1) The balance in Newsprint Corp.’s foreign exchange loss account was $10,000 on
December 31, 20X8, before any necessary year-end adjustment relating to the
following:
(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the
accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X
(2) Newsprint had an account payable to an unrelated foreign supplier, payable in the
supplier’s local currency unit (LCU) on January 15, 20X9. The U.S. dollar-equivalent of
the payable was $50,000 on the December 1, 20X8, invoice date and $53,000 on
December 31, 20X
Based on the information provided, in Newsprint’s 20X8 consolidated income
statement, what amount should be included as foreign exchange loss in computing net
income, if the LCU is the functional currency and the translation method is appropriate?
A.$28,000
B.$13,000
C.$25,000
D.$8,000
2) If the functional currency is the local currency of a foreign subsidiary, what exchange
rates should be used to translate the items below, assuming the foreign subsidiary is in a
country which has not experienced hyperinflation over three years?
A.Option A
B.Option B
C.Option C
D.Option D
3) Note: This is a Kaplan CPA Review Question
Clark Co. had the following transactions with affiliated parties during 20X1:
Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this
inventory on hand at year end. Clark owns a 15% interest in Dean and does not exert
significant influence.
Purchases of raw materials totaling $240,000 from Kent Corp., a wholly-owned
subsidiary. Kent’s gross profit on the sale was $48,000. Clark had $60,000 of this
inventory remaining on December 31, 20X1.
Before eliminating entries, Clark had consolidated current assets of $320,000. What
amount should Clark report in its December 31, 20X1, consolidated balance sheet for
current assets?
A.$303,000
B.$320,000
C.$317,000
D.$308,000
4) A wholly owned subsidiary sold land to its parent during the year at a gain. The
parent continues to hold the land at the end of the year. The amount to be reported as
consolidated net income for the year should equal:
A.the parent’s separate operating income, plus the subsidiary’s net income
B.the parent’s separate operating income, plus the subsidiary’s net income, minus the
intercompany gain
C.the parent’s separate operating income, plus the subsidiary’s net income, plus the
intercompany gain
D.the parent’s net income, plus the subsidiary’s net income, minus the intercompany
gain
5) Which of the following observations concerning encumbrances is NOT true?
A.Their purpose is to ensure that the expenditures within a period do not exceed the
budgeted appropriations
B.They provide a control system and safeguard for governmental unit administrators
C.They are a unique element of governmental accounting
D.They are recognized only at the time disbursements are made
6) Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7, at
underlying book value. On that date, the fair value of noncontrolling interest was equal
to 10 percent of the book value of Scrooge Corporation. Pilfer purchased inventory
from Scrooge for $90,000 on August 20, 20X8, and resold 70 percent of the inventory
to unaffiliated companies on December 1, 20X8, for $100,000. Scrooge produced the
inventory sold to Pilfer for $67,000. The companies had no other transactions during
20X8.
Based on the information given above, what amount of cost of goods sold will be
reported in the 20X8 consolidated income statement?
A.$60,900
B.$90,000
C.$46,900
D.$67,000
7) Denver Company, a calendar-year corporation, had the following actual income
before income tax expense and estimated effective annual income tax rates for the first
three quarters in 20X8:
Denver’s income tax expense in its interim income statement for the third quarter should
be:
A.$126,000
B.$68,400
C.$62,400
D.$54,000
8) The general fund of the Town of Dean levied property taxes of $3,000,000 for the
fiscal year beginning on January 1, 20X8. It was estimated that 1% of the levy would be
uncollectible. During the period January 1, 20X8, through December 31, 20X8,
$2,960,000 of the property tax levy was collected. At December 31, 20X8, Dean
estimated that $10,000 of property taxes levied in 20X8 would be collected during the
first 60 days of 20X9. What amount of property tax revenue should be reported by the
general fund for the year ended December 31, 20X8?
A.$2,960,000
B.$3,000,000
C.$2,970,000
D.$2,990,000
9) On January 1, 20X8, Transport Corporation acquired 75 percent interest in
Steamship Company for $300,000. Steamship is a Norwegian company. The local
currency is the Norwegian kroner (NKr). The acquisition resulted in an excess of
cost-over-book value of $25,000 due solely to a patent having a remaining life of 5
years. Transport uses the fully adjusted equity method to account for its investment.
Steamship’s December 31, 20X8, trial balance has been translated into U.S. dollars,
requiring a translation adjustment debit of $8,000. Steamship’s net income translated
into U.S. dollars is $35,000. It declared and paid an NKr 20,000 dividend on June 1,
20X8. Relevant exchange rates are as follows:
Assume the kroner is the functional currency.
