In accounting for governmental funds, which of the following items could appear only
on government-wide financial statements?
A. I only
B. I and II
C. I and III
D. I, II, III
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed
balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of the
outstanding common shares of Strauss. This debt is payable in ten equal annual principal
and accrued interest payments beginning December 30, 20X6. On the acquisition date, the
fair value of Strauss was $100,000, and the excess cost of the investment over Strauss’s
carrying amount of acquired net assets should be allocated 60% to inventory and 40% to
goodwill.
Current liabilities on the January 2, 20X6, consolidated balance sheet should be:
A. $49,000
B. $30,000
C. $40,000
D. $50,000
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 buildings and equipment (net) will
be included in the consolidated balance sheet immediately following the acquisition?
A. $0
B. $50,000
C. $250,000
D. $300,000
Gray College, a private not-for-profit institution, received a contribution of $100,000
for faculty research. The donation was received in 20X1 and $80,000 was spent in
20X1. As a result of these transactions, Gray College should report on its 20X1
statement of activities a:
A. $100,000 increase in temporarily restricted net assets.
B. $20,000 increase in temporarily restricted net assets.
C. $80,000 increase in temporarily restricted net assets.
D. $100,000 increase in unrestricted net assets.
Wally Corporation acquired 70 percent of the common shares and 60 percent of the
preferred shares of Safety Corporation at underlying book value on January 1, 20X6. At
that date, the fair value of the noncontrolling interest in Safety’s common stock was
equal to 30 percent of the book value of its common stock. Safety’s balance sheet at the
time of acquisition contained the following balances:
Assets $700,000 Liabilities $110,000
Preferred Stock 100,000
Common Stock 200,000
Retained Earnings 290,000
Total Assets $700,000 Total Liabilities and Equities $700,000
The preferred shares are cumulative and have an 8 percent annual dividend rate and are
three years in arrears on January 1, 20X6. All of the $10 par value preferred shares are
callable at $12 per share. During 20X6, Safety reported net income of $80,000 and paid
no dividends.
Based on the preceding information, the amount assigned to the noncontrolling
stockholders’ share of preferred stock interest in the preparation of a consolidated
balance sheet on January 1, 20X6 is
A. $57,600
B. $49,600
C. $48,000
D. $40,000
Catalyst Corporation acquired 90 percent of Trigger Corporation’s common stock on
September 30, 20X8 for $225,000. At that date, the fair value of the noncontrolling
interest was $25,000. On January 1, 20X8, Trigger reported the following stockholders’
equity balances:
Trigger reported net income of $80,000 in 20X8, earned uniformly throughout the year,
and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,
20X8. Catalyst reported retained earnings of $250,000 on January 1, 20X8, and had
20X8 income of $120,000 from its separate operations. Catalyst paid dividends of
$50,000 on December 31, 20X8. Catalyst accounts for its investment in Trigger
Corporation using the fully adjusted equity method.
Based on the information provided, what is the consolidated income to the controlling
interest reported for the year 20X8?
A. $192,000
B. $138,000
C. $140,000
D. $120,000
A partner’s tax basis in a partnership is comprised of which of the following items?
I. The partner’s tax basis of assets contributed to the partnership.
II. The amount of the partner’s liabilities assumed by the other partners.
III. The partner’s share of other partners’ liabilities assumed by the partnership.
A. I plus II minus III
B. I plus II plus III
C. I minus II plus III
D. I minus II minus III
Parent Company purchased 100 percent of Son Inc. on January 1, 20X2 for $420,000.
Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2.
Based on the preceding information and assuming Parent uses the equity method to
account for its investment in Son, what is the balance in Parent’s Investment in Son
account on December 31, 20X2, prior to consolidation?
A. $416,000
B. $420,000
C. $424,000
D. $498,000
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 assets will appear in the
consolidated balance sheet prepared immediately after the business combination?
A. $756,000
B. $735,000
C. $750,000
D. $642,000
The general fund of the City of Columbia transferred money to establish an internal
service fund for the city’s data processing needs. The general fund of Columbia should
account for this transaction as a(n):
A. expenditure.
B. interfund transfer.
C. interfund reimbursement.
D. loan.
When deficiencies are found in a registration statement that must be corrected before
the securities may be offered for sale, which of the following is issued by the SEC?
A. An audit opinion
B. A comment letter
C. A customary review
D. A comfort letter
Golden Path, a labor union, had the following receipts and expenses for the year ended
December 31, 20X8:
The union’s constitution provides that 12 percent of the per capita dues be designated
for the strike insurance fund to be distributed for strike relief at the discretion of the
union’s executive board.
Based on the information provided, in Golden Path’s statement of activities for the year
ended December 31, 20X8, what amount should be reported under the classification of
supporting services?
A. $150,000
B. $720,000
C. $440,000
D. $290,000
Which of the following types of health care organizations follow FASB authoritative
literature?
