1) In the AD partnership, Allen’s capital is $140,000 and Daniel’s is $40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following question is independent of the others.
Refer to the information provided above. Assume that David invests $50,000 for a
one-fourth interest. Goodwill is to be recorded. The journal to record David’s admission
into the partnership will include:
A.a credit to cash for $50,000
B.a debit to goodwill for $7,500
C.a credit to David, Capital for $60,000
D.a credit to David, Capital for $50,000
2) Electric Corporation holds 80 percent of Utility Company’s voting common shares,
acquired at book values, but none of its preferred shares. At the date of acquisition, the
fair value of the noncontrolling interest was equal to 20 percent of the book value of
Utility Company. Summary balance sheets for the companies on December 31, 20X8,
are as follows:
Neither of the preferred issues is convertible. Electric’s preferred pays a 8 percent
annual dividend, and Utility’s preferred pays a 12 percent dividend. Utility reported net
income of $30,000 and paid a total of $10,000 of dividends in 20X8. Electric reported
income from its separate operations of $70,000 and paid total dividends of $25,000 in
20X8.
Based on the preceding information, what is the consolidated earnings per share for
20X8?
A.4.46
B.4.14
C.4.35
D.4.55
3) Dividends of a foreign subsidiary are translated at:
A.theaverage exchange rate for the year
B.the exchange rate on the date of declaration
C.the current exchange rate on the date of preparation of the financial statement
D.the exchange rate on the record date
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?
4) A.$330,000
B.$450,000
C.$430,000
D.$370,000
5) Cinema Company acquired 70 percent of Movie Corporation’s shares on December
31, 20X5, at underlying book value of $98,000. At that date, the fair value of the
noncontrolling interest was equal to 30 percent of the book value of Movie Corporation.
Movie’s balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares
from Nonaffiliated Corporation for $6 per share.
Based on the preceding information, what will be the journal entry to be recorded on
Cinema Company’s books to recognize the change in the book value of the shares it
holds?
A.Option A
B.Option B
C.Option C
D.Option D
6) Enterprise and internal service funds should recognize revenues when they are
A.received in cash
B.available and earned
C.measurable and earned
D.measurable and available
7) Partners Dennis and Lilly have decided to liquidate their business. The following
information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of
liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable
is paid. During the second month, the rest of the inventory is sold for $45,000, and the
remaining accounts payable are paid. Cash is distributed at the end of each month, and
the liquidation is completed at the end of the second month.
Refer to the information provided. Assume instead that the remaining inventory was
sold for $10,000 in the second month. What payments will be made to Dennis and Lilly
at the end of the second month?
A.Option A
B.Option B
C.Option C
D.Option D
8) Note: This is a Kaplan CPA Review Question
The following transactions were among those reported by Cliff County’s water and
sewer enterprise fund for 20X4:
In the water and sewer enterprise fund’s statement of cash flows for the year ended
December 31, 20X4, what amount should be reported as cash flows from capital and
related financing activities?
A.$9,000,000
B.$6,000,000
C.$8,000,000
D.$5,000,000
9) Senior Corporation acquired 80 percent of Junior Company’s voting shares on
January 1, 20X8, at underlying book value. On Dec. 31, 20X8, it also purchased
$500,000 par value 8 percent Junior bonds, which had been issued on January 1, 20X5
to Partner Corporation (unaffiliated with either Senior or Junior) at a $45,000 premium.
The bonds were originally issued with a 12-year maturity and pay interest annually on
December 31. During preparation of the consolidated financial statements for
December 31, 20X8, the following eliminating entry was included in the consolidation
worksheet:
Based on the information given above, what price did Senior pay to purchase the Junior
bonds?
A.$533,769
B.$516,875
C.$500,000
D.$550,644
10) The Statement of Realization and Liquidation contains sections for all the following
items except:
A.assets
B.supplementary items
C.liabilities
D.stockholders equity
11) The general fund of Park City acquired computer equipment at a cost of $50,000 on
May 18, 20X9. To record acquisition of this equipment, the general fund of Park City
should debit:
A.expenditures
B.encumbrances
C.equipment
D.vouchers payable
12) Partners Dennis and Lilly have decided to liquidate their business. The following
information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of
liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable
is paid. During the second month, the rest of the inventory is sold for $45,000, and the
remaining accounts payable are paid. Cash is distributed at the end of each month, and
the liquidation is completed at the end of the second month.
