1) In a partnership liquidation, the final cash distribution to the partners should be made
in accordance with the:
a.partners’ profit and loss sharing ratio
b.balances of the partners’ capital accounts
c.ratio of the capital contributions by the partners
d.ratio of capital contributions less withdrawals by the partners
2) P Corporation issued 10,000 shares of common stock with a fair value of $25 per
share for all the outstanding common stock of S Company in a business combination
properly accounted for as an acquisition. The fair value of S Company’s net assets on
that date was $220,000. P Company also agreed to issue an additional 2,000 shares of
common stock with a fair value of $50,000 to the former stockholders of S Company as
an earnings contingency. Assuming that the contingency is expected to be met, the
$50,000 fair value of the additional shares to be issued should be treated as a(n)
a.decrease in noncurrent liabilities of S Company that were assumed by P Company
b.decrease in consolidated retained earnings
c. increase in consolidated goodwill
d.decrease in consolidated other contributed capital
3) When a partner retires and withdraws assets in excess of his book value, the
remaining partners absorb the excess
a.equally
b.in their profit-sharing ratio
c.based on their average capital balances
d.based on their ending capital balances
4) The following information pertains to the transfer of real estate in regards to a
troubled debt restructuring by North Co. to Bell Co. in full settlement of Norths liability
to Bell:
Carrying amount of liability settled$450,000
Carrying amount of real estate transferred$300,000
Fair value of real estate transferred$330,000
What amount should Bell report as a gain or (loss) on restructuring?
a.$120,000 ordinary loss
b.$120,000 extraordinary loss
c.$150,000 ordinary loss
d.$150,000 extraordinary loss
5) It is proper to recognize revenues or expenditures resulting from which of the
following classifications of interfund activity?
a.Interfund loans and interfund transfers
b.Interfund services provided/used and interfund reimbursements
c.Interfund reimbursements and interfund loans
d.Interfund services provided/used and interfund transfers
6) In accounting for research and development costs.
a.the general rule under both US GAAP and IFRS is that research and development
costs should be expensed as incurred
b.IFRS generally expenses all research and development costs while US GAAP
expenses research costs as incurred but capitalizes development costs once
technological and economic feasibility has been demonstrated
c.US GAAP generally expenses all research and development costs while IFRS
expenses research costs as incurred but capitalizes development costs once
technological and economic feasibility has been demonstrated
d.both US GAAP and IFRS expense research costs as incurred but capitalize
development costs once technological and economic feasibility has been demonstrated
If annual major repairs made in the first quarter and paid for in the second quarter
clearly benefit the entire year, when should they be expensed?7) a.An allocated portion
in each of the last three quarters
b.An allocated portion in each quarter of the year
c.In full in the first quarter
d.In full in the second quarter
8) P Corporation acquired an 80% interest in S Corporation two years ago at animplied
value equal to the book value of S. On January 2, 2014, S sold equipment with a
five-year remaining life to P for a gain of $120,000. S reports net income of $600,000
for 2014 and pays dividends of $200,000. Ps Equity from Subsidiary Income for 2014
is:
a.$480,000
b.$384,000
c.$403,200
d.$576,000
The forward exchange rate quoted for the remaining term of a forward contract is used
to account for the contract when the forward contract:9) a.extends beyond one year or
the current operating cycle
b.is a hedge of an identifiable foreign currency commitment
c.is a hedge of an exposed net liability position
d.was acquired to speculate in foreign currency
10) A corporation that is unable to pay its debts as they become due is:
a.bankrupt
b.overdrawn
c.insolvent
d.liquidating
11) The profit and loss sharing ratio should be
a.in the same ratio as the percentage interest owned by each partner
b.based on relative effort contributed to the firm by the partners
c.a weighted average of capital and effort contributions
d.based on any formula that the partners choose
12) Which of the following would be restated using the average exchange rate under the
temporal method?
a.cost of goods sold
b.depreciation expense
c.amortization expense
d.None of these
13) P Company purchased land from its 80% owned subsidiary at a cost of $100,000
greater than it subsidiarys book value. Two years later P sold the land to an outside
entity for $50,000 more than its cost. In its current year consolidated income statement
P and its subsidiary should report a gain on the sale of land of:
a.$50,000
b.$120,000
c.$130,000
d.$150,000
14) In January 2008, S Company, an 80% owned subsidiary of P Company, sold
equipment to P Company for $1,980,000. S Companys original cost for this equipment
was $2,000,000 and had accumulated depreciation of $200,000. P Company continued
to depreciate the equipment over its 9 year remaining life using the straight-line
method. This equipment was sold to a third party on January 1, 2014 for $1,440,000.
