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 amount will be reported as total controlling
interest in the consolidated balance sheet?
1) A.$254,000
B.$285,000
C.$364,000
D.$395,000
2) Gotham City acquires $25,000 of inventory on November 1, 20X7, having held no
inventory previously. On December 31, 20X7, the end of Gotham City’s fiscal year, a
physical count shows $8,000 still in stock. During 20X8, $6,500 of this inventory is
used, resulting in a $1,500 remaining balance of supplies on December 31, 20X8.
Based on the preceding information, which of the following would be the correct
account balances for 20X8 if Gotham City used the consumption method of accounting
for inventories?
A.Option A
B.Option B
C.Option C
D.Option D
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.
Based on the information given above, what amount of constructive gain will be
allocated to noncontrolling interest in 20X8 consolidated financial statements?
A.$4,925
B.$5,550
C.$5,625
D.$4,625
4)
Refer to the above information. Which statement below is correct if goodwill of the old
partners is recognized upon the contribution of assets into the partnership by a new
partner?
A.B = A and D < C + A
B.B = A and D > C + A
C.B < A and D = C + A
D.B > A and D < C + A
5) 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
6) For all acquired contingencies, the acquirer should do all of the following except:
A.Provide documentation from the acquirer’s attorney regarding pending lawsuits and
loan guarantees
B.Provide a description of each contingency
C.Disclose the amount recognized at the acquisition date
D.Describe the estimated range of possible undiscounted outcomes of the contingency
7) Main Manufacturing Corporation reported consolidated revenues of $50,000,000 on
its income statement for 20X8. The management of the corporation identified 3 industry
segments, M, N, and O. These segments had the following intersegment sales and
transfers during 20X8:
For Main Manufacturing Corporation, the revenue test would be satisfied if any of its
industry segments had revenue equal to or greater than which of the following?
A.$7,400,000
B.$5,740,000
C.$5,000,000
D.$4,260,000
8) On March 15, 20X9, Clarion Company paid property taxes of $60,000 on its factory
building for calendar year 20X9. On July 1, 20X9, Clarion made $40,000 in
unanticipated repairs to its machinery. The repairs will benefit operations for the
remainder of the calendar year. What total amount of these expenses should be included
in Clarion’s quarterly income statement for the three months ended September 30,
20X9?
A.$55,000
B.$15,000
C.$35,000
D.$40,000
9) Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $5132
Based on the information given above, the indirect exchange rates for the Singapore
dollar and the Cyprus Pound (from a U.S. perspective) are:
A.1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively
B.0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively
C.2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively
D.1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively
10) On December 1, 20X8, Hedge Company entered into a 60-day speculative forward
contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same
day it purchased a 60-day speculative forward contract to buy 100,000 euros () at a
forward rate of 1 = $1.42.
The rates are as follows:
Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the overall effect of speculation on 20X9
net income?
A.$1,000 loss
B.$6,000 gain
C.$3,000 loss
D.$8,000 gain
11) Which of the following statements is(are) true?
I. In the calculation of the loss absorption power for a partner, a partner’s loan balance
(an amount that is owed by the partnership) should be added to the partner’s capital
balance.
II. In liquidation, a partner’s loan balance (an amount that is owed by the partnership)
should be paid to the partner as a creditor of the partnership after the outside creditors.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
12) The statement of changes in fiduciary net assets includes all of the following
except:
A.employee benefit trust funds
B.investment trust funds
C.private-purpose trust funds
D.agency funds
13) Stone Company reported $100,000,000 of revenues on its 20X8 income statement.
During the year ended December 31, 20X8, Stone made sales of $8,000,000 to external
customers in Western Europe. In addition, Stone made sales of $10,000,000 to the U.S.
government and $4,000,000 of sales to various state governments. In the footnotes to its
financial statements for 20X8, in reporting enterprisewide disclosures, Stone is required
to disclose:
A.Option A
B.Option B
C.Option C
D.Option D
14) On January 1, 20X9 Athlon Company acquired 30 percent of the common stock of
Opteron Corporation, at underlying book value. For the same year, Opteron reported net
income of $55,000, which includes an extraordinary gain of 40,000. It did not pay any
dividends during the year. By what amount would Athlon’s investment in Opteron
Corporation increase for the year, if Athlon used the equity method?
