1) Which of the following statements is true regarding the SEC’s timeline for
convergence?
A.The SEC has no immediate plans to converge GAAP reporting with IFRS standards
B.The SEC has a plan in place to allow firms to begin filing in the United States based
on IFRS during the next several years
C.The SEC has a plan in place to allow companies to choose to file statements under
GAAP reporting or IFRS standards indefinitely
D.The SEC currently allows domestic companies to choose to file financial statements
under either GAAP or IFRS reporting standards
2) 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. Which of the following statements is(are) correct about
the program and supporting expenses that would be reported on the statement of
activities for the year ended June 30, 20X9?
I. Program and supporting expenses should be reported at $340,000.
II. All of the program and supporting expenses should be reported as a deduction from
unrestricted revenues and other support.
A.I only
B.II only
C.I and II
D.Neither I nor II
3) On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by
purchasing 40,000 shares of Siena’s common stock. There was no differential related to
this transaction. The noncontrolling interest had a fair value equal to 20 percent of book
value. The book value of Siena on December 31, 20X7 was as follows:
On January 1, 20X8, Pisa purchased an additional 12,500 shares directly from Siena for
$25 per share.
Based on the preceding information, the elimination entry to prepare the consolidated
financial statements on December 31, 20X7 would include a:
A.credit to common stock for $625,000
B.debit to retained earnings for $37,500
C.credit to Investment in Siena Co. for $976,500
D.credit to NCI in the net assets of Siena Co. for $232,500
4) On January 1, 20X7, Jones Company acquired 90 percent of the outstanding
common stock of Smith Corporation for $1,242,000. On that date, the fair value of
noncontrolling interest was equal to $138,000. The entire differential was related to
land held by Smith. At the date of acquisition, Smith had common stock outstanding of
$520,000, additional paid-in capital of $200,000, and retained earnings of $540,000.
During 20X7, Smith sold inventory to Jones for $440,000. The inventory originally cost
Smith $360,000. By year-end, 30 percent was still in Jones’ ending inventory. During
20X8, the remaining inventory was resold to an unrelated customer. Both Jones and
Smith use perpetual inventory systems.
Income and dividend information for both Jones and Smith for 20X7 and 20X8 are as
follows:
Assume Jones uses the fully adjusted equity method to account for its investment in
Smith.
Required:
a. Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X7.
b. Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X8.
5) 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 investing activities for 20X9?
A.$180,000
B.$100,000
C.$255,000
D.$110,000
6) On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company’s
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial
balances of the two companies are as follows:
Based on the preceding information, what amount would be reported as total assets in
the consolidated balance sheet at December 31, 20X9?
A. $805,000
B. $712,000
C. $742,000
D. $1,102,000
7) Which of the following defines a foreign-based entity that uses a functional currency
different from the local currency?
I. A U.S. subsidiary in Britain maintains its accounting records in pounds sterling, with
the majority of its transactions denominated in pounds sterling.
II. A U.S. subsidiary in Peru conducts virtually all of its business in Latin America, and
uses the U.S. dollar as its major currency.
A.I
B.II
C.Both I and II
D.Neither I nor II
8) 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
9) 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 overall effect of speculation on 20X8
net income?
A.$4,000 gain
B.$6,000 gain
C.$8,000 loss
D.$8,000 gain
10) The City of Warwick received $4,000,000 from one of its most prominent citizens
during the year ended June 30, 20X9. The donor stipulated that the $4,000,000 be
invested permanently, and that interest and dividends earned on the investments be used
to support the homeless people of Warwick. During the year ended June 30, 20X9,
dividends received from stock investments amounted to $20,000, while interest
received from bond investments amounted to $40,000. At June 30, 20X9, $10,000 of
interest was earned, but it will not be received until July of 20X9. The fair value of the
securities in which the $4,000,000 was invested had increased $8,000 by June 30,
20X9.
Refer to the above information. For the year ended June 30, 20X9, what amount should
the trust fund report as investment earnings on the statement of revenues, expenses, and
changes in fund balance?
A.$60,000
B.$68,000
C.$70,000
D.$78,000
11) Which of the following items is optional information for a special-purpose
governmental entity when issuing financial reports?
