1) In accounting for expendable fund entities, revenue is ordinarily not recognized
until:
a.it can be objectively measured and it is available to finance expenditures of the
current period
b.a transaction has taken place and the earnings process is complete
c.it has been received in cash
d.none of the above
2) To determine whether a substantial portion of a firm’s operations are explained by its
segment information, the combined revenue from sales to unaffiliated customers of all
reportable segments must constitute at least
a.10% of the combined revenue of all operating segments
b.75% of the combined revenue of all operating segments
c.10% of the combined revenue from sales to unaffiliated customers of all operating
segments
d.75% of the combined revenue from sales to unaffiliated customers of all operating
segments
3) For a university, the receipt of assets for operating activities that have external
restrictions as to the purposes for which they can be used is recorded by crediting
a.Fund Balance-Restricted
b.Contribution Revenue
c.Deferred Revenue
d.Net Assets Released
4) Investments are reported by NNOs at
a.cost
b.fair value
c.the lower of cost or fair value
d.the higher of cost or fair value
5) Pinta Company owns 90% of the common stock of Simplex Company. Simplex
Company sells merchandise to Pinta Company at 25% above cost. During 2013 and
2014 such sales amounted to $800,000 and $1,020,000, respectively. At the end of each
year, Pinta Company had in its inventory one-fourth of the amount of goods purchased
from Simplex Company during that year. Pinta Company reported income of
$1,500,000 from its independent operations in 2013 and $1,720,000 in 2014. Simplex
Company reported net income of $600,000 in each year and did not declare any
dividends in either year. There were no intercompany sales prior to 201
Required:
A.Prepare, in general journal form, all entries necessary on the 2014 consolidated
statements workpaper to eliminate the effects of intercompany sales.
B.Calculate the amount of noncontrolling interest to be deducted from consolidated
income in the consolidated income statement in 2014.
C.Calculate controlling interest in consolidated net income for 2014.
6) Under the Uniform Partnership Act
a.partnership creditors have first claim (Rank I) against the assets of an insolvent
partnership
b.personal creditors of an individual partner have first claim (Rank I) against the
personal assets of all partners
c.partners with credit capital balances share (Rank I) the personal assets of an insolvent
partner that has a debit capital balance with personal creditors of that partner
d.personal creditors of the partners of an insolvent partnership share partnership assets
on a pro rata basis (Rank I) with partnership creditors
7) The entry to record the receipt of office equipment previously encumbered includes a
debit to
a.Office Equipment
b.Encumbrances
c.Reserve for Encumbrances
d.both Office Equipment and Reserve for Encumbrances
8) Pinta Company has total stockholders equity of $2,000,000 consisting of $400,000 of
$1 par value common stock, $400,000 of other contributed capital, and $1,200,000 of
retained earnings.Pinta owns 80% of Santa Maria Company purchased at book
value.Santa Maria has $800,000 of 5% cumulative preferred stock outstanding.Pinta
acquired 40% of the preferred stock of Santa Maria for $200,000.After this transaction
the balances in Pintas retained earnings and other contributed capital accounts are:
a.$1,200,000 and $400,000
b.$1,200,000 and $520,000
c.$1,320,000 and $400,000
d.$1,080,000 and $400,000
9) Encumbrances would not appear in which fund?
a.General
b.Enterprise
c.Capital projects
d.Special revenue
10) A nonrecurring contribution from the General Fund to the Enterprise Fund is an
example of an interfund
a.reimbursement
b.transfer
c.services provided and used
d.loan
11) On January 1, 2013, Poole Company purchased 75% of the common stock of
Swimmer Company. Separate balance sheet data for the companies at the combination
date are given below:
Swimmer Co.Swimmer Co.
Poole Co.Book ValuesFair Values
Cash$ 24,000$206,000$206,000
Accounts receivable144,00026,00026,000
Inventory132,00038,00060,000
Land78,00032,00060,000
Plant assets700,000300,000350,000
Acc. depreciation(240,000)(60,000)
Investment in Swimmer Co. 440,000
Total assets$1,278,000$542,000$702,000
Accounts payable$206,000$142,000$142,000
Capital stock800,000300,000
Retained earnings 272,000 100,000
Total liabilities & equities$1,278,000$542,000
Determine below what the consolidated balance would be for each of the requested
accounts on January 2, 2013.