A.$0
B.$16,500
C.$4,500
D.$12,000
15) Which combination of fund and measurement basis is correct?
A.Option A
B.Option B
C.Option C
D.Option D
16) On the statement of cash flows prepared for an internal service fund, cash received
from customers and cash paid for operating expenses should be reported as
A.investing activities
B.operating activities
C.noncapital financing activities
D.capital and related financing activities
17) 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, assuming that New Life uses the direct method of
computing cash flows from operating activities, what amount will be reported by the
company as cash payments to suppliers for 20X9?
A.$350,000
B.$348,000
C.$312,000
D.$352,000
18) 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.
“Tombstone ad”
19) Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent Hunter bonds from
Cruse Corporation for $115,000. Hunter originally issued the bonds to Cruse on January
1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue and
pay interest semiannually on June 30 and December 31 each year. Moss’ reported net
income of $65,000 for 20X8, and Hunter reported income (excluding income from
ownership of Moss’s stock) of $90,000. Hunter’s partial bond amortization schedule is
as follows:
Based on the information given above and assuming an 8.735 percent market rate, what
amount of interest income does Moss record for 20X8?
A.$10,950
B.$8,002
C.$9,410
D.$10,002
20) Beta Company acquired 100 percent of the voting common shares of Standard
Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of
$150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000,
liabilities of $280,000, and stockholders’ equity of $220,000. At that date, Standard
Video reported total assets of $400,000, liabilities of $250,000, and stockholders’ equity
of $150,000. Included in Standard’s liabilities was an account payable to Beta in the
amount of $20,000, which Beta included in its accounts receivable.
Based on the preceding information, what amount of total liabilities was reported in the
consolidated balance sheet immediately after acquisition?
A.$500,000
B.$530,000
C.$280,000
D.$660,000
21) Push Company owns 60% of Shove Company’s outstanding common stock.
Intra-entity sales are as follows:
Assume Shove sold the inventory to Push. Using the fully adjusted equity method, what
journal entry would be recorded by Push to recognize the realization of the 20X1
deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory
sales to Shove?
A.Option A
B.Option B
C.Option C
D.Option D
22) If Push Company owned 51 percent of the outstanding common stock of Shove
Company, which reporting method would be appropriate?
A.Cost method
B.Consolidation
C.Equity method
D.Merger method
23) Note: This is a Kaplan CPA Review Question
The Greenpath Corporation’s (Greenpath) balance sheet shows assets of $800,000 and
liabilities of $300,000. In addition, the company has an unrecorded intangible asset with
a value of $100,000 and a 10-year useful life. On January 1, 20X1, the Montana
Corporation acquires 30% of Greenpath’s outstanding stock for $290,000. In 20X1,
Greenpath reported net income of $90,000 and paid dividends of $20,000. In 20X2,
Greenpath reported net income of $110,000 and paid dividends of $50,000. If the equity
method is being applied to this investment, what is the reported balance for the
investment account at the end of 20X2?
A.$311,000
B.$302,000
C.$323,000
D.$317,500
24) Note: This is a Kaplan CPA Review Question
The condensed balance sheet of Adams & Gray, a partnership, at December 31, 20X1,
follows:
On December 31, 20X1, the fair values of the assets and liabilities were appraised at
$240,000 and $20,000, respectively, by an independent appraiser. On January 2, 20X2,
the partnership was incorporated and 1,000 shares of $5 par value common stock were
issued. Immediately after the incorporation, what amount should the new corporation
report as additional paid-in capital?