What amount of gain should P Company record on its books in 2014?
a.$60,000
b.$120,000
c.$240,000
d.$360,000
15) Greco, Inc. a U.S. corporation, bought machine parts from Franco Company of
Germany on March 1, 2014, for 70,000 marks, when the spot rate for marks was
$0.5395. Grecos year-end was March 31, 2014, when the spot rate for marks was
$0.5445. Greco bought 70,000 marks and paid the invoice on April 20, 2014, when the
spot rate was $0.5495. How much should be shown in Grecos income statements as
foreign exchange (transaction) gain or loss for the years ended March 31, 2014 and
2015?
20142015
a.$0$0
b.$0$350 loss
c.$350 loss$0
d.$350 loss$350 loss
16) Letterman and Conan are partners who share profits and losses 3:7. The capital
accounts on January 1, 2014, are $120,000 and $160,000, respectively. Leno is to be
admitted as a partner with a one-fourth interest in the capital and profits and losses by
investing $80,000. Goodwill is not notto be recorded. The capital balances after
admission should be:
a.Letterman, $117,000; Conan, $153,000; Leno, $90,000
b.Letterman, $120,000; Conan, $160,000; Leno, $90,000
c.Letterman, $123,000; Conan, $160,000; Leno, $80,000
e.Letterman, $120,000; Conan, $167,000; Leno, $80,000
17) Rodgers and Michael formed a partnership on January 2, 201 Michael invested
$120,000 in cash. Rodgers invested land valued at $30,000, which he had purchased for
$20,000 in 2005. In addition, Rodgers possessed superior managerial skills and agreed
to manage the firm. The partners agreed to the following profit and loss allocation
formula:
a.Interest 8% on original capital investments.
b.Salary $5,000 a month to Rodgers.
c.Bonus Rodgers is to be allocated a bonus of 20% of net income after subtracting the
bonus, interest, and salary.
d.Remaining profit is to be divided equally.
At the end of 2014 the partnership reported net income before interest, salaries, and
bonus of $168,000.
Required:
Calculate the amount of bonus to be allocated to Rodgers.
18) A component of an enterprise that may earn revenues and incur expenses, and about
which management evaluates separate financial information in deciding how to allocate
resources and assess performance is a(n)
a.identifiable segment
b.operating segment
c.reportable segment
d.industry segment
19) On January 2, 2013, Pope Company acquired 90% of the outstanding common
stock of Smithwick Company for $480,000 cash. Just before the acquisition, the
balance sheets of the two companies were as follows:
Pope Smithwick
Cash$ 650,000$ 160,000
Accounts Receivable (net) 360,00060,000
Inventory 290,000 140,000
Plant and Equipment (net)970,000240,000
Land 150,000 80,000
Total Assets$2,420,000$680,000
Accounts Payable$ 260,000$ 120,000
Mortgage Payable180,000100,000
Common Stock, $2 par value1,000,000170,000
Other Contributed Capital520,00050,000
Retained Earnings 460,000 240,000
Total Equities$2,420,000$680,000
The fair values of Smithwick’s assets and liabilities are equal to their book values with
the exception of land.
Required:
A.Prepare the journal entry necessary to record the purchase of Smithwick’s common
stock.
B.Prepare a consolidated balance sheet at the date of acquisition.
20) Majority-owned subsidiaries should be excluded from the consolidated statements
when
a.control does not rest with the majority owner
b.the subsidiary operates under governmentally imposed uncertainty
c.a foreign subsidiary is domiciled in a country with foreign exchange restrictions or
controls
d.any of these circumstances exist
21) The summarized balances of the accounts of MNO partnership on December 31,
2014, are as follows:
AssetsLiabilities and Capital
Cash$ 15,000Liabilities$ 15,000
Noncash 90,000M, Capital45,000
N, Capital30,000
O, Capital 15,000
Total Assets $105,000Total Equities$105,000
The agreed upon profit/loss ratio is 50:40:10, respectively. Using the information given
above, which one of the following amounts, if any, is the loss absorption potential of
partner N as of December 31, 2014?
a.$20,000
b.$35,000
c.$75,000
d.$120,000
22) On January 1, 2013, BelgianAir purchases an airplane for 14,400,000. The
components of the airplane and their useful lives are as follows:
BelgianAir uses the straight-line method of depreciation. The asset is assumed to have
no salvage value.