What is the amount of total assets?
a.$1,626,667
b.$1,566,667
c.$1,980,000
d.$2,006,667
12) On January 2, 2014 Cretin Co., was indebted to Fourth National Bank under a $12
million, 10% unsecured note. The note was signed January 2, 2008, and was due
December 31, 2017. Annual interest was last paid on December 31, 2012. Cretin Co.
negotiated a restructuring of the terms of the debt agreement due to financial
difficulties.
Required:
Prepare all journal entries for Cretin Co., to record the restructuring and any remaining
transactions relating to the debt under each independent assumption.
A.Fourth National Bank agreed to settle the debt in exchange for land which cost Cretin
Co. $8,500,000 and has a fair market value of $10,000,000.
B.Fourth National Bank agreed to (1) forgive the accrued interest from last year (2)
reduce the remaining four interest payments to $600,000 each, and (3) reduce the
principal to $9,000,000.
13) Average exchange rates are used to translate certain items from foreign financial
statements into U.S. dollars. Such averages are used in order to:
a.smooth out large translation gains and losses
b.eliminate temporary fluctuation in exchange rates that may be reversed in the next
fiscal period
c.avoid using different exchange rates for some revenue and expense accounts
d.approximate the exchange rate in effect when the items were recognized
14) Distinguish among the following concepts: (a) Difference between book value and
the value implied by the purchase price. (b) Excess of implied value over fair value. (c)
Excess of fair value over implied value. (d) Excess of book value over fair value.
15) Which one of the following statements regarding IFRS and accounting for step
acquisitions is most correct?
a.Under IFRS goodwill is identified and net assets remeasured to fair value for all
subsequent transactions, both increasing and decreasing the ownership percentage, after
control is achieved
b.IFRS requires the recording of additional goodwill on subsequent increases in the
parents ownership percentage
c.Under IFRS acquisition accounting is applied only at the date that control is achieved
d.IFRS requires the non-controlling interest to be measured at fair value
16) In a troubled debt restructuring involving a modification of terms, the debtors gain
on restructuring:
a.will equal the creditors gain on restructuring
b.will equal the creditors loss on restructuring
c.may not equal the creditors gain on restructuring
d.may not equal the creditors loss on restructuring
17) On January 1, 2013, Phoenix Company acquired 80% of the outstanding capital
stock of Skyler Company for $570,000. On that date, the capital stock of Skyler
Company was $150,000 and its retained earnings were $450,000.
On the date of acquisition, the assets of Skyler Company had the following values:
Fair Market
Book ValueValue
Inventories$ 90,000$165,000
Plant and equipment150,000180,000
All other assets and liabilities had book values approximately equal to their respective
fair market values. The plant and equipment had a remaining useful life of 10 years
from January 1, 2013, and Skyler Company uses the FIFO inventory cost flow
assumption.
Skyler Company earned $180,000 in 2013 and paid dividends in that year of $90,000.
Phoenix Company uses the complete equity method to account for its investment in S
Company.
Required:
A.Prepare a computation and allocation schedule.
B.Prepare the balance sheet elimination entries as of December 31, 2013.
C.Compute the amount of equity in subsidiary income recorded on the books of
Phoenix Company on December 31, 2013.
D.Compute the balance in the investment account on December 31, 2013.
18) Under Southdale Hospitals established rate structure, the hospital would have
earned patient service revenue of $7,000,000 for the year ended December 31, 2014.
However, Southdale did not expect to collect this amount because of charity allowances
of $1,000,000 and discounts of $500,000 to third party payers. In May 2014, Southdale
purchased bandages from Ace Supply Co. at a cost of $5,000. However, Ace notified
Southdale that the invoice was being cancelled and that the bandages were being
donated to Southdale.