Based on the preceding information, in the journal entry to record the amortization of
the patent for 20X8 on the parent’s books, Investment in Steamship Company will be
debited for:
A.$5,000
B.$5,500
C.$4,500
D.$3,000
10) The APB partnership agreement specifies that partnership net income be allocated
as follows:
Average capital balances for the current year were $50,000 for A, $30,000 for P, and
$20,000 for B.
Refer to the information given. Assuming a current year net income of $150,000, what
amount should be allocated to each partner?
A.Option A
B.Option B
C.Option C
D.Option D
11) The transactions described in the following questions occurred in a voluntary health
and welfare organization during the year ended December 31, 20X8. For each
transaction, indicate its effect(s) on the organization’s statement of activities prepared
for the year ended December 31, 20X8. List all effects of transactions affecting more
than one class of net assets. Indicate your choice(s) by entering the letter corresponding
to the effects listed here:
Effects of Transactions on Statement of Activities
A. Increases unrestricted net assets.
B. Decreases unrestricted net assets.
C. Increases temporarily restricted net assets.
D. Decreases temporarily restricted net assets.
E. Increases permanently restricted net assets.
F. Decreases permanently restricted net assets.
G. Transaction is not reported on the statement of activities.
Income was earned from investments of assets that the board previously designated for
plant expansion.
12) At any time, the remaining appropriating authority available to the fund managers is
equal to:
A.Appropriations minus Expenditures
B.Appropriations minus (Encumbrances + Expenditures)
C.Appropriations minus (Encumbrances – Expenditures)
D.Appropriations minus Encumbrances
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 total inventory will be reported in
the consolidated balance sheet prepared immediately after the business combination?
13) A.$130,000
B.$135,000
C.$90,000
D.$45,000
14) Note: This is a Kaplan CPA Review Question
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
15) In accordance with ASC 958, contributions from donors which are to be
permanently invested should be disclosed on the statement of activities of a private
university as an increase in:
A.Permanently restricted net assets
B.Permanently restricted fund balance
C.Endowment fund balance
D.Deferred revenues
16) A private, not-for-profit hospital received a donation of medicine from the XYZ
Pharmaceutical Company on March 15, 20X9. The cost of the medicine to the company
was $66,000, and its market value was $110,000. Twenty percent of the medicine was
used by the hospital during the year ended June 30, 20X9. On the hospital’s statement of
operations for the year ended June 30, 20X9, the contribution of medicine would
increase operating revenues by
A.$66,000
B.$110,000
C.$52,800
D.$88,000
17) Which of the following observations concerning interfund transfers is true?
A.They are expected to be repaid
B.They are classified as fund revenues or expenditures
C.The receiving fund recognizes these transfers as revenue
D.These transfers are classified under “Other Financing Sources or Uses.”
18) 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 effect of the euro speculative contract
on 20X9 net income?
A.$4,000 loss
B.$1,000 gain
C.$8,000 gain
D.$2,000 loss
19) The trial balance of WM Partnership is as follows:
Wilfred and Mike decide to incorporate their partnership. The partnership’s books will
be closed, and new books will be used for W & M Corporation. The following
additional information is available:
1> The estimated fair values of the assets follow:
2> All assets and liabilities are transferred to the corporation.
3> The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares.
4> The partners share profits and losses in the ratio 7:3.
Based on the preceding information, the journal entry on W & M Corporation’s books
to record the assets and the issuance of the common stock will include a credit to
Additional Paid-In Capital for:
A.$0
B.$81,000
C.$31,000
D.$50,000
20) Akron established an internal service fund for its data processing activities on July
1, 20X8. During the fiscal year ended June 30, 20X9, the following transactions and
events occurred:
1> On July 1, 20X8, the city council authorized the general fund to contribute
$1,000,000 to help establish the internal service fund on July 20, 20X8.
2> The internal service fund spent $900,000 of the contribution to acquire a mainframe
computer on July 25, 20X8.
3> During the year ended June 30, 20X9, the internal service billed other funds of the
city $300,000 for use of the computer. By year end, all of the billings were collected
except for $30,000.
4> The internal service fund incurred general operating expenses of $100,000,
exclusive of depreciation, during the year ended June 30, 20X9. All of the expenses
were paid by June 30, 20X9, except for $24,000.
5> Depreciation expense related to the computer was $180,000.
Required:
A) Prepare all journal entries that would be recorded by Akron’s internal service fund
for the year ended June 30, 20X9. Explanations for journal entries are not necessary.
B) Prepare a statement of revenues, expenses, and changes in fund net assets for the
internal service fund for the year ended June 30, 20X9.
C) Calculate the amount of unrestricted net assets at June 30, 20X9.
