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: The governing board designated assets for plant expansion.
Effect on Statement of Operations:
A. Increases operating income.
B. Decreases operating income.
C. The event is reported on the statement of operations, but there is no effect on
operating income.
D. The event is not reported on the statement of operations.
Sub Company sells all its output at 20 percent above cost to Par Corporation. Par
purchases its entire inventory from Sub. The incomes reported by the companies over
the past three years are as follows:
Sub Company sold inventory for $300,000, $262,500 and $337,500 in the years 20X6,
20X7, and 20X8 respectively. Par Company reported ending inventory of $105,000,
$157,500 and $180,000 for 20X6, 20X7, and 20X8 respectively. Par acquired 70
percent of the ownership of Sub on January 1, 20X6, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.
Based on the information given above, what will be the consolidated net income for
20X6?
A. $357,500
B. $375,000
C. $490,000
D. $317,750
Dividends of a foreign subsidiary are translated at:
A. the average exchange rate for the year.
B. the exchange rate on the date of declaration.
C. the current exchange rate on the date of preparation of the financial statement.
D. the exchange rate on the record date.
Orville 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 Orville Company are as follows:
Debts of Orville are as follows:
Based on the preceding information, what is the total amount of unsecured claims?
A. $113,000
B. $126,000
C. $93,000
D. $121,000
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, what amount of interest expense does Hunter
record on its individual books in 20X8?
A. $10,950
B. $8,760
C. $10,301
D. $10,002
A debtor may file which type of petition when seeking judicial protection under the
Bankruptcy Reform Act?
I. Voluntary
II. Involuntary
A. I only
B. II only
C. Either I or II.
D. Neither I nor II
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 will be reported as noncontrolling
interest in the consolidated balance sheet prepared immediately after the business
combination?
A. $0
B. $15,000
C. $40,000
D. $46,000
On January 1, 20X8, William Company acquired 30 percent of eGate Company’s
common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2
par value, 5 percent cumulative preferred stock outstanding. No dividends are in
arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of
$72,000. William uses the equity method to account for this investment.
Based on the preceding information, what amount would be reported by William
Company as the balance in its investment account on December 31, 20X8?
A. $100,000
B. $123,400
C. $120,400
D. $142,000
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
operating profit (loss) test?
A. B and E
B. A and B
C. A, B, and E
D. A, B, C, and E
If 1 British pound can be exchanged for 180 cents of U.S. currency, what fraction
should be used to compute the indirect quotation of the exchange rate expressed in
British pounds?
A. 1/180
B. 1/.56
C. 1.8/1
D. 1/1.8
The length of the measurement period allowed to value the assets and liabilities in an
acquired business combination starts on the date of acquisition and lasts until:
A. All necessary information about the facts of the acquisition is obtained
B. All necessary information about the facts of the acquisition is obtained, not to exceed
one month
C. All necessary information about the facts of the acquisition is obtained, not to exceed
one reporting period
D. All necessary information about the facts of the acquisition is obtained, not to exceed
one year
Which of the following accounts are debited when closing entries are made for the
general fund (assume outstanding encumbrances lapse at year-end)?
A. I, II, III, VI.
B. I, II, IV.
C. I, IV, V, VI.
D. III, IV, V.
The town of Decorah issued general obligation serial bonds at par to finance
construction of several new streets in the town. Construction activity was accounted for
in a capital projects fund. On the date the general obligation serial bonds were issued,
what account was credited in Decorah’s capital projects fund?
A. Serial Bonds Payable
B. Due to Debt Service Fund
C. Revenues
D. Other Financing Sources-Bond Issue Proceeds
The following information pertains to Aria Co. (Aria) and its operating segments for the
year ended December 31, 20X6:
Sales to unaffiliated customers $2,000,000
Intersegment sales of products $600,000
Interest earned on loans to other industry segments $40,000
Aria and all its divisions are engaged solely in manufacturing operations. Aria evaluates
divisional performance based on controllable contribution by segments. Aria has a
reportable segment if that segment’s revenue exceeds:
A. $200,000
B. $260,000
C. $204,000
D. $264,000
ASC 805 requires that ongoing research and development projects be treated in all of
the following ways except:
A. Recorded at acquisition-date fair values
B. Classified as intangible assets having indefinite lives
C. Expensed immediately
D. Tested for impairment periodically
The consolidation treatment of profits on inventory transfers that occurred before the
business combination depends on whether:
I. the companies were independent at that time.
II. the sale transaction was the result of arm’s-length bargaining.
A. I
B. II
C. Both I and II
D. Neither I nor II
Public Equity Corporation acquired Lenore Company through an exchange of common
shares. All of Lenore’s assets and liabilities were immediately transferred to Public
Equity. Public’s common stock was trading at $20 per share at the time of exchange.
Following selected information is also available.
Based on the preceding information, what number of shares was issued at the time of
the exchange?
A. 5,000
B. 17,500
C. 12,500
D. 10,000
Usually, an investment of 20 to 50 percent in another company’s voting stock is
reported under the:
A. Cost method
B. Equity method
C. Full consolidation method
D. Fair value method
Denver Corporation owns 25 percent of the voting shares of Alamos Corporation. In
20X8, Alamos reported net income of $120,000 and paid dividends of $30,000. Denver
uses the equity method to account for this investment. Denver reported taxable income
of $160,000 on its separate operations and has an effective tax rate of 40 percent. There
is an 80 percent exemption on intercompany dividends.
Based on the preceding information, income taxes payable for Denver for the year
20X8 will be:
A. $67,000
B. $64,600
C. $64,000
D. $76,000
Cinema Company acquired 70 percent of Movie Corporation’s shares on December 31,
20X5, at underlying book value of $98,000. At that date, the fair value of the
noncontrolling interest was equal to 30 percent of the book value of Movie Corporation.
Movie’s balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares
from Nonaffiliated Corporation for $6 per share.
Based on the preceding information, the consolidating entry needed in preparing a
consolidated balance sheet immediately following the acquisition of shares will include:
A. a credit to NCI in NA of Movie Corp. for $19,375.
B. a credit to Additional Paid-In Capital for $75,000.
C. a debit to Treasury Shares for $30,000.
D. a credit to Investment in Movie stock for $6,125.
Revenues from parking meters and parking fines should be reported in the general fund
when:
A. received.
B. measurable and available.
C. measurable and earned.
D. available.
Under the Bankruptcy Code, an insolvent corporation may be:
I. Reorganized.
II. Liquidated.
A. I
B. II
C. Either I or II
D. Neither I nor II
On a partner’s personal statement of changes in net worth, what type(s) of income is
(are) recognized?
I. Realized
II. Unrealized
A. I only
B. II only
C. Both I and II
D. Neither I nor II
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, which of the following is true of the intrinsic and
time values associated with this option.
A. Option A
B. Option B
C. Option C
D. Option D
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A
consolidated balance sheet was prepared immediately. Partial balance sheet data for the
two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet
paid for them. There were no other receivables or payables between the companies at
December 31, 20X8.
Based on the information given, what percentage of Y Company’s shares were acquired
by X Company?
A. 100 percent
B. 60 percent
C. 80 percent
D. 75 percent
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.
The Weyman Hospital, a private, not-for-profit institution, reported the following
information:
What amount should the hospital report as net patient service revenue?
A. $840,000
B. $880,000
C. $900,000
D. $980,000
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. Assume that David invests $50,000 for a
one-fourth interest. Goodwill is to be recorded. The journal to record David’s admission
into the partnership will include:
A. a credit to cash for $50,000.
B. a debit to goodwill for $7,500.
C. a credit to David, Capital for $60,000.
D. a credit to David, Capital for $50,000.
Which of the following characteristics best describes an enterprise fund?