For the year ended December 31, 2014, how much should Southdale record as patient
service revenue?
a.$7,000,000
b.$6,500,000
c.$6,000,000
d.$5,500,000
19) For state and local government units, the full accrual basis of accounting should be
used for what type of fund?
a.Special revenue
b.General
c.Debt service
d.Internal service
20) During 2013, the City of Atlantis started a street paving project. The project is being
financed by the proceeds from the issue of five-year, 6% special assessment bonds
payable at a face value of $3,000,000. The bonds were issued July 1, 2013 at their par
value. One-fifth of the principal plus interest is payable on June 30 of each year
beginning June 30, 2014. Property owners are assessed to provide the funds to pay the
principal and interest on the debt.
The following transactions occurred during 2013 and 2014:
1>The bonds for the paving of the streets were issued.
2>The street paving was completed at a cost of $3,000,000.
3>Property owners were assessed and billed for the first installment of principal and
interest on the special assessment debt.
4>Assessments for the first installment of principal and interest on the special
assessment debt were collected. The June 30, 2014, payment of principal and interest
was made.
Required:
Prepare all journal entries for the preceding transactions that are necessary for the City
of Atlantis assuming:
A.The City of Atlantis has not obligated itself in any manner to the holders of the
special assessment bonds.
B.The City of Atlantis has made a commitment to the holders of the special assessment
bonds to assure the full payment of principal and interest on the due dates.
21) Benefits of the FASB Accounting Standards Codification (ASC) include all of the
following except:
a.increases the independence of the FASB
b.aids in the convergence of US GAAP with IFRS
c.reduces time and effort required to research accounting issues
d.clearly distinguishes between authoritative and non-authoritative guidance
22) The partnership of Abel and Caine was formed on February 28, 2014. At that date
the following assets were invested:
AbelCaine
Cash$ 120,000$200,000
Merchandise -0-320,000
Building-0-840,000
Furniture and equipment 200,000-0-
The building is subject to a mortgage loan of $280,000, which is to be assumed by the
partnership. The partnership agreement provides that Abel and Caine share profits or
losses 30% and 70%, respectively. Caines capital account at February 28, 2014, should
be
a.$1,080,000
b.$1,360,000
c.$1,176,000
d.$952,000
23) On January 1, 2013, Prima Corporation acquired 80 percent of Sunder
Corporation’s voting common stock.
Sunders’s buildings and equipment had a book value of $300,000 and a fair value of
$350,000 at the time of
acquisition. At what amount will Sunders buildings and equipment will be reported in
the consolidated statements ?
a.$350,000
b.$340,000
c.$280,000
d.$300,000
b.
24) ParkerCompany owns 90% of the outstanding common stock of Stagger Company.
On January 1, 2014, Stagger Company issued $500,000, 12%, ten-year bonds.
On January 1, 2013, Parker Company paid $315,000 for Stagger Company bonds with a
par value of $300,000 and a carrying value of $297,600. Both companies use the
straight-line method to amortize bond premiums and discounts. Parker Company
accounts for the investment using the cost method of accounting.
Parker Company would report a balance in the Investment in Stagger Company Bonds
account on December 31, 2013, of
a.$315,000
b.$297,600
c.$313,125
d.$300,000
e.None of these
25) Poor Company filed a voluntary bankruptcy petition, and the settlement of affairs
reflected the following amounts:
Estimated
AssetsBook ValueCurrent Value
Assets pledged with fully secured creditors$ 450,000$ 555,000
Assets pledged partially secured creditors270,000180,000
Free assets 630,000 480,000
$1,350,000$1,215,000
Liabilities
Liabilities with priority$ 105,000
Fully secured creditors390,000
Partially secured creditors300,000
Unsecured creditors 810,000
$1,605,000
Assume the assets are converted to cash to their estimated current values. What amount
of cash will be available to pay unsecured nonpriority claims?
a.$360,000
b.$420,000
c.$480,000
d.$540,000
26) Pendleton Company acquired a 70% interest in Sunflower Company on December
31, 2013, for $380,000. During 2014 Sunflower had a net income of $30,000 and paid a
cash dividend of $10,000. Applying the cost method would give a debit balance in the
Investment in Stock of Sunflower Company account at the end of 2014 of:
a.$400,000
b.$394,000
c.$373,000
d.$380,000
27) Investor Company purchased 70% of the$500,000 par value outstanding bonds of
Investee Company, a 70% owned subsidiary. The bondscost $338,000 and had a
carrying value of$360,000 on the date of purchase.a.What portion of the gain or loss
resultingfrom the constructive bond retirementshould be allocated to Investor
Company?b.What portion of the constructive gain or lossshould be allocated to Investee
Company?
