1) Tyler Company incurred an inventory loss due to a decline in market prices during its
first quarter of operations in 20X8. At the end of the first quarter, management of the
company believed the decline in market prices to be permanent. In the second quarter,
the market prices of Tyler’s inventories increased above their acquisition cost. Market
prices remained higher than acquisition cost during the remainder of 20X8. How should
Tyler report the facts above on its first and second quarter income statements?
A.Option A
B.Option B
C.Option C
D.Option D
2) The balance sheet given below is presented for the partnership of Janet, Anton, and
Millet:
The partners share profits and losses in the ratio of 5:3:2, respectively. The partners
agreed to dissolve the partnership after selling the other assets for $50,000. On
dissolution of the partnership, Janet should receive:
A.$0
B.$80,000
C.$10,000
D.$30,000
3) Enya Corporation acquired 100 percent of Celtic Corporation’s common stock on
January 1, 20X9.Summarized balance sheet information for the two companies
immediately after the combination is provided:
Based on the preceding information, the amount of differential associated with the
acquisition is:
A.$0
B.$58,000
C.$22,000
D.$36,000
4) 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.
Noncurrent assets on the January 2, 20X6, consolidated balance sheet should be:
A.$130,000
B.$150,000
C.$134,000
D.$136,000
5) The CRT partnership has decided to terminate operations and to liquidate the
partnership assets. There are no partner loans, and all partners have positive capital
balances. Gains and losses on liquidation and cash distributions to partners should be
allocated as follows:
A.Option A
B.Option B
C.Option C
D.Option D
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 Johnson’s remeasurement gain (loss) for 20X8? (Assume the ending inventory
was acquired on December 31, 20X8.)
6) A.$31,000 gain
B.$36,500 loss
C.$22,000 gain
D.$32,000 gain
7) The British subsidiary of a U.S. company reported cost of goods sold of 75,000
pounds (sterling) for the current year ended December 31. The beginning inventory was
10,000 pounds, and the ending inventory was 15,000 pounds. Spot rates for various
dates are as follows:
Assuming the dollar is the functional currency of the British subsidiary, the remeasured
amount of cost of goods sold that should appear in the consolidated income statement
is:
A.$108,750
B.$112,500
C.$114,250
D.$125,700
8) 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. David invests $50,000 for a one-fifth interest.
What amount of goodwill will be recorded?
A.$20,000
B.$4,000
C.$40,000
D.$15,000
9) Note: This is a Kaplan CPA Review Question
Park Co. uses the equity method to account for its January 1, 20X5, purchase of Tun
Inc.’s common stock. On January 1, 20X5, the fair values of Tun’s depreciable assets
and land exceeded their carrying amounts. How do these excesses of fair values over
carrying amounts affect Park’s reported year-end Earnings from Investment in Tun for
20X5?
A.Option A
B.Option B
C.Option C
D.Option D
10) When a parent owns less than 100% of a subsidiary, the noncontrolling interest
shareholders are allocated their ownership percentage of income or net assets in all of
the following eliminating entries except for:
A.The basic investment account elimination entry
B.The excess value (differential) reclassification entry
C.The optional accumulated depreciation elimination entry
D.The amortized excess value reclassification entry
11) Schedule 13D is filed
A.by entities that acquire a beneficial ownership of more than 5 percent of a class of
registered equity securities
B.to broadly report material information that is being provided to securities analysts,
selected institutional investors, or others
C.to disclose material items related to asset-backed securities such as a bond issue
D.by management to report the existence and effectiveness of the company’s internal
control over financial reporting
12) X Corporation owns 80 percent of Y Corporation’s common stock and 40 percent of
Z Corporation’s common stock. Additionally, Y Corporation owns 35 percent of Z
Corporation’s common stock. The acquisitions were made at book values. The
following information is available for 20X8:
Based on the information provided, what amount of income will be assigned to the
controlling interest in the 20X8 consolidated income statement?
A.$130,750
B.$150,000
C.$141,250
D.$157,000
13) When the local currency of the foreign subsidiary is the functional currency, a
foreign subsidiary’s income statement accounts would be converted to U.S. dollars by:
A.translation using historical exchange rates
B.remeasurement using current exchange rates at the time of statement preparation
C.translation using average exchange rate for the period
D.remeasurement using the current exchange rate at the time of statement preparation
14) 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
15) On December 31, 20X9, Rudd Company acquired 80 percent of the common stock
of Wilton Company. At the time, Rudd held land with a book value of $100,000 and a
fair value of $260,000; Wilton held land with a book value of $50,000 and fair value of
$600,000. Using the parent company theory, at what amount would land be reported in
a consolidated balance sheet prepared immediately after the combination?