A. Capital maintenance, revenues from general public user charges, and net income.
B. Operating budgets, expenditures, and tax revenues from general public.
C. Capital maintenance, revenues from user charges to other funds, and net income.
D. Capital maintenance, tax revenues from general public, and net income.
Paccu Corporation acquired 100 percent of Sallee Company’s common stock on
January 1, 20X7. Balance sheet data for the two companies immediately following the
acquisition follow:
Paccu Sallee
Cash $50,000 $30,000
Accounts Receivable 60,000 35,000
Inventory 130,000 45,000
Land 75,000 60,000
Buildings and Equipment 310,000 170,000
Less: Accumulated Depreciation (130,000) (30,000)
Investment in Sallee Company Stock 250,000
Total Assets $745,000 $310,000
Accounts Payable $40,000 $35,000
Taxes Payable 30,000 12,000
Bonds Payable 250,000 50,000
Common Stock 75,000 75,000
Retained Earnings 350,000 138,000
Total Liabilities and Stockholders’ Equity $745,000 $310,000
At the date of the business combination, the book values of Sallee’s assets and liabilities
approximated fair value except for inventory, which had a fair value of $55,000, and
land, which had a fair value of $65,000. The fair value of land for Paccu Corporation
was estimated at $90,000 immediately prior to the acquisition.
Based on the preceding information, what amount of liabilities will be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $300,000
B. $320,000
C. $417,000
D. $745,000
The following balances are included in the subsidiary records of Burwood Village’s
Parks and Recreation Department at March 31st:
How much does the Department have available for additional purchases of supplies?
A. $0
B. $2,250
C. $3,000
D. $6,750
Upon arrival in Chile, Karen exchanged $1,000 of U.S. currency into 480,000 Chilean
Pesos. While returning after her two month visit, she exchanged her remaining 50,000
Pesos into $100 of U.S. currency. What amount of gain or a loss did Karen experience
on the 50,000 pesos she held during her visit and converted to U.S. dollars at the
departure date?
A. Loss of $4.
B. Gain of $4.
C. Loss of $6.
D. No gain or loss.
Company A holds 70 percent of the voting shares of Company B. During 20X8,
Company B sold land with a book value of $125,000 to Company A for $150,000.
Company A continues to hold the land at the end of the year. The companies file
separate tax returns and are subject to a 40 percent tax rate. Assume that Company A
uses the fully adjusted equity method in accounting for its investment in Company B.
Use the information given, but also assume that Company A holds the land at the end of
20X9. The consolidating entry relating to the intercorporate sale of land to be entered in
the consolidation worksheet prepared at the end of 20X9 will include:
A. a debit to Investment in Company B for $7,500.
B. a debit to Noncontrolling Interest for $4,500.
C. a credit to Land for $150,000.
D. a credit to Land for $15,000.
Based on the information given above, what amount of sales will be reported in the
20X1 consolidated income statement?
A. $13,000
B. $38,000
C. $45,000
D. $58,000
Holders of existing voting shares immediately before confirmation receive less than 50
percent of the voting shares of the emerging entity.
In the JK partnership, Jacob’s capital is $140,000, and Katy’s is $40,000. They share
income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of
the following questions is independent of the others.
Refer to the information provide above. Erin invests $50,000 for a one-fifth interest in
the total capital of $230,000. What are the capital balances of Jacob and Katy after Erin
is admitted into the partnership?
Jacob Katy
A. $142,400 $41,600
B. $142,000 $42,000
C. $140,000 $40,000
D. $137,600 $38,400
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Classification of investment income from endowment investments if there are no
donor restrictions as to income” describes which term listed above?
In the JK partnership, Jacob’s capital is $140,000, and Katy’s is $40,000. They share
income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of
the following questions is independent of the others.
Refer to the information provided above. Erin directly purchased a one-fifth interest by
paying Jacob $33,000 and Katy $9,000. The land account is increased for its implied
increase in value before Erin is admitted. What are the capital balances of Jacob and
Katy after Erin is admitted into the partnership?
Jacob Katy
A. $140,000 $40,000
B. $152,000 $48,000
C. $155,000 $55,000
D. $158,000 $52,000
Siera, Lani, and Cecilia 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, respectively. They have decided to liquidate the business and
have sold all the assets except for one piece of heavy machinery. All the partners are
personally insolvent. The machinery has a book value of $120,000, and the partners
have capital balances as follows:
Siera, Capita $40,000
Lani, Capital $20,000
Cecilia, Capital $30,000
Each of the following is an independent case.
Refer to the information given above. What amount of cash will each partner receive as
a liquidating distribution if the machinery is sold for $90,000?
