1) 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
2) Which of the following items would not be reported on the financial statements of a
special revenue fund?
A.Long-term productive assets
B.Expenditures and revenues
C.Vouchers payable and unreserved fund balance
D.Fund balance reserved for encumbrances and expenditures
3) Riviera Township reported the following data for its governmental activities for the
year ended June 30, 20X9:
Additional information available is as follows:
All of the long-term debt was used to acquire capital assets. Cash of $475,000 is
restricted for debt service.
Based on the preceding information, on the statement of net assets prepared at June 30,
20X9, what amount should be reported for net assets, unrestricted?
A.$425,000
B.$900,000
C.$525,000
D.$825,000
4) On a debtor-in-possession income statement, which of the following items should be
reported under the heading “Reorganization Items”?
A.Sales
B.Selling expenses
C.Income tax benefit
D.Loss on disposal of assets
5) Which of the following situations best describes a business combination to be
accounted for as a statutory merger?
A.Both companies in a combination continue to operate as separate, but related, legal
entities
B.Only one of the combining companies survives and the other loses its separate
identity
C.Two companies combine to form a new third company, and the original two
companies are dissolved
D.One company transfers assets to another company it has created
6) 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: Received contributions restricted by donors for research activities.
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
7) All of the following are differences between international standards and U.S. GAAP
regarding operating segments, except:
A.IFRS requires disclosures about geographical segments, not business segments
B.IFRS requires two different bases of segmentation, a primary basis and a secondary
basis
C.IFRS required more disclosure for primary segments
D.The amounts disclosed under IFRS are based on the same accounting policies as the
financial statements, not based on amounts reported to the chief operating decision
maker
8) Point Co. purchased 90% of Sharpe Corp.’s voting stock on January 1, 20X2 for
$5,580,000. Prior to the acquisition, Point held a 10% equity position in Sharpe
Company. On January 1, 20X2 Pointe’s 10% investment in Sharpe has a book value of
$340,000 and a fair value of $620,000. On January 1, 20X2 Point records the following:
A.Debit Gain on revaluation of Sharpe’s stock $280,000
B.Credit Gain on revaluation of Sharpe’s stock $280,000
C.Credit Investment in Sharpe stock $5,860,000
D.Debit Investment in Sharpe stock $6,200,000
9) Fixed assets and investments are reported in which of the following funds?
I. Fiduciary fund
II. Enterprise fund
III. Internal Service funds
IV. Capital Projects fund
V. Debt Service fund
A.I, II, III
B.II, IV, V
C.I, II, V
D.II, III, IV
10) Which of the following observations concerning claims by general unsecured
creditors is NOT true?
A.They are paid only after secured creditors and unsecured creditors with priority are
satisfied to the extent of any legal limits
B.They often receive less than the full amount of their claim
C.They are entitled to “preference payments” at the discretion of the debtor’s
management
D.The amounts to be paid to them are usually stated as a percentage of the total claim
11) Local Services, a voluntary health and welfare organization had the following
classes of net assets on July 1, 20X8, the beginning of its fiscal year:
During the year ended June 30, 20X9, the following events occurred:
(1) It purchased equipment, costing $100,000, with contributions restricted for this
purpose. The contributions had been received from donors during June of 20X8.
(2) It received $130,000 of cash donations which were restricted for research activities.
During the year ended June 30, 20X9, $90,000 of the contributions were expended on
research.
(3) It sold investments classified in the permanently restricted class for a loss of
$40,000. Dividends and interest income earned on the investments amounted to
$70,000. There were no restrictions on how investment income was to be used.
(4) It received cash contributions of $200,000 from donors who did not place either
time or use restrictions upon their donations.
(5) Expenses, excluding depreciation expense, for program services and supporting
services incurred during the year ended June 30, 20X9, amounted to $260,000.
(6) Depreciation expense for the year ended June 30, 20X9, was $80,000.
Refer to the above information. On the statement of activities for the year ended June
30, 20X9, temporarily restricted net assets:
A.increased $130,000
B.increased $40,000
C.decreased $100,000
D.decreased $60,000
12) When is a partnership considered to be insolvent?