Under IFRS, the entry to record depreciation expense on the asset at December 31,
2014 will include a credit to accumulated depreciation of
a.1,440,000
b.1,200,000
c.800,000
d.600,000
23) A discount or premium on a forward contract is deferred and included in the
measurement of the related foreign currency transaction if the contract is classified as a:
a.hedge of a net investment in a foreign entity
b.hedge of an exposed asset or liability position
c.hedge of an identifiable foreign currency commitment
d.contract acquired to speculate in the movement of exchange rates
24) An enterprise determines that it must report segment data in annual reports for the
year ended December 31, 2014. Which of the following would not be an acceptable
way of reporting segment information?
a.Within the body of the financial statements, with appropriate explanatory disclosures
in the footnotes
b.Entirely in the footnotes to the financial statements
c.As a special report issued separately from the financial statements
d.In a separate schedule that is included as an integral part of the financial statements
25) The partnership agreement of Powell, Gaunt, and Holl allows Gaunt a bonus of
10% of income after the bonus, salaries of $30,000 per partner and interest of 6% on
average capital balances of $120,000, $150,000, and $180,000 for Powell, Gaunt, and
Holl, respectively. The amount of Gaunts bonus, assuming income before bonus,
salaries, and interest of $315,000, is
a.$18,000
b.$22,000
c.$19,800
d.$31,500
26) Accounts are listed below for a foreign subsidiary that maintains its books in its
local currency. The equity interest in the subsidiary was acquired in a purchase
transaction. In the space provided, indicate the exchange rate that would be used to
translate the accounts into dollars assuming the functional currency was identified (a) as
the U.S. dollar and (b) as the foreign entity’s local currency. Use the following letters to
identify the exchange rate:
H Historical exchange rate
C Current exchange rate
A Average exchange rate for the current period
Exchange rate if the
functional currency is:
AccountU.S. DollarLocal currency
1>Bonds Payable (issued 01/01/11)___________ ______________
2>Office Supplies___________ ______________
3>Dividends Declared_________________________
4>Common Stock_________________________
5>Additional Paid-In Capital_________________________
6>Inventory Carried at Cost_________________________
7>Short-term Notes Payable_________________________
8>Accumulated Depreciation_________________________
9>Cash_________________________
10>Marketable Securities (carried
at market)_________________________
11>Cost of Goods Sold_________________________
12>Sales_________________________
13>Accounts Receivable_________________________
14>Depreciation Expense_________________________
15>Income Tax Expense_________________________
27) The duties of the trustee include:
a.appointing creditors committees in liquidation cases
b.approving all payments for debts incurred before the bankruptcy filing
c.examining claims and disallowing any that are improper
d.calling a meeting of the debtors creditors
28) P Company purchased land from its 80% owned subsidiary at a cost of $30,000
greater than it subsidiarys book value. Two years later P sold the land to an outside
entity for $15,000 more than its cost. In its current year consolidated income statement
P and its subsidiary should report a gain on the sale of land of:
a.$15,000
b.$36,000
c.$39,000
d.$45,000
29) Which of the following should be accrued as revenues by the general fund of a local
government?
a.Sales tax held by the state which will be remitted to the local government
b.Parking meter revenues
c.Sales tax collected by merchants
d.Income taxes currently due
30) On January 1, 2009, Pharma Company purchased 16,000 of the 20,000 outstanding
common shares of Sludge Company for $760,000. On January 1, 2013, Pharma
Company sold 2,000 of its shares of Sludge Company on the open market for $90 per
share. Sludge Company’s stockholders’ equity on January 1, 2009, and January 1, 2013,
was as follows: 1/1/09 1/1/13 Common stock, $10 par value $ 200,000 $ 200,000 Other
contributed capital 200,000 200,000 Retained earnings 400,000 700,000 $800,000
$1,100,000 The difference between implied and book value is assigned to Sludge
Company’s land.