A.Management’s Discussion and Analysis
B.Footnotes to the financial reports
C.Supplementary Information to the financial reports
D.All of these are required.
12) When a partner retires from a partnership and the retiring partner is paid more than
the capital balance in her account, which of the following explains the difference?
I. The retiring partner is receiving a bonus from the other partners.
II. The retiring partner’s goodwill is being recognized.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
13) Rivendell Corporation and Foster Company merged as of January 1, 20X9. To
effect the merger, Rivendell paid finder’s fees of $40,000, legal fees of $13,000, audit
fees related to the stock issuance of $10,000, stock registration fees of $5,000, and
stock listing application fees of $4,000.
Based on the preceding information, under the acquisition method, what amount
relating to the business combination would be expensed?
A.$72,000
B.$19,000
C.$53,000
D.$63,000
14) On January 3, 20X9, Redding Company acquired 80 percent of Frazer
Corporation’s common stock for $344,000 in cash. At the acquisition date, the book
values and fair values of Frazer’s assets and liabilities were equal, and the fair value of
the noncontrolling interest was equal to 20 percent of the total book value of Frazer.
The stockholders’ equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding’s consolidated
income statement for 20X9.
Based on the preceding information, what will be the amount of net income reported by
Frazer Corporation in 20X9?
A. $44,000
B. $55,000
C. $66,000
D. $36,000
15) On January 1, 20X7, Servant Company purchased a machine with an expected
economic life of five years. On January 1, 20X9, Servant sold the machine to Master
Corporation and recorded the following entry:
Master Corporation holds 75 percent of Servant’s voting shares. Servant reported net
income of $50,000, and Master reported income from its own operations of $100,000
for 20X9. There is no change in the estimated economic life of the equipment as a result
of the intercorporate transfer.
Based on the preceding information, income assigned to the noncontrolling interest in
the 20X9 consolidated income statement will be:
A.$12,000
B.$14,000
C.$12,500
D.$48,000
16) Senior Corporation acquired 80 percent of Junior Company’s voting shares on
January 1, 20X8, at underlying book value. On that date, it also purchased $500,000 par
value 8 percent Junior bonds, which had been issued on January 1, 20X5, with a
12-year maturity. During preparation of the consolidated financial statements for
December 31, 20X8, the following eliminating entry was made in the worksheet:
Based on the information given above, what was the carrying amount of the bonds on
Junior’s books on the date of purchase?
A.$533,750
B.$516,875
C.$545,000
D.$550,625
17) A “debtor-in-possession” balance sheet is prepared for a company which:
A.is having its debts restructured
B.is undergoing a liquidation under Chapter 7
C.is undergoing a reorganization under Chapter 11
D.is in bankruptcy reorganization but management still controls the company
18) Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
Based on the information given above, how many Singapore dollars are required to
purchase goods costing 10,000 US dollars?
A.7,025
B.14,235
C.17,655
D.2,975
19) Company X denominated a December 1, 20X9, purchase of goods in a currency
other than its functional currency. The transaction resulted in a payable fixed in terms of
the amount of foreign currency, and was paid on the settlement date, January 10, 2010.
Exchange rates moved unfavorably at December 31, 20X9, resulting in a loss that
should:
A.be included as a separate component of stockholders’ equity at Dec. 31, 20X9
B.be included as a component of income from continuing operations for 20X9
C.be included as a deferred charge at December 31, 20X9
D.not be reported until January 10, 2010, the settlement date
20) Which of the following funds are classified as proprietary funds?
A.Agency and special revenue funds
B.Enterprise and internal service funds
C.Debt service and capital projects funds
D.Agency and pension trust funds
21) When a new partner is admitted into a partnership and the capital of the old partners
decreases, which of the following explains the reason for the decrease?
I. Undervalued liabilities were written up to their fair values.
II. Undervalued assets were written up to their fair values.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
22) 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: Received tuition revenue from hospital nursing program and cash from
sales of goods in the hospital gift shop.