Refer to the information provided above. Using a safe payments schedule, how much
cash will be distributed to Lilly at the end of the first month?
A.$24,000
B.$40,000
C.$16,000
D.$64,000
13) Note: This is a Kaplan CPA Review Question
Which of the following characteristics would render the operating unit “reportable”?
The operating unit comprises at least:
A.5 percent of the assets of a company as a whole
B.10 percent of the revenues of the company as a whole
C.50 percent of the long term debt of the company as a whole
D.20 percent of the operating profit of the company as a whole
14) A trust fund of Bruge City received $100,000 from a donor during the year ended
June 30, 20X9. During the year ended June 30, 20X9, $94,000 of the cash received was
used to provide food and clothing to the city’s poor. How should the trust fund report
these resource flows on its statement of changes in fiduciary net assets for the year
ended June 30, 20X9?
A.As revenues of $100,000 and as expenditures of $94,000
B.As contributions for $100,000 and as deductions for benefits for $94,000
C.As revenues of $100,000 and as an operating transfer out for $94,000
D.As a transfer in from trust fund for $100,000 and as a transfer out for $94,000
15) A not-for-profit private college in Virginia created a separate foundation responsible
for obtaining financial support from alumni and others. Foundation assets are used for
the benefit of the college. Donations made to the foundation and subsequently
transferred to the college should be:
A.recognized as revenues by the foundation when received, and as revenues of the
college when transferred
B.recognized as revenues by the foundation when received and as expenses by the
foundation when transferred
C.recognized both as a change in its interest in the foundation and as revenues by the
college when the donation is received by the foundation
D.recognized as an increase in net assets of the foundation and as revenues of the
college when the donation is received by the college
16) Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,
20X3, which Star Corporation purchased. On July 1, 20X7, Sun Corporation purchased
$120,000 face value of Moon bonds from Star. The bonds pay 12 percent interest
annually on December 31. The preparation of consolidated financial statements for
Moon and Sun at December 31, 20X9, required the following eliminating entry:
Based on the information given above, what amount did Sun pay when it purchased the
bonds on July 1, 20X7?
A.$118,020
B.$118,920
C.$118,620
D.$117,220
17) Which organization has the authority to establish generally accepted accounting
principles for state and local government entities?
A.The National Council on Governmental Accounting
B.The Governmental Accounting Standards Board
C.The Financial Accounting Standards Board
D.The Municipal Officers Finance Organization
18) 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, 20X9. 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 20X9.
Tower paid dividends of $30,000 in 20X9.
Network paid dividends of $10,000 in 20X9.
Tower issued common stock on February, 18, 20X9, for a total of $100,000.
Consolidated wages payable decreased by $6,000 in 20X9.
Consolidated depreciation expense for the year was $15,000.
Consolidated accounts receivable decreased by $20,000 in 20X9.
Bonds payable of Tower with a book value of $102,000 were retired for $100,000 on
December 31, 20X9.
Consolidated amortization expense on patents was $10,000 for 20X9.
Tower sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June
10, 20X9.
Consolidated accounts payable decreased by $7,000 during 20X9.
Total purchases of equipment by Tower and Network during 20X9 were $180,000.
Consolidated inventory increased by $36,000 during 20X9.
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 amount will be reported in the consolidated
cash flow statement as net cash used in financing activities for 20X9?
A.$32,000
B.$38,000
C.$42,000
D.$70,000
19) Sub Company sells all its output at 20 percent above cost to Par Corporation. Par
purchases its entire inventory from Sub. The incomes reported by the companies over
the past three years are as follows:
Sub Company sold inventory for $300,000, $262,500 and $337,500 in the years 20X6,
20X7, and 20X8 respectively. Par Company reported ending inventory of $105,000,
$157,500 and $180,000 for 20X6, 20X7, and 20X8 respectively. Par acquired 70
percent of the ownership of Sub on January 1, 20X6, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.
Based on the information given above, what will be the consolidated net income for
20X6?
A.$357,500
B.$375,000
C.$490,000
D.$317,750
20) The consolidation treatment of profits on inventory transfers that occurred before
the business combination depends on whether:
I. the companies were independent at that time.
II. the sale transaction was the result of arm’s-length bargaining.
A.I
B.II
C.Both I and II
D.Neither I nor II
21) Which of the following covers new or revised administrative practices and
interpretations used by the SEC staff in reviewing financial statements?
