Wright Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets of Wright Company are as follows:
Carrying Value Fair Value
Cash $10,000 $10,000
Accounts Receivable 60,000 20,000
Inventory 70,000 40,000
Land 90,000 75,000
Building (net) 200,000 150,000
Equipment (net) 80,000 25,000
Total $510,000 $320,000
Debts of Wright are as follows:
Accounts Payable $40,000
Wages Payable (all have priority) 6,000
Taxes Payable 12,000
Notes Payable (secured by receivables and inventory) 90,000
Interest on Notes Payable 5,000
Bonds Payable (secured by land and buildings) 200,000
Interest on Bonds Payable 8,000
Total $361,000
Based on the preceding information, what estimated amount will be available for
general unsecured creditors upon liquidation?
A. $34,000
B. $52,000
C. $56,000
D. $75,000
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 consolidating entry:
Based on the information given above, if 20X9 consolidated net income of $50,000 would
have been reported without the consolidating entry provided, what amount will actually be
reported?
A. $45,286
B. $47,774
C. $51,244
D. $48,756
The Statement of Realization and Liquidation contains sections for all the following
items except:
A. assets.
B. supplementary items.
C. liabilities.
D. stockholders equity.
Tom, Dick, and Harry are partners in an equipment leasing business that has not been
able to generate the type of revenue expected by the partners. They share profits and
losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold all
the assets except for one piece of heavy machinery. All partnership liabilities have been
settled and all the partners are personally insolvent. The machinery has a book value of
$85,000, and the partners have capital account balances as follows:
Each of the following are independent cases.
Refer to the information given above. What amount of cash will each partner receive as
a liquidating distribution if the machinery is sold for 65,000 dollars?
A. Option A
B. Option B
C. Option C
D. Option D
Parent Corporation owns 90 percent of Subsidiary 1 Company’s stock and 75 percent of
Subsidiary 2 Company’s stock. During 20X8, Parent sold inventory purchased in 20X7
for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at its cost
of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold $45,000 of
inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at December 31,
20X8.
Based on the information given above, what amount of sales must be eliminated from
the consolidated income statement for 20X8?
A. $117,000
B. $120,000
C. $150,000
D. $128,000
Trevor Company discloses supplementary operating segment information for its three
reportable segments. Data for 20X8 are available as follows:
Allocable costs for the year was $180,000. Allocable costs are assigned based on the
ratio of a segment’s income before allocable costs to total income before allocable costs.
The 20X8 operating profit for Segment B was:
A. $110,000
B. $180,000
C. $126,000
D. $120,000
A private university received $280,000 from student tuition and fees for the year 20X9
summer session. The session began on June 20, 20X9, and ended on July 30, 20X9. The
university’s fiscal year end is June 30. According to the AICPA College and University
Audit Guide, how should the university report the $280,000 of receipts in its financial
statements for the year ended June 30, 20X9?
A. Current revenue of $280,000.
B. Current revenue of $70,000 and deferred revenue of $210,000.
C. Deferred revenue of $280,000.
D. Restricted current revenue of $280,000.
The Bankruptcy Reform Act contains chapters which deal with:
I. Individuals.
II. Corporations.
III. Municipal governments.
A. Only I and II
B. Only II and III
C. Only I and III
D. I, II, and III
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 amount of goodwill impairment
will be recognized for this division if its fair value is determined to be $245,000?
A. $0
B. $5,000
C. $60,000
D. $55,000
Jones and Smith formed a partnership with each partner contributing the following
items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities
assumed by the Jones and Smith partnership.
Refer to the above information. What is each partner’s tax basis in the Jones and Smith
partnership?
A. Option A
B. Option B
C. Option C
D. Option D
Flyer Corporation holds 90 percent of Kite Company’s common shares but none of its
preferred shares. On the date of acquisition, the fair value of the noncontrolling interest
was equal to 10 percent of the book value of Kite Company. Summary balance sheets
for the companies on December 31, 20X8, are as follows:
Flyer’s preferred pays a 8 percent annual dividend, and Kite’s preferred pays a 10
percent dividend. Kite’s preferred shares can be converted into 20,000 shares of
common stock at any time. Kite reported net income of $35,000 and paid a total of
$10,000 of dividends in 20X8. Flyer reported income from its separate operations of
$80,000 and paid total dividends of $25,000 in 20X8.