I. When the total of all partners’ capital accounts results in a debit balance.
II. When at least one of the partners is personally insolvent.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
13) 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 20X8 will be:
A.$190,000
B.$170,000
C.$175,000
D.$150,000
14) The City of Edmond established a capital projects fund for the construction of a
reading room for the City Library. The estimated cost of the construction is $300,000.
On January 1, 20X8, an 8 percent, $200,000 bond issue was sold at 102. At that date,
the county board provided a $100,000 grant. On March 3, 20X8, the premium from
issuance of the bonds was transferred to the debt service fund established to repay the
bond principal and interest. On March 1, 20X8, a general contractor’s bid was accepted
to construct the facility at a cost of $270,000. The construction was completed on
October 5, 20X8; its actual cost was $285,000. The city council approved payment of
the total actual cost of $285,000. In addition to the $285,000, $9,000 was spent to make
the facility ready for use. On November 3, 20X8, the city council gave the final
approval for both these payments. After all bills were paid, the remaining fund balance
was transferred to the debt service fund.
Required
a. Prepare entries for the capital projects fund for 20X8.
b. Prepare a statement of revenues, expenditures, and changes in fund balance for 20X8
for the capital projects fund.
15) On January 1, 20X7, Servant Company purchased a machine with an expected
economic life of five years. On January 1, 20X9, Servant sold the machine to Master
Corporation and recorded the following entry:
Master Corporation holds 75 percent of Servant’s voting shares. Servant reported net
income of $50,000, and Master reported income from its own operations of $100,000
for 20X9. There is no change in the estimated economic life of the equipment as a result
of the intercorporate transfer.
Based on the preceding information, in the preparation of the 20X9 consolidated
income statement, depreciation expense will be:
A.Debited for $1,000 in the eliminating entries
B.Credited for $1,000 in the eliminating entries
C.Debited for $15,000 in the eliminating entries
D.Credited for $15,000 in the eliminating entries
16) In 20X9, a private not-for-profit hospital received a $200,000 cash contribution to
its endowment fund. During the year, hospital administration invested $150,000 of the
funds. Which of the following statements regarding the effect of these transactions on
the preparation of the hospital’s statement of cash flow is true?
A.The $200,000 contribution will appear in the investing activities section of the cash
flow statement as a cash inflow
B.The $200,000 contribution will appear in the financing activities section of the cash
flow statement as a cash inflow
C.The $150,000 investment will appear in the investing activities section of the cash
flow statement as a cash inflow
D.The $150,000 contribution will appear in the financing activities section of the cash
flow statement as a cash inflow
17) Note: This is a Kaplan CPA Review Question
On July 1, 20X4, Denver Corp. purchased 3,000 shares of Eagle Co.’s 10,000
outstanding shares of common stock for $20 per share. On December 15, 20X4, Eagle
paid $40,000 in dividends to its common stockholders. Eagle’s net income for the year
ended December 31, 20X4, was $120,000, earned evenly throughout the year. In its
20X4 income statement, what amount of income from this investment should Denver
report?
A.$12,000
B.$36,000
C.$18,000
D.$6,000
18) Which of the following is defined as directly or indirectly having the power to vote
the shares or investment power to sell the security?
A.Proxy
B.Significant influence
C.Control
D.Beneficial ownership
19) 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: Endowment income was earned. The donor placed no restrictions on the
investment earnings.
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
20) Dundee Company issued $1,000,000 par value 10-year bonds at 102 on January 1,
20X5, which Mega Corporation purchased. The coupon rate on the bonds is 9 percent.
Interest payments are made semiannually on July 1 and January 1. On Jan 1, 20X8,
Perth Company purchased $500,000 par value of the bonds from Mega for $492,200.
Perth owns 65 percent of Dundee’s voting shares.