A.Securities Exchange Act releases
B.Exchange Act industry guides
C.Accounting and Auditing Enforcement Releases
D.Staff Accounting Bulletins
22) Elvis Company purchases inventory for $70,000 on Mar 19, 20X8 and sells it to
Graceland Corporation for $95,000 on May 14, 20X8. Graceland still holds the
inventory on December 31, 20X8, and determines that its market value (replacement
cost) is $82,000 at that time. Graceland writes the inventory down from $95,000 to its
lower market value of $82,000 at the end of the year. Elvis owns 75 percent of
Graceland.
Based on the information given above, by what amount should Graceland write down
inventory in its books?
A.$14,000
B.$15,000
C.$13,000
D.$16,000
23)
Refer to the above information. Which statement below is correct if a new partner’s
goodwill is recognized upon contributing assets into the partnership?
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
24) The fair value of net identifiable assets of a reporting unit of Y Company is
$270,000. The carrying value of the reporting unit’s net assets on Y Company’s books is
$320,000, including $50,000 goodwill. If the reported goodwill impairment for the unit
is $10,000, what would be the fair value of the reporting unit?
A.$320,000
B.$310,000
C.$270,000
D.$290,000
25) For which of the following long-term debt obligations would payments not be
accounted for in a debt service fund?
A.Notes and warrants secured by specific tax revenues
B.Special assessment bonds sold to acquire enterprise fund assets
C.Notes and warrants
D.Special assessment bonds may be used to finance capital projects
26) The accounting statement of affairs is prepared:
A.at the end of the reorganization process
B.at the end of the liquidation process
C.at the beginning of the reorganization process
D.at the beginning of the liquidation process
27) On the statement of functional expenses prepared for a voluntary health and welfare
organization, depreciation expense is allocated to
I. expenses for program services.
II. expenses for supporting services.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
28) Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
A. Fair value
B. Unrestricted net assets
C. GASB
D. FASB
E. Statement of Revenues, Expenditures, and Changes in Fund Balance
F. Lower of cost or market
G. Accrual method
H. Statement of Activities
I. General fund, restricted fund, endowment fund
J. Modified accrual method
K. Permanently restricted net assets
L. Temporarily restricted net assets
M. Endowment fund
N. Unrestricted, temporarily restricted, permanently restricted
O. Depreciation
P. Works of art and other historical treasures
Q. General fund
R. Cost
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
“Responsible for establishing accounting standards for private NFP entities” describes
which term listed above?
29) Blue Corporation holds 70 percent of Black Company’s voting common stock. On
January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected
economic life. Black uses straight-line depreciation for all depreciable assets. On
December 31, 20X8, Blue purchased the building from Black for $180,000. Blue
reported income, excluding investment income from Black, of $140,000 and $162,000
for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000
for 20X8 and 20X9, respectively.
Based on the preceding information, the amount of income assigned to the controlling
shareholders in the consolidated income statement for 20X9 will be:
A.$207,000
B.$202,000
C.$212,000
D.$190,000
30) 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, for Delta:
A.no goodwill should be reported at year-end
B.goodwill impairment of $15,000 should be recognized at year-end
C.goodwill impairment of $20,000 should be recognized at year-end
D.goodwill of $30,000 should be reported at year-end
31) Mortar Corporation acquired 80 percent of Granite Corporation’s voting common
stock on January 1, 20X7. On December 31, 20X8, Mortar received $390,000 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 equipments on a straight-line basis.
Based on the preceding information, in the preparation of the 20X9 consolidated
financial statements, equipment will be:
A.debited for $1,000
B.debited for $10,000
C.credited for $15,000
D.debited for $25,000
32) Sky Corporation owns 75 percent of Earth Company’s stock. On July 1, 20X8, Sky
sold a building to Earth for $33,000. Sky had purchased this building on January 1,
20X6, for $36,000. The building’s original eight-year estimated total economic life
remains unchanged. Both companies use straight-line depreciation. The equipment’s
residual value is considered negligible.
Based on the information provided, in the preparation of the 20X9 consolidated income
statement, depreciation expense will be:
A.debited for $750 in the eliminating entries
B.credited for $750 the eliminating entries
C.credited for $1500 in the eliminating entries
D.debited for $1500 in the eliminating entries