1) On December 31, 20X8, Mercury Corporation acquired 100 percent ownership of
Saturn Corporation. On that date, Saturn reported assets and liabilities with book values
of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and
retained earnings of $150,000. The book values and fair values of Saturn’s assets and
liabilities were identical except for land which had increased in value by $10,000 and
inventories which had decreased by $5,000.
Based on the preceding information, what amount of goodwill will be reported if the
acquisition price was $195,000?
A.$0
B.$40,000
C.$15,000
D.$35,000
2) On a partner’s personal statement of financial condition, assets and liabilities are
presented:
I. As current and noncurrent.
II. In order of liquidity and maturity.
A.I
B.II
C.Both I and II
D.Neither I nor II
3) A private college received an offer from a CPA who is an alumnus to teach a
one-semester advanced accounting course at no cost. ASC 958 prescribes that this
contribution of service:
A.need only be disclosed in the footnotes to the financial statements
B.be recorded as an asset with an equivalent amount recorded in the unrestricted fund
balance
C.be recorded as a revenue with an equivalent amount recorded as an expenditure
D.need not be recorded if the service is for a period less than one academic year
4) The City of Fargo issued general obligation bonds to finance construction of a new
fire station. The bonds were issued at a premium. In the fire station capital projects
fund, the premium should be transferred to:
A.an agency fund
B.a special revenue fund
C.a debt service fund
D.an expendable trust fund
5) 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 net gain or loss on the British pound
speculative contract?
A.$8,000 gain
B.$6,000 gain
C.$3,000 loss
D.$10,000 gain
6) 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 stockholder’s equity will be
reported in the consolidated balance sheet prepared on December 31, 20X4?
A.$190,000
B.$335,000
C.$460,000
D.$310,000
7) Davis Company uses LIFO for all of its inventories. During its second quarter of
20X9, Davis experienced a LIFO liquidation. Davis fully expects to replace the
liquidated inventory in the early part of the third quarter. How should Davis report the
inventory temporarily liquidated on its income statement for the second quarter?
A.Cost of goods sold for the second quarter should include the acquisition cost of the
goods temporarily liquidated
B.Cost of goods sold for the second quarter should include the expected replacement
cost of the goods temporarily liquidated
C.Cost of goods sold for the second quarter should not include the expected
replacement cost of the goods temporarily liquidated
D.Cost of goods sold for the second quarter is not affected by the temporary liquidation
of LIFO inventory
8) FASB has specified a “75% percent consolidated revenue test”.
Required:
a) What is the 75% test?
b) How is the 75% test impacted by the “10% Significance Rule”?
9) On July 1, 20X9, Link Corporation paid $340,000 for all of Tinsel Company’s
outstanding common stock. On that date, the costs and fair values of Tinsel’s recorded
assets and liabilities were as follows:
Based on the preceding information, the differential reflected in a consolidation
worksheet to prepare a consolidated balance sheet immediately after the business
combination is:
A.$0
B.$25,000
C.$70,000
D.$45,000
10) Which rule-making body is currently setting standards of financial reporting for
private not-for-profit universities and for public (governmental) universities?
A.Option A
B.Option B
C.Option C
D.Option D
11) On January 1, 20X8, Transport Corporation acquired 75 percent interest in
Steamship Company for $300,000. Steamship is a Norwegian company. The local
currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of
cost-over-book value of $25,000 due solely to a patent having a remaining life of 5
years. Transport uses the fully adjusted equity method to account for its investment.
Steamship’s December 31, 20X8, trial balance has been translated into U.S. dollars,
requiring a translation adjustment debit of $8,000. Steamship’s net income translated
into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1,
20X8. Relevant exchange rates are as follows:
Assume the kroner is the functional currency.
Based on the preceding information, in the journal entry to record the receipt of
dividend from Steamship,
A.Investment in Steamship Company will be credited for $3,450
B.Cash will be debited for $3,300
C.Investment in Steamship Company will be credited for $4,000
D.Cash will be debited for $3,600
12) Which of the following statements best describes accounting for a partnership?
A.A partnership may be a profit or a nonprofit entity
B.A partnership may use federal income tax rules to account for transactions in their
journals and ledger accounts
C.A partnership’s equity section contains both capital and retained earnings accounts
D.A partnership may only distribute money through a dividend payment
13) On January 1, 20X8, Gulfstream Corporation acquired 40 percent of the voting
shares of Hunter Company for $65,000. Hunter reported net income of $45,000 and
paid dividends of $10,000 in 20X8. Gulfstream reported operating income of $50,000
for the year. There is 80 percent exemption of intercompany dividends and the effective
tax rate is 35 percent. Assume that the equity method is being used.