A. $550,000
B. $590,000
C. $700,000
D. $860,000
16) A private, not-for-profit hospital uses a fund structure which includes a general fund
and donor restricted funds. The hospital’s revenues from nursing programs and gift
shops should be accounted for in the:
A.specific purpose fund
B.restricted current fund
C.general fund
D.time-restricted fund
17) Which of the following funds provides goods and services only to other
departments or agencies of the government on a cost-reimbursement basis?
A.Internal service funds
B.Enterprise funds
C.Special revenue funds
D.The general fund
18) 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. Allen and Daniel agree that some of the
inventory is obsolete. The inventory account is decreased before David is admitted.
David invests $40,000 for a one-fifth interest. What are the capital balances of Allen
and Daniel after David is admitted into the partnership?
A.Option A
B.Option B
C.Option C
D.Option D
19) A private, not-for-profit hospital received contributions of $50,000 from donors on
June 15, 20X9. The donors stipulated that their contributions be used to purchase
equipment for the hospital. As of June 30, 20X9, the end of the hospital’s fiscal year,
$12,000 of the contributions had been spent on equipment acquisitions. In the hospital’s
general fund, what account would be credited to recognize the release of the restrictions
on the temporarily restricted contributions used to acquire equipment?
A.Revenue released from equipment acquisition restriction
B.Other financing sources
C.Net assets released from equipment acquisition restriction
D.Unrestricted net assets released from equipment acquisition restriction
20) 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 liabilities will be reported in
the consolidated balance sheet for 20X8?
A.$225,000
B.$221,000
C.$217,000
D.$137,000
21) In a statement of revenues, expenditures, and changes in fund balance, the
unassigned fund balance will be increased by:
I. a decrease in the fund balanceNonspendable
II. an excess of other financing sources over other financing uses.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
22) Regulation S-X presents the rules for preparing all of the following except:
A.financial statements
B.footnotes
C.auditor’s report
D.management’s discussion
23) Push Company owns 60% of Shove Company’s outstanding common stock.
Intra-entity sales are as follows:
Assume Push sold the inventory to Shove. Using the fully adjusted equity method, what
journal entry would be recorded by Push to defer the unrealized gross profit on
inventory sales to Shove in 20X1?
A.Option A
B.Option B
C.Option C
D.Option D
24) As of May 30, 20X9, the debt service fund of Cody had accumulated $52,000 of
assets in a debt service fund to pay the principal of its currently maturing serial bonds.
On June 1, 20X9, $50,000 of serial bonds matured and were paid with the resources
accumulated in the debt service fund. In Cody’s debt service fund, Matured Bonds
Payable was debited for $50,000 and:
A.Cash was credited for $50,000
B.Due to General Fund was credited for $50,000
C.Investments was credited for $50,000
D.Reserve for Encumbrances was credited for $50,000
25) Identify the legal term that allows the general fund to make expenditures.
A.Exceptions
B.Appropriations
C.Encumbrances
D.Consumption
26) Company X issues variable-rate debt but wishes to fix its interest rates because it
believes the variable rate may increase. Company Y has a fixed-rate bond but is looking
for a variable-rate interest because it assumes the interest rates may decrease. The two
companies agree to exchange cash flows. Such an arrangement is called:
A.a futures contract
B.a forward contract
C.a swap
D.an option
27) Pink Inc. sells half of its 70% interest in Brown Co. on January 1, 20X6. On that
date, the fair value of Brown as a whole is $940,000 and the carrying amount of Pink’s
70% share of Brown is $320,000. What, if any, is the gain on the sale of half of Pink’s
interest in Brown?
A.$0
B.$9,000
C.$169,000
D.$338,000
28) On January 1, 20X7, Gild Company acquired 60 percent of the outstanding
common stock of Leeds Company at the book value of the shares acquired. On that
date, the fair value of noncontrolling interest was equal to 40 percent of book value of
Leeds. At the time of purchase, Leeds had common stock of $1,000,000 outstanding
and retained earnings of $800,000.
On December 31, 20X7, Gild purchased 50 percent of Leeds’ bonds outstanding which
were originally issued on January 1, 20X4, at 99. The total bond issue has a face value
of $600,000, pays 10 percent interest annually, and has a 10-year maturity. Any
premium or discount is amortized using the effective interest method. Gild paid
$306,000 for its investment in Leeds’ bonds and intends to hold the bonds until
maturity.
Income and dividends for Gild and Leeds for 20X7 and 20X8 are as follows:
Assume Gild accounts for its investment in Leeds stock using the fully adjusted equity
method.
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.
29) 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
30) Which of the following funds use the accrual basis of accounting?