Effect on Statement of Operations:
A.Increases operating income
B.Decreases operating income
C.The transaction is reported on the statement of operations, but there is no effect on
operating income
D.The transaction is not reported on the statement of operations
23) Light Corporation owns 80 percent of Sound Company’s voting shares. On January
1, 20X7, Sound sold bonds with a par value of $300,000 at 95. Light purchased two
thirds of the bonds; the remainder was sold to nonaffiliates. The bonds mature in ten
years and pay an annual interest rate of 6 percent. Interest is paid semiannually on
January 1 and July 1.
Based on the information given above, what amount of interest expense will be
eliminated in the preparation of the 20X8 consolidated financial statements?
A.$13,000
B.$13,500
C.$10,000
D.$15,000
24) Note: This is a Kaplan CPA Review Question
Roberts and Smith drafted a partnership agreement that lists the following assets
contributed at the partnership’s formation:
The building is subject to a mortgage of $10,000, which the partnership has assumed.
The partnership agreement also specifies that profits and losses are to be distributed
evenly. What amounts should be recorded as capital for Roberts and Smith at the
formation of the partnership?
A.Option A
B.Option B
C.Option C
D.Option D
25) Note: This is a Kaplan CPA Review Question
The Jamestown Corporation (Jamestown) reported net income for the current year of
$200,000 and paid cash dividends of $30,000. The Stadium Company (Stadium) holds
22 percent of the outstanding voting stock of Jamestown. However, another corporation
holds the other 78 percent ownership and does not take Stadium’s wants and wishes into
consideration when making financing and operating decisions for Jamestown. What
investment income should Stadium recognize for the current year?
A.$6,600
B.$0
C.$44,000
D.$50,600
26) Note: This is a Kaplan CPA Review Question
Gray College, a private not-for-profit institution, received a contribution of $100,000
for faculty research. The donation was received in 20X1 and $80,000 was spent in
20X1. As a result of these transactions, Gray College should report on its 20X1
statement of activities a:
A.$100,000 increase in temporarily restricted net assets
B.$20,000 increase in temporarily restricted net assets
C.$80,000 increase in temporarily restricted net assets
D.$100,000 increase in unrestricted net assets
27) Parent Co. purchases 100 percent of Son Company on January 1, 20X1, when
Parent’s retained earnings balance is $520,000 and Son’s is $150,000. During 20X1, Son
reports $15,000 of net income and declares $6,000 of dividends. Parent reports
$105,000 of separate operating earnings plus $15,000 of equity-method income from its
100 percent interest in Son; Parent declares dividends of $40,000.
Based on the preceding information, what is the consolidated retained earnings balance
on December 31, 20X1?
A.$470,000
B.$585,000
C.$600,000
D.$759,000
28) 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, reclassifications would be reported at
A.$190,000
B.$100,000
C.$90,000
D.$230,000
29) The general fund of the City of Atlanta received a check for $10,000 from an
Atlanta resident on July 1, 20X8. Of the amount received, $4,800 represented full
payment of property taxes for 20X8, and the remaining $5,200 represented an advance
payment for property taxes of 20X9. On July 1, 20X8, the general fund should record
the receipt by debiting Cash for $10,000 and by crediting
A.Revenue-Property Tax for $10,000
B.Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200
C.Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200
D.Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200
30) On January 1, 20X7, Pisa Company acquired 80 percent of Siena Company by
purchasing 40,000 shares of Siena’s common stock. There was no differential related to
this transaction. The noncontrolling interest had a fair value equal to 20 percent of book
value. The book value of Siena on December 31, 20X7 was as follows:
On January 1, 20X8, Siena sold an additional 12,500 shares to a nonaffiliate for $25 per
share.
Based on the preceding information, the elimination entry to prepare the consolidated
financial statements on December 31, 20X7 would include a:
A.debit to common stock for $812,500
B.credit to additional paid-in capital for $187,500
C.credit to Investment in Siena Co. for $744,000
D.credit to retained earnings for $350,000
31) Which of the following items are likely to be reported in the supplementary items
section of a statement of realization and liquidation?