Based on the information provided, what is the basic earnings per share for the
consolidated entity for 20X8?
A. 5.04
B. 5.24
C. 3.80
D. 5.18
The condensed balance sheet of Adams & Gray, a partnership, at December 31, 20X1,
follows:
On December 31, 20X1, the fair values of the assets and liabilities were appraised at
$240,000 and $20,000, respectively, by an independent appraiser. On January 2, 20X2, the
partnership was incorporated and 1,000 shares of $5 par value common stock were issued.
Immediately after the incorporation, what amount should the new corporation report as
additional paid-in capital?
A. $275,000
B. $215,000
C. $260,000
D. $0
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.
Berlin, Inc. holds 100 percent of the common stock of Sea Company, an investment
acquired for $520,000. Immediately following the combination, Berlin’s net assets have
a book value of $900,000 and a fair value of $1,050,000. The book and fair value of
Sea’s net assets on the date of combination are $350,000 and $425,000, respectively.
Immediately following the combination, a consolidated balance sheet is prepared.
Based on the information given above, what will be the amount of net assets reported in
the consolidated balance sheet?
A. $1,420,000
B. $1,325,000
C. $1,250,000
D. $900,000
Winner Corporation acquired 80 percent of the common shares and 70 percent of the
preferred shares of First Corporation at underlying book value on January 1, 20X9. At
that date, the fair value of the noncontrolling interest in First’s common stock was equal
to 20 percent of the book value of its common stock. First’s balance sheet at the time of
acquisition contained the following balances:
The preferred shares are cumulative and have a 10 percent annual dividend rate and are
four years in arrears on January 1, 20X9. All of the $5 par value preferred shares are
callable at $6 per share. During 20X9, First reported net income of $100,000 and paid
no dividends.
Based on the information provided, what is the book value of the common stock on
January 1, 20X9?
A. $410,000
B. $360,000
C. $390,000
D. $350,000
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 consolidating entries are prepared?
A. $0
B. $65,000
C. $60,000
D. $15,000
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 euro speculative
contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $1,000 loss
Which division of the SEC develops and administers the disclosure requirements for the
securities acts and reviews all registration statements and other issue-oriented
disclosures?
A. Division of Enforcement
B. Division of Corporation Finance
C. Division of Investment Management
D. Division of Market Regulation
Assuming no impairment in value prior to transfer, assets transferred by a parent
company to another entity it has created should be recorded by the newly created entity
at the assets’:
A. cost to the parent company.
B. book value on the parent company’s books at the date of transfer.
C. fair value at the date of transfer.
D. fair value of consideration exchanged by the newly created entity.
Autumn Corporation acquired 90 percent of the stock of Spring Company on January 1,
20X2, for $360,000. At that date, the fair value of the noncontrolling interest was
$40,000. Spring’s balance sheet contained the following amounts at the time of the
combination:
Cash $20,000 Accounts Payable $25,000
Accounts Receivable 60,000 Bonds Payable 75,000
Inventory 70,000 Common Stock 100,000
Buildings and Equipment (net) 350,000 Retained Earnings 300,000
Total Assets $500,000 Total Liabilities & Equity $500,000
During each of the next three years, Spring reported net income of $70,000 and paid
dividends of $20,000. On January 1, 20X4, Autumn sold 3,000 shares of Spring’s $5
par value shares for $90,000 in cash. Autumn used the fully adjusted equity method in
accounting for its ownership of Spring Company.
Based on the preceding information, in the consolidation entries to complete a
consolidation worksheet at January 1, 20X4 (after the sale of the 3,000 shares of Spring
stock), Investment in Spring Stock will be credited for
A. $360,000.
B. $375,000.
C. $405,000.
D. $450,000.
Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in
partnership profits and losses. Shue’s capital account had a net decrease of $100,000
during 20X8. During 20X8, Shue withdrew $240,000 as withdrawals and contributed
equipment valued at $50,000 to the partnership. What was the net income of the
Financial Brokers Partnership for 20X8?
A. $633,334
B. $466,666
C. $300,000
D. $190,000
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
Big Corporation receives management consulting services from its 92 percent owned
subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services. For the
year 20X8, Small billed Big $140,000 for such services and collected all but $7,900 by
year-end. Small’s labor cost and other associated costs for the employees providing
services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported
$2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of income should be assigned to the
noncontrolling shareholders in the consolidated income statement for 20X8?