28) If an entity is not considered a VIE, the determination of consolidation is based on
whether
a.the voting rights are proportional to the obligations to absorb expected losses or
receive expected residual returns
b.the total equity at risk is sufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties
c.the equity investments or investments in subordinated debt are at risk
d.one of the entities in the consolidated group directly or indirectly has a controlling
financial interest (usually ownership of a majority voting interest) in the other entities
29) Which basis of accounting should a voluntary health and welfare organization use?
a.Cash basis for all funds
b.Modified accrual basis for all funds
c.Accrual basis for all funds
d.Accrual basis for some funds and modified accrual basis for other funds
30) On April 5, 2006, the New York State Attorney sued a New York online advertising
firm for surreptitiously installing spyware advertising programs on consumers
computers. The Attorney General claimed that con-sumers believed they were
downloading free games or browser enhancements. The company claimed that the
spyware was identified as advertising-supported and that the software is easy to remove
and doesnt collect personal data. Is there an ethical issue for the company? Comment on
and justify your position.
31) Which of the following funds of a governmental unit recognizes revenues and
expenditures under the same basis of accounting as the general fund?
a.Debt service
b.Enterprise
c.Internal service
d.Nonexpendable trust
32) According to the economic unit concept, the primary purpose of consolidated
financial statements is to provide information that is relevant to
a.majority stockholders
b.minority stockholders
c.creditors
d.both majority and minority stockholders
33) Prepare entries, in general journal form, to record the following transactions in the
proper fund(s) and/or account group(s). Designate the fund or account group in which
each entry is recorded.
1>Bond proceeds of $2,000,000 were received to be used in constructing a new City
Jail. An equal amount is contributed from general revenues.
2>Serial bonds in the amount of $300,000 matured. Interest of $75,000 was paid on
these and other serial bonds outstanding.
34) The company that you work for is a subsidiary of alarger company. At the
beginning of each year, thesubsidiary prepares a budget for the year that includes a
forecast of revenues for the coming year.Thesubsidiary sells a significant amount of
inventoryto the parent to be used in the manufacture of another product. The subsidiarys
revenues for the current year are short of the budgeted amount. An errorin the books has
misclassified an intercompany saleasan ordinary sale. The manager of the
subsidiaryasks you not to fix the error until after the booksareclosed.What is your
responsibility? What action, if any, shouldyou take? Why?
35) Describe some of the major reconciling items between a government fund and the
government-wide financial statements.
36) The following data are taken from the statement of affairs of Motor Sports
Company.
Assets pledged with fully secured creditors
(Realizable value, $635,000)$800,000
Assets pledged with partially secured creditors
(realizable value, $300,000)365,000
Free assets (Realizable value, $340,000)535,000
Fully secured creditor claims316,000
Partially secured creditor claims400,000
Unsecured creditor claims with priority100,000
General unsecured creditor claims1,165,000
Required:
Compute the amount that will be paid to each class of creditor.
37) What type of disclosure is required of a firm when the major portion of its
operations takes place within a single reportable segment?
38) P Company sells inventory costing $100,000 to its subsidiary, S Company, for
$150,000. At the end of the current year, one-half of the goods re-mainsremains in S
Companys inventory. Applying the lower of cost or market rule, S Company writes
down this inventory to $60,000. What amount of intercompany profit should be
eliminated on the consolidated statements workpaper?
39) On October 10, 2013, a national voluntary health help foundation was the recipient
of a telethon sponsored by a renowned celebrity. Phone donations totaling $8,500,000
were promised. Based on historical information, 15% of these pledges are expected to
be uncollectible. Of these pledges, $7,100,000 were collected in 2014; the remainder
were considered uncollectible.
Required:
Identify the proper fund and prepare the journal entries necessary in 2013 and 2014.