1) 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 December 31, 20X8, for $125,000. Mortar owns 75 percent of
Granite’s voting common stock. Granite’s partial bond amortization schedule is as
follows:
Based on the information given above, what amount of constructive gain or loss will be
allocated to noncontrolling interest in 20X9 consolidated financial statements?
A.$(20,277)
B.$(2,223)
C.$20,277
D.$4,819
2) Spartan Company purchased interior decoration material from Egypt for 100,000
Egyptian pounds on September 5, 20X8, with payment due on December 2, 20X8.
Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase
100,000 Egyptian pounds of E£ = $.1850. The forward contract was acquired to
manage the exposed net liability position in Egyptian pounds, but it was not designated
as a hedge. The spot rates were:
Based on the preceding information, what is the entry required to settle foreign
currency payable on December 2?
A.Option A
B.Option B
C.Option C
D.Option D
3) Regulation D of the SEC presents important exemptions from full registration
requirements for:
A.private placements
B.issuances of securities by savings and loan associations
C.issuances of securities by common carriers regulated by the Interstate Commerce
Commission
D.foreign companies
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 assets will be reported in the
consolidated balance sheet prepared immediately after the business combination?
4) A.$720,000
B.$840,000
C.$825,000
D.$865,000
5) 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 will be reported as total assets in the
consolidated balance sheet for 20X8?
A.$666,000
B.$747,000
C.$651,000
D.$946,000
6) A loss on the constructive retirement of a parent’s bonds by a subsidiary is effectively
recognized in the individual accounting records of the parent and its subsidiary:
I. at the date of constructive retirement.
II. over the remaining term of the bonds.
A.I
B.II
C.Both I and II
D.Neither I nor II
7) 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.
Endowment income was earned. The donor specified that the income be used for
community service.
8) A debt service fund of Clifton received $100,000 from its general fund during the
fiscal year ended June 30, 20X9. The cash was used to pay matured interest on Clifton’s
general obligation bonds, which were issued to finance construction of a new municipal
building. On the statement of revenues, expenditures, and changes in fund balance
prepared for the debt service fund for the year ended June 30, 20X9, the amount
received from the general fund should be reported as:
A.revenue
B.a reduction of expenditures
C.another financing source
D.matured interest payments
9) Pro forma disclosures are:
A.used to disclose unscheduled material events
B.interim financial statements need not be audited
C.materials submitted to shareholders for votes on corporate matters
D.”what-if” presentations often taking the form of summarized financial statements
10) In the computation of a partner’s Loss Absorption Power (LAP), the individual
partner’s capital balance and profit-and-loss percentage are used in which of the
following ways?
A.Option A
B.Option B
C.Option C
D.Option D
11) On December 1, 20X8, Winston Corporation acquired 100 shares of Linked
Corporation at a cost of $40 per share. Winston 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 $250, an at-the-money put option to sell the
100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:
Assume that Winston exercises the put option and sells Linked shares on February 20,
20X9.
Based on the preceding information, what is the market price of Linked Corporation
stock on December 31, 20X8?
A.$40
B.$37
C.$36
D.$38
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 consolidated net income will X
Corporation report for 20X8?
A.$148,750
B.$175,000
C.$150,000
D.$158,750
13) On January 1, 20X9, A Company acquired 85 percent of B Company’s voting
common stock for $425,000. At that date, the fair value of the noncontrolling interest of
B Company was $75,000. Immediately after A Company acquired its ownership, B
Company acquired 75 percent of C Company’s stock for $150,000. The fair value of the
noncontrolling interest of C Company was $50,000 at that date. At January 1, 20X9, the
stockholders’ equity sections of the balance sheets of the companies were as follows:
During 20X9, A Company reported operating income of $175,000 and paid dividends
of $50,000. B Company reported operating income of $125,000 and paid dividends of
$40,000. C Company reported net income of $100,000 and paid dividends of $25,000.
Based on the information provided, what amount of income will be assigned to the
controlling interest in the consolidated income statement for 20X9?
A.$400,000
B.$345,000
C.$285,000
D.$175,000
14) ABC, a holder of a $400,000 XYZ Inc. bond, collected the interest due on June 30,
20X8, and then sold the bond to DEF Inc. for $365,000. On that date the bond issuer,
XYZ, a 90 percent owner of DEF, had a $450,000 carrying amount for this bond.
Based on the information given above, what amount of gain or loss on bond retirement
was recorded?
A.No gain or loss
B.$85,000 gain
C.$85,000 loss
D.$35,000 loss
15) Pace Corporation acquired 100 percent of Spin Company’s common stock on
January 1, 20X9. Balance sheet data for the two companies immediately following the
acquisition follow:
At the date of the business combination, the book values of Spin’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of
$60,000, and land, which had a fair value of $50,000. The fair value of land for Pace
Corporation was estimated at $80,000 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.$615,000
B.$406,000
C.$300,000
D.$265,000
16) 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 interest income will be
eliminated in the preparation of the 20X9 consolidated financial statements?
A.$17,000
B.$13,300
C.$18,500
D.$22,200
17) Ridge Company is in the process of determining its reportable segments for the year
ended December 31, 20X8. As the person responsible for determining this information,
you gather the following information:
Required:
a) Using the appropriate tests, determine which of the industry segments listed above
are reportable for 20X8. Show your supporting computations in good form.
b) Indicate whether or not Ridge’s reportable segments satisfy the 75 percent test. Show
your supporting computations in good form.
18) Bridger Hospital, which is operated by a religious organization, provides charity
care for the indigent living in the region served by the hospital. How should Bridger
report the amount of its charity care on its financial statements?