A.$275,000
B.$215,000
C.$260,000
D.$0
25) Hunter Company and Moss Company both produce and purchase fabric for resale
each period and frequently sell to each other. Since Hunter Company holds 80 percent
ownership of Moss Company, Hunter’s controller compiled the following information
with regard to intercompany transactions between the two companies in 20X7 and
20X8:
Required:
a. Give the eliminating entries required at December 31, 20X8, to eliminate the effects
of the inventory transfers in preparing a full set of consolidated financial statements.
b. Compute the amount of cost of goods sold to be reported in the consolidated income
statement for 20X8.
26) 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
27) 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.
Begin with the information provided, but assume instead that Bricks declared a stock
dividend of 3,000 shares on its $5 par value common stock. 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.$185,000
B.$65,000
C.$155,000
D.$200,000
28) 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 local currency of the country in which
Perth Company is located is the functional currency, what are the translated amounts for
the items below in U.S. dollars?
A.Option A
B.Option B
C.Option C
D.Option D
29) On January 1, 20X7, Jones Company acquired 90 percent of the outstanding
common stock of Smith Corporation for $1,242,000. On that date, the fair value of
noncontrolling interest was equal to $138,000. The entire differential was related to
land held by Smith. At the date of acquisition, Smith had common stock outstanding of
$520,000, additional paid-in capital of $200,000, and retained earnings of $540,000.
During 20X7, Smith sold inventory to Jones for $440,000. The inventory originally cost
Smith $360,000. By year-end, 30 percent was still in Jones’ ending inventory. During
20X8, the remaining inventory was resold to an unrelated customer. Both Jones and
Smith use perpetual inventory systems.
Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as
follows:
Assume Jones uses the cost method to account for its investment in Smith.
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.
30) 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.
Based on the information given, which eliminating entry relating to the intercorporate
sale of land is to be entered in the consolidation worksheet prepared at the end of
20X8?
A.Option A
B.Option B
C.Option C
D.Option D
31) 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 Additional Paid-In Capital for:
A.$50,000
B.$95,000
C.$230,000
D.$185,000
32) 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 total amount of unsecured claims?
A.$113,000
B.$126,000
C.$93,000
D.$121,000
33) Which presentation method combines the component unit’s results into the primary
government’s financial results?
A.Blended presentation
B.Discrete presentation
C.Combined presentation
D.Consolidated presentation
34) Which monthly report shows the results of the trustee’s fiduciary actions beginning
at the point the trustee accepts the debtor’s assets?
A.Statement of affairs
B.Statement of realization and liquidation
C.Statement of financial position
D.Statement of activities
35) An enterprise fund of Grist was billed $10,000 for using the services of an internal
service fund’s data processing center. What account should Grist’s enterprise fund debit
to record this billing?
A.Due to Internal Service Fund
B.Expenditures
C.Transfer Out to Internal Service Fund
D.General Operating Expenses
36) ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15,
20X8, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80
percent of XYZ’s voting shares.
Based on the preceding information, what will be the worksheet eliminating entry to
remove the effects of the intercompany sale of land in preparing the consolidated
financial statements for 20X9?
A.Option A
B.Option B
C.Option C
D.Option D
37) All of the following are true statements when measuring hedge effectiveness except:
A.Effectiveness means there is an approximate offset with the range of 80% to 125% of
the changes in the fair value of the cash flows
B.Effectiveness means there is an approximate offset in fair value to the risk being
hedged
C.A Company may elect to choose from several different measures for assessing hedge
effectiveness
D.Effectiveness must be assessed at least annually when the company reports their
annual financial statements
38) Earth Company owns 100 percent of the capital stock of both Mars Corporation and
Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent
of Venus’s cost. During 20X8, Venus sold inventory to Mars that it had purchased for
$25,000. Mars sold all of this merchandise to unrelated customers for $56,892 during
20X8. In preparing combined financial statements for 20X8, Earth’s bookkeeper
disregarded the common ownership of Mars and Venus.
Based on the information given above, by what amount was unadjusted revenue
overstated in the combined income statement for 20X8?
A.$25,000
B.$56,892
C.$31,250
D.$6,250