The amount of the gain on sale of the 2,000 shares that should be recorded on the books
of Pharma Company is
a.$34,000
b.$85,000
c.$48,000
d.$100,000
e.None of these
31) If an impairment loss is recorded on previously recognized goodwill due to the
transitional goodwill impairment test, the loss should be treated as a(n):
a.loss from a change in accounting principles
b.extraordinary loss
c.loss from continuing operations
d.loss from discontinuing operations
32) Carter and Gore are partners in an automobile repair business. Their respective
capital balances are $425,000 and $275,000, and they share profits in a 3:2 ratio.
Because of growth in their repair business, they decide to admit a new partner. Bush is
admitted to the partnership, after which Carter, Gore, and Bush agree to share profits in
a 3:2:1 ratio.
Required:
Prepare the necessary journal entries to record the admission of Bush in each of the
following independent situations:
A.Bush invests $300,000 for a one-fourth capital interest, but will not accept a capital
balance of less than his investment.
B.Bush invests $150,000 for a one-fifth capital interest. The partners agree that assets
and the firm as a whole should be revalued.
C.Bush purchases a 20% capital interest from each partner. Carter receives $100,000
and Gore receives $50,000 directly from Bush.
33) Agler, Bates and Colter are partners who share income in a 5:3:2 ratio. Colter,
whose capital balance is $150,000, retires from the partnership.
Required:
Determine the amount paid to Colter under each of the following cases:
(1)$50,000 is debited to Agler capital account; the bonus approach is used.
(2)Goodwill of $60,000 is recorded; the partial goodwill approach is used.
(3)$66,000 is credited to Bates capital account; the total goodwill approach is used.
34) When contingent consideration in an acquisition is based on security prices, how
should this contingency be reflected on the acquisition date? If the estimate changes
during the measurement period, how is this handled? If the estimate changes after the
end of the measurement period, how is this adjustment handled? Why?
35) Describe the differences between Chapter 7 (liquidations) and Chapter 11
(reorganizations)from an ethical standpoint. Who is most likely to be hurt by a Chapter
7 bankruptcy?
36) The trial balance for the General Fund of the City of Logan as of December 31,
2013, is presented below:
CITY OF LOGAN
The General Fund
Adjusted Trial Balance
December 31, 2013
DebitCredit
Cash$216,000
Property Tax Receivable31,000
Estimated Uncollectible Taxes$ 80,000
Due from Trust Fund41,000
Vouchers Payable55,000
Reserve for Encumbrances20,000
Unreserved Fund Balance 205,000
$288,000$288,000
Transactions for the year ended December 31, 2014 are summarized as follows:
1>The City Council adopted a budget for the year with estimated revenue of $720,000
and appropriations of $710,000.
2>Property taxes in the amount of $495,000 were levied for the current year. It is
estimated that $20,000 of the taxes levied will prove to be uncollectible.
3>Proceeds from the sale of equipment in the amount of $32,000 were received by the
General Fund. The equipment was purchased four years ago with resources of the
General Fund at a cost of $200,000. On the date it was purchased, it was estimated that
the equipment had a useful life of six years.
4>Licenses and fees in the amount of $90,000 were collected.
5>The total amount of encumbrances against fund resources for the year was $595,000.
6>Vouchers in the amount of $445,000 were authorized for payment. This was $11,000
less than the amount originally encumbered for these purchases.
7>An invoice in the amount of $19,000 was received for goods ordered in 2013. The
invoice was approved for payment.
8>Property taxes in the amount of $425,000 were collected.
9>Vouchers in the amount of $385,000 were paid.
10>Forty-one thousand dollars was transferred to the General Fund from the Trust
Fund.
11>The City Council authorized the write-off of $15,000 in uncollected property taxes.
Required:
1>Prepare entries, in general journal form, to record the transactions for the year ended
December 31, 2014.
2>Prepare the necessary closing entries for the year ending December 31, 2014.
37) How does the FASB view its role in the development of an international accounting
system? Currently, two members of the IASB board were affiliated with the FASB.
Comment on what effect this might have on the likelihood that the U.S. standard setters
will accept the new IASB statements, if any?