A.Creditors’ claims settled during the period
B.Trustee’s administration fees
C.New obligations incurred by the trustee
D.Assets subsequently acquired by the trustee
32) On January 1, 20X7, Gild Company acquired 60 percent of the outstanding
common stock of Leeds Company at the book value of the shares acquired. On that
date, the fair value of noncontrolling interest was equal to 40 percent of book value of
Leeds. At the time of purchase, Leeds had common stock of $1,000,000 outstanding
and retained earnings of $800,000.
On December 31, 20X7, Gild purchased 50 percent of Leeds’ bonds outstanding which
were originally issued on January 2, 20X4, at 99. The total bond issue has a face value
of $600,000, pays 10 percent interest annually, and has a 10-year maturity. Any
premium or discount is amortized on a straight-line basis. Gild paid $306,000 for its
investment in Leeds’ bonds and intends to hold the bonds until maturity.
Income and dividends for Gild and Leeds for 20X7 and 20X8 are as follows:
Assume Gild accounts for its investment in Leeds stock using the cost method.
Required:
A) Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X7.
B) Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X8.
33) Spiralling crude oil prices prompted AMAR Company to purchase call options on
oil as a price-risk-hedging device to hedge the expected increase in prices on an
anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for
20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1,
20X9, call date. The following is the pricing information for the term of the call:
The information for the change in the fair value of the options follows:
On February 1, 20X9, AMAR sells the options at their value on that date and acquires
20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112
per barrel.
Based on the preceding information, the entries made on April 1, 20X9 will include:
A.a debit to Other Comprehensive Income for $200,000
B.a debit to Cost of Goods Sold for $2,240,000
C.a credit to Oil Inventory for $2,240,000
D.a credit to Cost of Goods Sold for $100,000
34) On September 30, 20X8, Wilfred Company sold inventory to Jackson Corporation,
its Canadian subsidiary. The goods cost Wilfred $30,000 and were sold to Jackson for
$40,000, payable in Canadian dollars. The goods are still on hand at the end of the year
on December 31. The Canadian dollar (C$) is the functional currency of the Canadian
subsidiary. The exchange rates follow:
Based on the preceding information, at what amount is the inventory shown on the
consolidated balance sheet for the year?
A.$45,000
B.$30,000
C.$40,000
D.$35,000
35) GASB 34 established four types of interfund activities. Interfund activities are
recognized as revenue in a governmental fund for an:
A.Option A
B.Option B
C.Option C
D.Option D
36) Note: This is a Kaplan CPA Review Question
Selected information from the separate and consolidated balance sheets and income
statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31, 20X5, and for
the year then ended is as follows:
Additional information:
During 20X5, Pare sold goods to Shel at the same markup on cost that Pare uses for all
sales.
In Pare’s consolidating worksheet, what amount of unrealized intercompany profit was
eliminated?
A.$12,000
B.$6,000
C.$58,000
D.$64,000
37) 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
reported in the consolidated income statement for 20X8?
A.$2,765,000
B.$1,620,000
C.$1,422,000
D.$2,963,000
38) For each of the items listed below, state whether they increase or decrease the
balance in cumulative translation adjustments (assuming a credit balance at the
beginning of the year) when the foreign currency strengthened relative to the U.S.
dollar during the year.
A.Option A
B.Option B
C.Option C
D.Option D
39) A voluntary health and welfare organization developed and printed informational
materials which were intended to both educate the public about how its resources are
used to help people in need and to also appeal to the public for much needed support. In
this situation, the cost of the informational materials should be
A.accounted for as fund-raising expense
B.allocated to expenses for program services
C.allocated between expenses for program services and fund-raising expense
D.accounted for as management and general expense
40) Corporation X has a number of exporting transactions with companies based in
Vietnam. Exporting activities result in receivables. If the settlement currency is the US
dollar, which of the following will happen by changes in the direct or indirect exchange
rates?
A.Option A
B.Option B
C.Option C
D.Option D
41) GASB 34 requires a Reconciliation schedule for the Statement of Net Assets. What
does this schedule document?
42) Required: For each transaction described below for the current fiscal year of the
Town of Golden, use an “x” to indicate the fund(s) in which a journal entry should
appear, and whether separate information should be kept for General Long Term Debt
or General Fixed Assets.