A.In the notes to the financial statements only
B.As unrestricted revenues on the statement of operations
C.As net patient service revenue and as an expense, equal to the net patient service
revenue, on the statement of operations
D.As temporarily restricted revenue on the statement of operations
19) 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 directly purchases a one-fifth interest
by paying Allen $34,000 and Daniel $10,000. The land account is increased before
David is admitted. 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
20) Note: This is a Kaplan CPA Review Question
On September 1, 20X1, Bain Corp. received an order for equipment from a foreign
customer for 300,000 local currency units (LCU) when the U.S. dollar equivalent was
$96,000. Bain shipped the equipment on October 15, 20X1, and billed the customer for
300,000 LCU when the U.S. dollar equivalent was $100,000. Bain received the
customer’s remittance in full on November 16, 20X1, and sold the 300,000 LCU for
$105,000. In its income statement for the year ended December 31, 20X1, Bain should
report a foreign exchange gain of
A.$9,000
B.$4,000
C.$0
D.$5,000
Michigan-based Leo Corporation acquired 100 percent of the common stock of a
British company on January 1, 20X8, for $1,100,000. The British subsidiary’s net assets
amounted to 500,000 pounds on the date of acquisition. On January 1, 20X8, the book
values of its identifiable assets and liabilities approximated their fair values. As a result
of an analysis of functional currency indicators, Leo determined that the British pound
was the functional currency. On December 31, 20X8, the British subsidiary’s adjusted
trial balance, translated into U.S. dollars, contained $17,000 more debits than credits.
The British subsidiary reported income of 33,000 pounds for 20X8 and paid a cash
dividend of 8,000 pounds on October 25, 20X8. Included on the British subsidiary’s
income statement was depreciation expense of 3,500 pounds. Leo uses the fully
adjusted equity method of accounting for its investment in the British subsidiary and
determined that goodwill in the first year had an impairment loss of 25 percent of its
initial amount. Exchange rates at various dates during 20X8 follow:
Based on the preceding information, in the stockholders’ equity section of Leo’s
consolidated balance sheet at December 31, 20X8, Leo should report the translation
adjustment as a component of other comprehensive income of:
21) A.$19,440
B.$17,000
C.$18,786
D.$19,380
22) Which combination of accounts and exchange rates is correct for the translation of a
foreign entity’s financial statements from the functional currency to U.S. dollars?
A.Option A
B.Option B
C.Option C
D.Option D
23) 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 in 20X8?
A.$10,950
B.$8,760
C.$10,301
D.$10,002
24) 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
25) Under the equity method of accounting for a stock investment, the investment
initially should be recorded at:
A.cost
B.cost minus any differential
C.proportionate share of the fair value of the investee company’s net assets
D.proportionate share of the book value of the investee company’s net assets
26) Wakefield Company uses a perpetual inventory system. In August, it sold 2,000
units from its LIFO-base inventory, which had originally cost $35 per unit. The
replacement cost is expected to be $45 per unit. The company is planning to reduce its
inventory and expects to replace only 1,500 of these units by December 31, the end of
its fiscal year. The company replaced 1,500 units in November at an actual cost of $50
per unit.
Based on the preceding information, in the entry in August to record the sale of the
2,000 units:
A.Cost of Goods Sold will be debited for $70,000
B.Inventory will be credited for $85,000
C.Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $15,000
D.Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be
credited for $67,000
27) Note: This is a Kaplan CPA Review Question
In 20X1, Ellen College, a private not-for-profit institution, received a $100,000 grant
for faculty research. The grant money was not spent until 20X2. For 20X1, Ellen
College should report the contribution as:
A.Temporarily restricted asset
B.Unrestricted revenue
C.Other operating revenue
D.Other non-operating revenue
28) On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden
Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends
of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common
stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of
the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a
market value of $35,000 and equipment with a book value of $50,000 and a market
value of $60,000 at the date of combination. The remainder of the differential at
acquisition was attributable to an increase in the value of patents, which had a
remaining useful life of five years. All depreciable assets held by Wisden at the date of
acquisition had a remaining economic life of five years. Climber uses the equity method
in accounting for its investment in Wisden.
Based on the preceding information, the increase in the fair value of patents held by
Wisden is:
A.$20,000
B.$25,000
C.$15,000
D.$5,000
29) On December 31, 20X8, Mercury Corporation acquired 100 percent ownership of
Saturn Corporation. On that date, Saturn reported assets and liabilities with book values
of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and
retained earnings of $150,000. The book values and fair values of Saturn’s assets and
liabilities were identical except for land which had increased in value by $10,000 and
inventories which had decreased by $5,000.
Based on the preceding information, what amount of differential will appear in the
eliminating entries required to prepare a consolidated balance sheet immediately after
the business combination, if the acquisition price was $240,000?
A.$0
B.$40,000
C.$25,000
D.$5,000
30) Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds
of Hunter from Cruse 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. Moss’ reported net income of $65,000 for 20X8, and Hunter reported income
(excluding income from ownership of Moss’s stock) of $90,000.
Based on the information given above, what gain or loss on the retirement of bonds
should be reported in the 20X8 consolidated income statement?
A.$6,250 gain
B.$7,500 gain
C.$7,500 loss
D.$6,250 loss
31) 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.
Received a multi-year pledge, with cash being received this year and for the next 4
years. Donors did not place any use restrictions on how the pledges were to be spent.
32) On January 1, 20X9, Heathcliff Corporation acquired 80 percent of Garfield
Corporation’s voting common stock. Garfield’s buildings and equipment had a book
value of $300,000 and a fair value of $350,000 at the time of acquisition.
Based on the preceding information, what will be the amount at which Garfield’s
buildings and equipment will be reported in consolidated statements using the parent
company approach?
A. $350,000
B. $340,000
C. $280,000
D. $300,000