for-profit hospital received a donation of medicine from the XYZ
Pharmaceutical Company on March 15, 20X9. The cost of the medicine to the company
was $66,000, and its market value was $110,000. Twenty percent of the medicine was
used by the hospital during the year ended June 30, 20X9. On the hospital’s statement of
operations for the year ended June 30, 20X9, the contribution of medicine would
increase operating revenues by
A. $66,000.
B. $110,000.
C. $52,800.
D. $88,000.
Orville Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets of Orville Company are as follows:
Debts of Orville are as follows:
Based on the preceding information, what is the estimated dividend percentage?
A. 23 percent
B. 93 percent
C. 77 percent
D. 68 percent
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 the consolidated retained earnings balance
on December 31, 20X1?
A. $470,000
B. $585,000
C. $600,000
D. $759,000
The main guidance on equity-method reporting, found in ASC 323 and 325 requires all
of the following except:
A. The investor’s share of the investee’s extraordinary items should be reported.
B. The investor’s share of the investee’s prior-period adjustments should be reported.
C. Continued use of the equity-method even if continued losses results in a zero or
negative balance in the investment account.
D. Preferred dividends of the investee should be deducted from net income before the
investor computes its share of investee earnings.
Which sections of the cash flow statement are affected by the difference in the direct
and indirect approaches of presenting a cash flow statement?
I. Operating activities section
II. Investing activities section
III. Financing activities section
A. I
B. II
C. III
D. I, II, and III
When there are intercompany sales of inventory during the year and a three-part
consolidation worksheet is prepared, consolidation entries related to the intercompany
sales:
I. Always are needed.
II. Are not needed if the entire inventory is resold to unrelated parties prior to the end
of the year.
A. I
B. II
C. Both I and II
D. Either I or II
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of
Perth Company for $3,100,000. Any excess cost over book value is attributable to a
patent with a 10-year remaining life. At the date of acquisition, Perth’s balance sheet
contained the following information:
Perth’s income statement for 20X8 is as follows:
The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at
various dates for 20X8 follow:
Assume Perth’s revenues, purchases, operating expenses, depreciation expense, and
income taxes were incurred evenly throughout 20X8.
Refer to the above information. Assuming the U.S. dollar is the functional currency,
what is the amount of Perth’s cost of goods sold remeasured in U.S. dollars?
A. $811,500
B. $843,500
C. $884,500
D. $799,500
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