A. $47,700
B. $44,400
C. $55,600
D. $60,000
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.
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 questions 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 is the amount of inventory written
down?
A. $4,000
B. $20,000
C. $15,000
D. $10,000
Wright Company recently petitioned for bankruptcy and is now in the process of
preparing a statement of affairs. The carrying values and estimated fair values of the
assets of Wright Company are as follows:
Carrying Value Fair Value
Cash $10,000 $10,000
Accounts Receivable 60,000 20,000
Inventory 70,000 40,000
Land 90,000 75,000
Building (net) 200,000 150,000
Equipment (net) 80,000 25,000
Total $510,000 $320,000
Debts of Wright are as follows:
Accounts Payable $40,000
Wages Payable (all have priority) 6,000
Taxes Payable 12,000
Notes Payable (secured by receivables and inventory) 90,000
Interest on Notes Payable 5,000
Bonds Payable (secured by land and buildings) 200,000
Interest on Bonds Payable 8,000
Total $361,000
Based on the preceding information, what is the total amount of unsecured claims?
A. $52,000
B. $71,000
C. $75,000
D. $95,000
Grant, Inc. acquired 30 percent of South Co.’s voting stock for $200,000 on January 2,
20X4. Grant’s 30 percent interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies. During 20X4, South earned
$80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six
months ended June 30, 20X5, and $200,000 for the year ended December 31, 20X5. On
July 1, 20X5, Grant sold half of its stock in South for $150,000 cash. South paid
dividends of $60,000 on October 1, 20X5.
In its 20X5 income statement, what amount should Grant report as a gain from the sale
of half of its investment?
A. $35,000
B. $24,500
C. $30,500
D. $45,500
On January 1, 20X1, Big Company (Big) bought 30% of the outstanding stock of Little
Company (Little) for $110,000 which provided Big with the ability to significantly
influence the decisions of Little. Little reported assets of $400,000 and liabilities of
$100,000 on that date. As part of its analysis before buying these shares, Big
determined that Little owned a patent that had not been recorded despite having a
remaining useful life of five years and a value of $20,000. During 20X1, Little reported
net income of $70,000 and paid cash dividends of $30,000. What investment income
should Big report for 20X1?
A. $9,000
B. $19,800
C. $17,000
D. $21,000
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.
Healing Angel Hospital, operated by a religious organization, billed patients
$13,000,000 for services rendered during the year ended June 30, 20X3. The hospital
realized cash of $10,700,000 from the patient billings because of the following
reductions:
(1) contractual adjustments of $1,400,000 granted to private insurance companies and
to the federal government; and
(2) uncollectible accounts receivable of $900,000.
On the statement of operations prepared for the year ended June 30, 20X3, Healing
Angel Hospital should report net patient service revenue of:
A. $13,000,000.
B. $12,100,000.
C. $11,600,000.
D. $10,700,000.
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, what was the balance in the investment account
reported by Vision on January 1, 20X9, before its sale of shares?
A. $225,000
B. $285,000
C. $245,000
D. $255,000
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.
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 second month?
A. $27,000
B. $36,000
C. $18,000
D. $0
Autumn Corporation acquired 90 percent of the stock of Spring Company on January 1,
20X2, for $360,000. At that date, the fair value of the noncontrolling interest was
$40,000. Spring’s balance sheet contained the following amounts at the time of the
combination:
Cash $20,000 Accounts Payable $25,000
Accounts Receivable 60,000 Bonds Payable 75,000
Inventory 70,000 Common Stock 100,000
Buildings and Equipment (net) 350,000 Retained Earnings 300,000
Total Assets $500,000 Total Liabilities & Equity $500,000
During each of the next three years, Spring reported net income of $70,000 and paid
dividends of $20,000. On January 1, 20X4, Autumn sold 3,000 shares of Spring’s $5
par value shares for $90,000 in cash. Autumn used the fully adjusted equity method in
accounting for its ownership of Spring Company.
Based on the preceding information, in the consolidation entries to complete a full
consolidation worksheet for 20X4, noncontrolling interest in the net income of Spring
will be credited for
A. $2,000.
B. $7,000.
C. $12,500.
D. $17,500.
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