I. Enterprise fund
II. Agency fund
III. Internal service fund
A.I only
B.II only
C.I and III only
D.I, II, and III
31) If the restatement method for a foreign subsidiary involves remeasuring from the
local currency into the functional currency, then translating from functional currency to
U.S. dollars, the functional currency of the subsidiary is:
I. U.S. dollar.
II. Local currency unit.
III. A third country’s currency.
A.I
B.III
C.II
D.Either I or II
32) An analysis of Abbey Company’s operating segments provides the following
information:
Refer to the above information. Which of the operating segments above meet the
revenue test?
A.B, D, and E
B.A and D
C.A, B, and D
D.B, C, D, and E
33) Peanut Company acquired 75 percent of Snoopy Company’s stock at underlying
book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest
was equal to 25 percent of the book value of Snoopy Company. Snoopy Company
reported shares outstanding of $350,000 and retained earnings of $100,000. During
20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000.
In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of
$15,000. The following transactions occurred between Peanut Company and Snoopy
Company in 20X8 and 20X9:
Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8.
Snoopy Co. had originally purchased the equipment for $140,000 and it had a carrying
value of $28,000 on December 31, 20X8. At the time of the purchase, Peanut Co.
estimated that the equipment still had a seven-year remaining useful life.
Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for $110,000.
Required:
Give all eliminating entries needed to prepare a consolidation worksheet for 20X9
assuming that Peanut Co. uses the cost method to account for its investment in Snoopy
Company.
34) Miller and Davis, partners in a consulting business, share profits and losses in the
ratio of 3:2, respectively. Prior to recording the admission of Shaw as a new partner,
Miller has a capital balance of $80,000, and Davis has a capital balance of $40,000.
Required:
For each of the following independent cases, prepare the journal entry that was made to
record the admission of Shaw into the partnership.
1> Shaw purchased 20 percent of the respective capital balances of Miller and Davis,
paying $20,000 cash directly to each of them.
2> Shaw invested $30,000 cash in the partnership for a 20 percent ownership interest.
Total capital after recording his admission was $150,000.
3> Shaw invested $40,000 cash into the partnership for a 20 percent ownership interest.
Total capital after recording his admission was $160,000.
4> Shaw invested $50,000 into the partnership for a 20 percent interest. Goodwill is to
be recognized.
35) Fred Corporation owns 75 percent of Winner Company’s voting shares, acquired on
March 21, 20X5, at book value. At that date, the fair value of the noncontrolling interest
was equal to 25 percent of the book value of Winner Company.
On January 1, 20X4, Fred paid $150,000 for equipment with a 10-year expected total
economic life. The equipment was depreciated on a straight-line basis with no residual
value. Winner purchased the equipment from Fred on December 31, 20X6, for
$140,000. Winner sold land it had purchased for $75,000 on February 18, 20X4, to Fred
for $60,000 on October 10, 20X7.
Required: Prepare the elimination entries for 20X8 related to the sale of depreciable
assets and land if Fred uses the fully adjusted equity method to account for its
investment in Winner.
36) On January 1, 20X8, Alaska Corporation acquired Mercantile Corporation’s net
assets by paying $160,000 cash. Balance sheet data for the two companies and fair
value information for Mercantile Corporation immediately before the business
combination are given below:
Required:
Prepare the journal entry to record the acquisition of Mercantile Corporation.
37) Briefly discuss the various types of governmental funds and proprietary funds.
38) On December 1, 20X8, Denizen Corporation entered into a 120-day forward
contract to purchase 200,000 Canadian dollars (C$). Denizen’s fiscal year ends on
December 31. The forward contract was to hedge an anticipated purchase of electronic
goods on January 30, 20X9. The purchase took place on January 30, with payment due
on March 31, 20X9. The derivative is designated as a cash flow hedge. The company
uses the forward exchange rate to measure hedge effectiveness. The direct exchange
rates follow:
Required:
Prepare all journal entries for Denizen Corporation.
39) Magellan Corporation acquired 80 percent ownership of Dipper Corporation on
January 1, 20X8, for $200,000. At that date, Dipper reported common stock outstanding
of $75,000 and retained earnings of $150,000. The fair value of the noncontrolling
interest was $50,000. The differential is assigned to equipment, which had a fair value
$25,000 greater than book value and a remaining economic life of five years at the date
of the business combination. Dipper reported net income of $40,000 and paid dividends
of $20,000 in 20X8.
Required:
1> Provide the journal entries recorded by Magellan during 20X8 on its books if it
accounts for its investment in Dipper using the equity method.
2> Give the eliminating entries needed at December 31, 20X8, to prepare consolidated
financial statements.
40) Accounting processes differ between a for-profit entity and a governmental entity.
Discuss three differences between a governmental entity and a for-profit entity.