Based on the preceding information, what would Gulfstream report as income tax
expense for the year?
A.$17,500
B.$18,760
C.$23,800
D.$22,540
14) 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.
Acquired equipment with all of the contributions previously received from donors for
equipment purchases.
15) 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 operations prepared for the year
ended December 31, 20X8, the events described would:
A.increase operating income by $30,000
B.have no effect on operating income
C.increase unrestricted net assets by $30,000
D.decrease unrestricted net assets by $30,000
16) 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 (after any impairment)
will be reported for this division if its fair value is determined to be $200,000?
A.$0
B.$60,000
C.$30,000
D.$10,000
17) 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.
Which worksheet eliminating entry will be made on December 31, 20X9, if XYZ
Corporation had initially purchased the land for $50,000 and then sold it to ABC on
July 15, 20X8, for $70,000?
A.Option A
B.Option B
C.Option C
D.Option D
18) Note: This is a Kaplan CPA Review Question
Cor-Eng Partnership was formed on January 2, 20X1. Under the partnership agreement,
each partner has an equal initial capital balance accounted for under the goodwill
method. Partnership net income or loss is allocated 60% to Cor and 40% to Eng. To
form the partnership, Cor originally contributed assets costing $30,000 with a fair value
of $60,000 on January 2, 20X1, while Eng contributed $20,000 in cash. Drawings by
the partners during 20X1 totaled $3,000 by Cor and $9,000 by Eng. Cor-Eng’s 20X1 net
income was $25,000. Eng’s initial capital balance in Cor-Eng is
A.$25,000
B.$20,000
C.$60,000
D.$40,000
19) Which of the following observations is true of the discrete view of interim
reporting?
A.An interim period is viewed as an installment of an annual period
B.Recognition and adjustment of certain income or expense items may be affected by
judgments about the expected results of the entire year’s operations
C.Each interim period is considered as a basic accounting period to be evaluated as if it
were an annual accounting period
D.One interim period would not bear the entire expense that benefits more than one
interim period
20) Ponca City issued general obligation bonds to finance construction of a new city
hall. In the city hall capital projects fund, the proceeds of the general obligation bonds
should be credited to:
A.Revenue-General Obligation Bonds
B.General Obligation Bonds Payable
C.Deferred Revenue-General Obligation Bonds
D.Other Financing Sources-Bond Issue Proceeds
21) 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, what amount of investment in bonds will be
eliminated in the preparation of the 20X8 consolidated financial statements?
A.$243,060
B.$200,000
C.$246,767
D.$156,940
22) ABC Corporation owns 75 percent of XYZ Company’s voting shares. During 20X8,
ABC produced 50,000 chairs at a cost of $79 each and sold 35,000 chairs to XYZ for
$90 each. XYZ sold 18,000 of the chairs to unaffiliated companies for $117 each prior
to December 31, 20X8, and sold the remainder in early 20X9 to unaffiliated companies
for $130 each. Both companies use perpetual inventory systems.
Based on the information given above, what amount of cost of goods sold must be
eliminated from the consolidated income statement for 20X8?
A.$2,765,000
B.$1,620,000
C.$1,422,000
D.$2,963,000
23) Which of the following observations is NOT consistent with the cost method of
accounting?
A.Investee dividends from earnings since acquisition by investor are treated as a
reduction of the investment
B.Investments are carried by the investor at historical cost
C.No journal entry is made regarding the earnings of the investee
D.It is consistent with the treatment normally accorded noncurrent assets
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 Perth’s local currency is the functional
currency, what is the amount of patent amortization for 20X8 that results from
Johnson’s acquisition of Perth’s stock on January 2, 20X8. Round your answer to the
nearest dollar.
24) A.$11,500
B.$11,884
C.$7,667
D.$9,394
25) 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 retained
earnings in the consolidated balance sheet prepared at December 31, 20X9?
A. 314,000
B. 294,000
C. 150,000
D. 424,000
26) 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 will be present in the revaluation
capital account, when eliminating entries are prepared?
A.$0
B.$65,000
C.$60,000
D.$15,000
27) The JKL partnership liquidated its business in 20X9. Due to an expected long
liquidation period, a cash distribution plan was developed. The initial sale and
realization of cash from noncash assets resulted in partner K properly getting $24,000.
No other partners received cash along with K. Based upon this information, which of
the following statements is correct?