Required:
a. What amount of gain or loss will be reported in Dundee’s 20X8 income statement on
the retirement of bonds?
b. Will a gain or loss be reported in the 20X8 consolidated financial statements for
Perth for the constructive retirement of bonds? What amount will be reported?
c. How much will Perth’s purchase of the bonds change consolidated net income for
20X8?
d. Prepare the worksheet eliminating entry or entries needed to remove the effects of the
intercorporate bond ownership in preparing consolidated financial statements at
December 31, 20X8.
e. Prepare the worksheet eliminating entry or entries needed to remove the effects of the
intercorporate bond ownership in preparing consolidated financial statements at
December 31, 20X9.
21) Michigan-based Leo Corporation acquired 100 percent of the common stock of a
British company on January 1, 20X8, for $1,100,000. The British subsidiary’s net assets
amounted to 500,000 pounds on the date of acquisition. On January 1, 20X8, the book
values of its identifiable assets and liabilities approximated their fair values. As a result
of an analysis of functional currency indicators, Leo determined that the British pound
was the functional currency. On December 31, 20X8, the British subsidiary’s adjusted
trial balance, translated into U.S. dollars, contained $17,000 more debits than credits.
The British subsidiary reported income of 33,000 pounds for 20X8 and paid a cash
dividend of 8,000 pounds on October 25, 20X8. Included on the British subsidiary’s
income statement was depreciation expense of 3,500 pounds. Leo uses the fully
adjusted equity method of accounting for its investment in the British subsidiary and
determined that goodwill in the first year had an impairment loss of 25 percent of its
initial amount. Exchange rates at various dates during 20X8 follow:
Based on the preceding information, what amount should Leo record as “income from
subsidiary” based on the British subsidiary’s reported net income?
A.$72,930
B.$52,500
C.$72,600
D.$69,300
22) Myway Company sold equipment to a Canadian company for 100,000 Canadian
dollars (C$) on January 1, 20X9 with settlement to be in 60 days. On the same date,
Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a
forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable.
The forward contract is not designated as a hedge. The spot rates were:
Based on the preceding information, had Myway not used the forward exchange
contract, net income for the year would have:
A.increased by $1,000
B.increased by $500
C.decreased by $1,000
D.decreased by $1,500
23) Good Faith Hospital, operated by a religious organization, billed patients
$4,000,000 for services rendered during the year ended June 30, 20X9. The hospital
realized cash of $3,500,000 from the patient billings because of the following
reductions:
(1) contractual adjustments of $140,000 granted to private insurance companies and to
the federal government; and
(2) uncollectible accounts receivable of $360,000.
On the statement of operations prepared for the year ended June 30, 20X9, Good Faith
Hospital should report net patient service revenue of:
A.$3,500,000
B.$3,860,000
C.$4,000,000
D.$3,640,000
24) Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs
(SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1,
20X8, the company also entered into a 60-day forward contract to purchase 100,000
Swiss francs. The forward contract is not designated as a hedge. The rates were as
follows:
Based on the preceding information, the entries on January 30, 20X9, include a:
A.Debit to Dollars Payable to Exchange Broker, $180,000
B.Credit to Cash, $184,000
C.Credit to Premium on Forward Contract, $4,000
D.Credit to Foreign Currency Receivable from Exchange Broker, $180,000
25) Rivendell Corporation and Foster Company merged as of January 1, 20X9. To
effect the merger, Rivendell paid finder’s fees of $40,000, legal fees of $13,000, audit
fees related to the stock issuance of $10,000, stock registration fees of $5,000, and
stock listing application fees of $4,000.
Based on the preceding information, under the acquisition method:
A.$72,000 of stock issue costs are treated as goodwill
B.$19,000 of stock issue costs are treated as a reduction in the issue price
C.$19,000 of stock issue costs are expensed
D.$72,000 of stock issue costs are expensed
26) Assuming there is a budget surplus, which of the following accounts are credited
when the general fund records its operating budget at the beginning of the year?
A.Appropriations Control and Budgetary Fund BalanceUnassigned
B.Estimated Revenues Control and Estimated Residual Equity Transfer Out
C.Budgetary Fund BalanceAssigned For Encumbrances and Expenditures
D.Estimated Residual Equity Transfer Out and Estimated Transfer In
27) 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
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 will be reported for total accounts
payable in the consolidated balance sheet for the year 20X8?