21) On December 5, 20X8, Texas based Imperial Corporation purchased goods from a
Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The
transaction is denominated in Saudi riyals. Imperial’s fiscal year ends on December 31,
and its reporting currency is the U.S. dollar. The exchange rates are:
Based on the preceding information, what was the overall foreign currency gain or loss
on the accounts payable transaction?
A.$300 loss
B.$200 loss
C.$100 gain
D.$200 gain
22) Each of the following questions names an item. Select the correct description of the
item from this list. Indicate your selection by entering the letter of the description.
Descriptions
a. Provides preliminary information to investors about an upcoming issue.
b. Informs investors of an upcoming offering.
c. Required annual filing to the SEC.
d. Discloses unscheduled material events.
e. Includes amendments to the Securities Act, additional disclosure requirements, and
other current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination by the SEC of a registration statement.
g. Issued by the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities may be offered or sale.
h. Quarterly report to SEC.
i. Includes new or revised administrative practices and interpretations used in reviewing
financial statements.
j. Includes the results of actions taken against accountants or other participants because
false or misleading statements were filed.
k. Includes Regulations S-X and S-K.
Customary Review
23) Note: This is a Kaplan CPA Review Question
In 20X4, Menton City received $5,000,000 of bond proceeds to be used for capital
projects. Of this amount, $1,000,000 was expended in 20X4. Expenditures for the
$4,000,000 balance were expected to be incurred in 20X5. These bond proceeds should
be recorded in capital projects funds for:
A.$5,000,000 in 20X4
B.$5,000,000 in 20X5
C.$1,000,000 in 20X4 and $4,000,000 in 20X5
D.$1,000,000 in 20X4 and in the general fund for $4,000,000 in 20X4
24) On January 1, 20X9, Light Corporation sold equipment for $400,000 to Star
Corporation, its wholly owned subsidiary. Light had paid $900,000 for this equipment,
which had accumulated depreciation of $170,000. Light estimated a $50,000 salvage
value and depreciated the tractor using the straight-line method over 10 years, a policy
that Star continued. In Light’s December 31, 20X9, consolidated balance sheet, this
tractor should be included in fixed-asset cost and accumulated depreciation as:
A.Option A
B.Option B
C.Option C
D.Option D
25) Seattle, Inc. owns an 80 percent interest in a Portuguese subsidiary. For 20X8,
Seattle reported income from operations of $2.0 million. The Portuguese company’s
income from operations, after foreign currency translation, was $1.1 million. The
foreign currency translation adjustment was $120,000 (credit). Consolidated net income
and consolidated comprehensive income for the year are:
A.Option A
B.Option B
C.Option C
D.Option D
26) Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1,
20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1
and July 1. Mortar Corporation purchased $140,000 of Granite’s bonds from the
original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of
Granite’s voting common stock.
Based on the information given above, what amount of premium on bonds payable will
be eliminated in the preparation of the 20X9 year-end consolidated financial
statements?
A.$3,500
B.$2,800
C.$5,000
D.$2,500
27) Which of the following stockholders equity accounts are eliminated during the
consolidation process?
A.Common Stock of the subsidiary
B.Preferred Stock of the subsidiary
C.Additional Paid-in Capital of the subsidiary
D.All of these
28) What is the general form of the trustee’s opening entry, accepting the assets of the
debtor company?
A.Option A
B.Option B
C.Option C
D.Option D
29) Which of the following are established by ASC 280 as “enterprisewide disclosure”
standards to provide more information about the risks to a company?
I. Information about dominant industry segments.
II. Information about major customers.
III. Information about geographic areas
A.Both II and III
B.Both I and III
C.Both I and II
D.I, II, and II
30) 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.
“Net asset classifications per FAC 6” describes which term listed above?
31) Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1,
20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1
and July 1. Mortar Corporation purchased $140,000 of Granite’s bonds from the
original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of
Granite’s voting common stock. Granite’s partial bond amortization schedule is as
follows:
Based on the information given above, what amount of gain or loss on bond retirement
will be reported in the 20X8 consolidated financial statements?
A.$(84,018)
B.$84,108
C.$(22,923)
D.$22,923
32) Note: This is a Kaplan CPA Review Question
Lisa County issued $5,000,000 of general obligation bonds at 101 to finance a capital
project. The $50,000 premium was to be used for payment of principal and interest.
This transaction should be accounted for in the:
A.debt service funds and the general long-term debt account group only
B.capital projects funds, debt service funds, and the general long-term debt account
group
C.capital projects funds and debt service funds only
D.debt service funds only
33) On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding
shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of
$75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of
shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8
respectively.
Based on the preceding information, what amount will be reported by Yang as income
from its investment in Spiel for 20X8, if it used the equity method of accounting?