Investor-Owned Not-For-Profit Governmental Health
Health Care Enterprises Organizations Organizations
A. Yes Yes Yes
B. Yes Yes No
C. No No Yes
D. Yes No Yes
On January 1, 20X9, Wilton Company acquired all of Sirius Company’s common
shares, for $365,000 cash. On that date, Sirius’s balance sheet appeared as follows:
The fair values of all of Sirius’s assets and liabilities were equal to their book values
except for inventory that had a fair value of $85,000, land that had a fair value of
$60,000, and buildings and equipment that had a fair value of $250,000. Buildings and
equipment have a remaining useful life of 10 years with zero salvage value. Wilton
Company decided to employ push-down accounting for the acquisition. Subsequent to
the combination, Sirius continued to operate as a separate company.
Based on the preceding information, what amount of differential will arise in the
consolidation process?
A. $0
B. $5,000
C. $15,000
D. $65,000
In 20X6 and 20X7, each of Putney Company’s four operating segments met one of the
three quantitative tests for segment reporting. In 20X8, Segment B failed to qualify
under the prescribed tests because of abnormal financial conditions. The other three
segments qualified for reporting. For 20X8, Segment B:
A. should be excluded from segment disclosure but referred to in the management letter
to shareholders.
B. should be distinctly separated from the other three segments and listed as a
“nonqualifying” segment.
C. should be combined with one of the other three segments and reported.
D. should be included in the segment disclosures at the discretion of management.
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 consolidation entries related
to the equipment transfer for the 20X8 consolidated financial statements, net effect on
accumulated depreciation will be:
A. a decrease of $50,000.
B. an increase of $110,000.
C. an increase of $120,000.
D. a decrease of $160,000.
If the U.S. dollar is the currency in which the foreign affiliate’s books and records are
maintained, and the U.S. dollar is also the functional currency,
A. the translation method should be used for restatement.
B. the remeasurement method should be used for restatement.
C. either translation or remeasurement could be used for restatement.
D. no restatement is required.
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
Reportable segments are not required to disclose which of the following:
A. Amortization expense
B. Intersegment sales
C. Capital expenditures
D. Long-term debt
On October 1, 20X3, Green Corporation paid $450,000 for all of Yellow Company’s
outstanding common stock. On that date, the book values and fair values of Yellow’s
recorded assets and liabilities were as follows:
Book Value Fair Value
Cash and Receivables $75,000 $75,000
Inventory 155,000 160,000
Buildings and Equipment (net) 260,000 320,000
Liabilities (150,000) (150,000)
Net Assets $340,000 $405,000
Based on the preceding information, the differential implicit in this acquisition is
A. $0
B. $45,000
C. $65,000
D. $110,000
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 elimination entries to complete a full
consolidation worksheet for 20X9, noncontrolling interest in the net income of Meta
Co. will be credited for:
A. $12,000.
B. $7,500.
C. $8,000.
D. $2,500.
Frahm Company incurred a first quarter operating loss before income tax effect of
$4,000,000. This is a normal occurrence for Frahm because of seasonal fluctuations.
Experience has demonstrated the income earned during the remaining quarters far
exceeds the first quarter losses each year. Frahm estimates its annual income tax rate
will be 30 percent. What net loss should Frahm report for the first quarter?
A. $4,000,000
B. $2,800,000
C. $700,000
D. $0
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 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.
Based on the information provided, what is the consolidated net income reported for the
year 20X4?
A. $280,000
B. $275,000
C. $260,000
D. $200,000
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, 2009?
A. $164,500
B. $157,500
C. $165,000
D. $168,000
A debt service fund for the City of Madison received $50,000 from a capital projects
fund. The amount received represented the premium received from the issuance of
general obligation bonds. What account should the debt service fund credit to record
this receipt?
A. Revenue-General Obligation Bond Premium.
B. Matured Bonds Payable.
C. Other Financing Sources—Transfer In from Capital Projects Fund.
D. Due to Capital Projects Fund.
Parent Corporation purchased land from S1 Corporation for $220,000 on December 26,
20X8. This purchase followed a series of transactions between P-controlled
subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a
nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19,
20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has
control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, at what amount should the land be reported in the
consolidated balance sheet as of December 31, 20X8?
A. $145,000
B. $220,000
C. $197,000
D. $160,000
Which of the following items are important in the determination of safe installment
payments to partners?
I. Deficits created in capital accounts are distributed to the remaining partners.
II. All unsold noncash assets are assumed to be worthless.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
A city’s museum is supported by a special tax levy and by user charges. The user
charges constitute only 10 percent of the resources needed to support the operations of
the museum. In which fund should the city account for its museum?
A. An enterprise fund
B. An agency fund
C. An expendable trust fund
D. A special revenue fund