28) A.$56,000
B.$46,000
C.$60,000
D.$42,000
29) Parent Company owns 70% of Son Company’s outstanding stock. During 20X1 Son
Company sold land to Parent Company for a gain of $25,000. Parent company held the
land all of 20X1. The gain on the sale to Parent should be:
A.recorded on Son’s books as a gain of $25,000 and then eliminated during the
consolidation process
B.deferred by Son until Parent sells the land to an outside party
C.recorded on Son’s books as a gain of $17,500 and eliminated during the consolidation
process
D.recorded on Parent’s book as a gain of $17,500 and eliminated during the
consolidation process
30) Spartan Company purchased interior decoration material from Egypt for 100,000
Egyptian pounds on September 5, 20X8, with payment due on December 2, 20X8.
Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase
100,000 Egyptian pounds of E£ = $.1850. The forward contract was acquired to
manage the exposed net liability position in Egyptian pounds, but it was not designated
as a hedge. The spot rates were:
Based on the preceding information, in the entry made on December 2nd to revalue
foreign currency receivable to current equivalent U.S. dollar value,
A.Accounts Payable will be debited for $18,350
B.Foreign Currency Units will be debited for $18,500
C.Foreign Currency Transaction Gain will be credited for $150
D.Other Comprehensive Income will be credited for $300
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s
common stock for $160,000 cash. The fair value of the noncontrolling interest at that
date was determined to be $40,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of
$45,000, and land, which had a fair value of $60,000.
Based on the preceding information, what amount of consolidated retained earnings
will be reported immediately after the business combination?
31) A.$205,000
B.$120,000
C.$325,000
D.$310,000
32) Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,
20X3, which Star Corporation purchased. Sun Corporation owns 65% of Moon’s voting
shares. On Jan 1, 20X7, Sun Corporation purchased $120,000 face value of Moon
bonds from Star for $118,020. On the date Sun purchased the bonds, the bonds’ carrying
value on Moon’s book was $126,019. 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, if 20X9 consolidated net income of $50,000
would have been reported without the eliminating entry provided, what amount will
actually be reported?
A.$45,286
B.$47,774
C.$51,244
D.$48,756
33) 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.
“Basis for measuring contributions” describes which term listed above?
34) Which of the following is an example of volunteer services received by a
not-for-profit entity that should be recognized as revenue?
I. Services requiring specialized skills, provided by individuals with those skills, that
otherwise would have to be purchased.
II. Services of lay faculty at a private university operated by a religious order.
III. Services that create or enhance non-financial assets, regardless of whether or not
they require specialized skills.
A.I only
B.I and III only
C.II and III only
D.I, II, and III
35) On September 3, 20X8, Jackson Corporation purchases goods for a U.S. dollar
equivalent of $17,000 from a Swiss company. The transaction is denominated in Swiss
francs (SFr). The payment is made on October 10. The exchange rates were:
What entry is required to revalue foreign currency payable to U.S. dollar equivalent
value on October 10?
A.Option A
B.Option B
C.Option C
D.Option D
36) All of the following are benefits the U.S. will gain from the adoption of globally
consistent accounting standards except for:
A.Reduction in reporting costs as the need for multiple sets of financial statements
decreases
B.Increased quality of information available to investors
C.Continued expansion of capital markets across national borders, facilitating more
efficient use of global capital
D.Nearly seamless transition with minimal expenses related to corporate governance
considerations
37) 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 income to
controlling interest in the consolidated financial statements for 20X9?
A. $168,000
B. $138,000
C. $164,000
D. $150,000
38) On January 1, 20X8, Zeta Company acquired 85 percent of Theta Company’s
common stock for $100,000 cash. The fair value of the noncontrolling interest was
determined to be 15 percent of the book value of Theta at that date. What portion of the
retained earnings reported in the consolidated balance sheet prepared immediately after
the business combination is assigned to the noncontrolling interest?
A.None
B.15 percent
C.100 percent
D.Cannot be determined