A.$7,500
B.$11,250
C.$18,750
D.$26,250
34) Company A owns 85 percent of Company B’s stock and 80 percent of Company C’s
stock. All acquisitions were made at book value. The fair values of noncontrolling
interests at the time of acquisition were equal to the proportionate share of the book
values of the companies. The companies file a consolidated tax return each year and in
20X9 paid a total tax of $112,000. Each company is involved in a number of
intercompany inventory transfers each period. Information on the companies’ activities
for 20X9 is as follows:
Company A does not record income tax expense on income from subsidiaries because a
consolidated tax return is filed.
Based on the information provided, what amount of income tax expense should be
assigned to Company C?
A.$24,000
B.$35,200
C.$19,200
D.$30,400
35) On January 1, 20X8, Parent Company acquired 90 percent ownership of Subsidiary
Corporation, at underlying book value. The fair value of the noncontrolling interest at
the date of acquisition was equal to 10 percent of the book value of Subsidiary
Corporation. On Mar 17, 20X8, Subsidiary purchased inventory from Parent for
$90,000. Subsidiary sold the entire inventory to an unaffiliated company for $120,000
on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for
$62,000. The companies had no other transactions during 20X8.
Based on the information given above, what amount of consolidated net income will be
assigned to the controlling shareholders for 20X8?
A.$58,000
B.$59,000
C.$55,000
D.$52,200
36) The fair market value of a near-month call option with a strike price of $45 is $5,
when the stock is trading at $48.
Based on the preceding information, the call option:
A.has no intrinsic value currently
B.is at the money
C.is out of the money
D.is in the money
37) Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent Hunter bonds from
Cruse Corporation for $115,000. Hunter originally issued the bonds to Cruse on January
1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of issue and
pay interest semiannually on June 30 and December 31 each year. Moss’ reported net
income of $65,000 for 20X8, and Hunter reported income (excluding income from
ownership of Moss’s stock) of $90,000. Hunter’s partial bond amortization schedule is
as follows:
Based on the information given above and assuming an 8.735 percent market rate, what
amount of consolidated net income should be reported for 20X8?
A.$147,240
B.$134,240
C.$149,134
D.$136,134
38) For the first quarter of 20X8, Vinyl Corporation reported sales of $150,000 and
operating expenses of $100,000, and paid dividends of $20,000. Vinyl Company
operates on a calendar-year basis. On April 1, 20X8, Signature Corporation acquired 80
percent of Vinyl’s common stock for $320,000. At that date, the fair value of the
noncontrolling interest was $80,000, and Vinyl had 20,000 shares of $5 par common
stock outstanding, originally issued at $12 per share. The differential is related to
goodwill. On December 31, 20X8, the management of Signature Corporation reviewed
the amount attributed to goodwill as a result of its acquisition of Vinyl common stock
and concluded that goodwill was not impaired. Vinyl’s retained earnings statement for
the full year 20X8 appears as follows:
Signature uses the fully adjusted equity method in accounting for this investment:
Required:
1> Prepare all entries that Signature would have recorded in accounting for its
investment in Vinyl during 20X8.
2> Present all eliminating entries needed in a worksheet to prepare a complete set of
consolidated financial statements for the year 20X8.
39) On December 1, 20X8, Merry Corporation acquired 100 shares of Venus
Corporation at a cost of $60 per share. Merry classifies them as available-for-sale
securities. On this same date, it decides to hedge against a possible decline in the value
of the securities by purchasing, at a cost of $400, an at-the-money put option to sell the
100 shares at $60 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:
Assume that Merry exercises the put option and sells Venus shares on February 20,
20X9.
Required:
1> Prepare the entries required on December 1, 20X8, to record the purchase of the
Venus stock and the put options.
2> Prepare the entries required on December 31, 20X8, to record the change in intrinsic
value and time value of the options, as well as the revaluation of the available-for-sale
securities.
3> Prepare the entries required on February 20, 20X8, to record the exercise of the put
option and the sale of the securities at that date.
40) Discuss major differences between a governmental entity’s uses of the modified
accrual method and a for-profit corporation’s use of the accrual method.
41) PeopleMag sells a plot of land for $100,000 to Seven Star Company, its 100 percent
owned subsidiary, on January 1, 20X7. The cost of the land was $75,000, when it was
purchased in 20X6. In 20X9, Seven Star sells the land to Hot Properties Inc., an
unrelated entity, for $120,000. How is the land reported in the consolidated financial
statements for 20X7, 20X8 and 20X9?
42) Smithtown Distributors acquired Paul’s Plumbing on January 15, 20X8. Violet
Flowers acquired Frank’s Farm on January 1, 20X7. In the 12/31/X7 financial
statements filed with the SEC, Smithtown included a Pro Forma disclosure and Violet
did not. If both acquisitions account for 100% of the common stock of the company
acquired and are considered to be material, then can both filings be considered proper?