Siera Lani Cecilia
A. $25,000 $11,000 $24,000
B. $30,000 $10,000 $20,000
C. $40,000 $20,000 $30,000
D. $55,000 $29,000 $36,000
Both the FCPA (Foreign Corrupt Practices Act of 1977) and SOX (Sarbanes-Oxley Act
of 2002) contain provisions related to Internal Control. Discuss some significant
differences between how the two acts impact internal control practices for publicly held
companies.
The following condensed balance sheet is presented for the partnership of H, I, and J
who share profits and losses in the ration of 4:3:3, respectively:
Cash $50,000
Other Assets 300,000
Total $350,000
Liabilities $80,000
H, Capital 150,000
I, Capital 70,000
J, Capital 50,000
Total $350,000
The partners agree to liquidate the partnership after selling the other assets.
Refer to the above information. If the other assets are sold for $200,000, how much
should J receive upon liquidation?
A. $50,000
B. $30,000
C. $20,000
D. $15,000
Dish Corporation acquired 100 percent of the common stock of Toll Company by
issuing 10,000 shares of $10 par common stock with a market value of $60 per share.
Summarized balance sheet data for the two companies immediately preceding the
acquisition are as follows:
Required: Determine the dollar amounts to be presented in the consolidated balance
sheet for (1) total assets, (2) total liabilities, and (3) total stockholders’ equity.
On December 31, 20X7, Planet Corporation acquired 80 percent of Broadway
Company’s stock, at underlying book value. At that date, the fair value of the
noncontrolling interest was equal to 20 percent of the book value of Broadway
Company. The two companies’ balance sheets on December 31, 20X9, are as follows:
On December 31, 20X9, Planet holds inventory purchased from Broadway for $40,000.
Broadway’s cost of producing the merchandise was $25,000. Broadway’s ending inventory
also contains $30,000 of purchases from Planet that had cost it $20,000 to produce.
On December 30, 20X9, Broadway sold equipment to Planet for $40,000. Broadway had
purchased the equipment for $60,000 several years earlier. At the time of sale to Planet, the
equipment had a book value of $20,000. The two companies file separate tax returns and
are subject to a 40 percent tax rate. Planet does not record tax expense on its share of
Broadway’s undistributed earnings.
Required:
1) Prepare the consolidating entries necessary to complete a consolidated balance sheet
worksheet as of December 31, 20X9.
2) Complete a consolidated balance sheet worksheet as of December 31, 20X9.
Briefly discuss the various types of governmental funds and proprietary funds.
On January 2, 20X2, Kentucky Company acquired 70% of Bluegrass Corporation’s
common stock for $420,000 cash. At the acquisition date, the book values and fair
values of Bluegrass’ assets and liabilities were equal, and the fair value of the
noncontrolling interest was equal to 30% of the total book value of Bluegrass. The
stockholders’ equity accounts of the two companies at the acquisition date are as
follows:
Kentucky Bluegrass
Common Stock ($10 par value) $600,000 $350,000
Additional Paid-In Capital 450,000 50,000
Retained Earnings 250,000 200,000
Total Stockholders’ Equity $1,300,000 $600,000
Noncontrolling interest was assigned income of $15,000 in Kentucky’s consolidated
income statement for 20X2.
Based on the preceding information, what is the total stockholders’ equity in the
consolidated balance sheet as of January 2, 20X2?
A. $1,120,000
B. $1,300,000
C. $1,480,000
D. $1,900,000
Silver Company owns 60 percent of the common stock of Gold Corporation.
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 consolidation 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.
Based on the information given above, what amount of consolidated net income will be
assigned to the controlling shareholders for 20X1?
A. $14,000
B. $16,100
C. $17,900
D. $20,000
Gotham City acquires $25,000 of inventory on November 1, 20X7, having held no
inventory previously. On December 31, 20X7, the end of Gotham City’s fiscal year, a
physical count shows $8,000 still in stock. During 20X8, $6,500 of this inventory is
used, resulting in a $1,500 remaining balance of supplies on December 31, 20X8.
Based on the preceding information, which of the following would be the correct
account balances for 20X7 if Gotham City used the consumption method of accounting
for inventories?