I. K’s loss absorption power (LAP) was higher than J’s LAP and L’s LAP.
II. K’s capital balance was substantially larger than the balances of J and L.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
28) The town of Stow was incorporated and began governmental operations on July 1,
20X8. Stow’s transactions and events for the fiscal year ended June 30, 20X9, are listed
below. Stow uses the consumption method of accounting for purchases of supplies.
Encumbrances do not lapse at year end.
Required:
Prepare the journal entry(ies) required in the general fund for each of the following
transactions or events.
a. The town budget was approved, providing for revenues of $800,000, a $40,000
transfer to establish an internal service fund (ISF), and expenditures of $750,000.
b. Property taxes were levied in the amount of $700,000, with 4 percent of the total
estimated to be uncollectible.
c. Purchase orders were issued in the amount of $90,000 for equipment, and $635,000
for other goods and services.
d. Collections for fines and licenses totaled $99,000 for the year.
e. Property taxes collected amounted to $680,000; the balance was reclassified as
delinquent, and the allowance for uncollectible taxes was reduced to $15,000.
f. The equipment ordered was received, and a voucher was issued for the final invoice
cost of $91,000.
g. All but $12,000 of the other goods and services ordered was received. Vouchers were
issued for the invoice cost of $622,000.
h. All but $10,000 of the vouchers issued during the year was paid.
i. A transfer in the amount of $40,000 was made to establish an internal service fund for
the town. The general fund received services of $7,000 from the internal service fund
during the year, with $2,000 remaining unpaid at year end.
j. Expenditures recorded for the year included the purchase of supplies. The estimated
balance of supplies on hand at year end was $2,000.
k. A reserve was established at year end for the outstanding encumbrances, all of which
will be honored in the next fiscal year.
l. Closing entries were made.
29) 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 balance of Catalyst’s investment in
Trigger Corporation as of December 31, 20X8?
A.$216,000
B.$225,000
C.$213,000
D.$215,000
30) A tax collection fund that collects property taxes and then distributes them to local
governmental units is an example of a(n):
A.trust fund
B.agency fund
C.internal service fund
D.permanent fund
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 patent amortization for 20X8 that results from Johnson’s
acquisition of Perth’s stock on January 2, 20X8?
31) A.$11,884
B.$11,770
C.$12,550
D.$11,500
32) Note: This is a Kaplan CPA Review Question
Certain balance sheet accounts of a foreign subsidiary of Rowan, Inc. (Rowan) at
December 31, 20X6, have been translated into U.S. dollars as follows:
The subsidiary’s functional currency is the currency of the country in which it is
located.
What total amount should be included in Rowan’s December 31, 20X6 consolidated
balance sheet for the above accounts?
A.$450,000
B.$475,000
C.$455,000
D.$495,000
33) The transactions listed in the following questions occurred in a private,
not-for-profit hospital during 20X8. For each transaction, indicate its effect on the
hospital’s statement of operations for the year ended December 31, 20X8.
Transaction: Depreciation expense was recorded for the year.
Effect on Statement of Operations:
A.Increases operating income
B.Decreases operating income
C.The transaction is reported on the statement of operations, but there is no effect on
operating income
D.The transaction is not reported on the statement of operations
34) West, Inc. holds 100 percent of the common stock of Coast Company, an
investment acquired for $680,000. Immediately following the combination, West’s net
assets have a book value of $1,150,000 and a fair value of $1,390,000. The book value
and the fair value of Coast’s net assets on the date of combination are $400,000 and
$550,000, respectively. Immediately following the combination, a consolidated balance
sheet is prepared.
Based on the information given above, goodwill will be reported in the consolidated
balance sheet in the amount of:
A.$240,000
B.$130,000
C.$150,000
D.$270,000
35) Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7, at
underlying book value. On that date, the fair value of noncontrolling interest was equal
to 10 percent of the book value of Scrooge Corporation. Pilfer purchased inventory
from Scrooge for $90,000 on August 20, 20X8, and resold 70 percent of the inventory
to unaffiliated companies on December 1, 20X8, for $100,000. Scrooge produced the
inventory sold to Pilfer for $67,000. The companies had no other transactions during
20X8.
Based on the information given above, what amount of consolidated net income will be
assigned to the controlling interest for 20X8?
A.$51,490
B.$53,100
C.$37,000
D.$20,100
36) Paul Corp. acquired 100 percent of Sam Inc.’s voting stock on July 1, 20X1. The
following information was available as of December 31, 20X1:
How much net income should be reported in Paul Corp’s income statement for 20X1?
A.$370,000
B.$720,000
C.$940,000
D.$1,090,000