1) In accounting for and reporting inventory in the financial statements, the “Reserve
for Inventory” account is used under
a.the consumption method
b.the purchase method
c.both the consumption and purchase methods
d.none of these
2) A parent company uses the partial equity method to account for an investment in
common stock of its subsidiary. A portion of the dividends received this year were in
excess of the parent companys share of the subsidiarys earnings subsequent to the date
of the investment. The amount of dividend income that should be reported in the parent
companys separate income statement should be
a.zero
b.the total amount of dividends received this year
c.the portion of the dividends received this year that were in excess of the parents share
of subsidiarys earnings subsequent to the date of investment
d.the portion of the dividends received this year that were NOT in excess of the parents
share of subsidiarys earnings subsequent to the date of investment
3) Which one of the following statements is not required for NNOs?
a.statement of financial position
b.statement of cash flows
c.statement of changes in net assets
d.statement of activities
4) Polish Company acquired 90% of Sandwich Company’s common stock for $780,000
and 40% of its preferred stock for $180,000.On January 1, 2013, the date of acquisition,
the companies reported the following account balances:
Polish CompanySandwich Company
Preferred stock, $100 par value$ 500,000$ 360,000
Common stock, $10 par value1,200,000600,000
Other contributed capital190,000140,000
Retained earnings 210,000 110,000
Total stockholders’ equity$2,100,000$1,200,000
The preferred stock is 10%, cumulative, nonparticipating, and has a liquidation value
equal to 104% of par value.Dividends were not paid during 2012.During 2013,
Sandwich Company reported net income of $120,000 and declared and paid cash
dividends in the amount of $70,000.
The difference between the implied value of the preferred stock and its book value is
a.$40,000
b.$39,600
c.$34,400
d.$26,000
e.15,840
5) In the preparation of a consolidated statement of cash flows using the indirect
method of presenting cash flows from operating activities, the amount of the
noncontrolling interest in consolidated income is
a.combined with the controlling interest in consolidated net income
b.deducted from the controlling interest in consolidated net income
c.reported as a significant noncash investing and financing activity in the notes
d.reported as a component of cash flows from financing activities
6) Revenue test
(dollars in thousands)
WholesaleRetailFinance
SegmentSegmentSegment
Sales to unaffiliated customers$3,600$1,500$-0-
Sales intersegment400240-0-
Loan interest income intersegment-0- 120900
Loan interest income unaffiliated-0-24080
Income from equity method investees-0-280-0-
Determine the amount of revenue for each of the three segments that would be used to
identify the reportable industry segments in accordance with the revenues test specified
by SFAS 131.
WholesaleRetailFinance
a.$3,600$1,500$ -0-
b.4,0001,740-0-
c.4,0001,980980
d.4,0002,380980
7) Dobby Corporation was forced into bankruptcy and is in the process of liquidating
assets and paying claims. Unsecured claims will be paid at the rate of thirty cents on the
dollar. Carson holds a note receivable from Dobby for $75,000 collateralized by an
asset with a book value of $50,000 and a liquidation value of $25,000. The amount to
be realized by Carson on this note is:
a.$25,000
b.$40,000
c.$50,000
d.$75,000
8) P Company purchased 80% of the outstanding common stock of S Company on May
1, 2014, for a cash payment of $318,000. S Companys December 31, 2013 balance
sheet reported common stock of $200,000 and retained earnings of $180,000. During
the calendar year 2014, S Company earned $210,000 evenly throughout the year and
declared a dividend of $75,000 on November 1. What is the amount needed to establish
reciprocity under the cost method in the preparation of a consolidated workpaper on
December 31, 2014?
a.$52,000
b.$65,000
c.$62,000
d.$108,000
9) P Company bought 60% of the common stock of S Company on January 1, 201 On
January 1, 2014 there was an intercompany sale of equipment at a gain of $63,000. The
equipment had an estimated remaining life of six years. Net incomes of the two
companies from their own operations (including sales to affiliates) were as follows:
20142015
P Company $280,000$210,000
S Company70,000105,000
A.If S Company sold the equipment to P Company, fill in the following matrix:
20142015
Noncontrolling interest in consolidated net income
Controlling Interest in Consolidated net income
B.If P Company sold the equipment to S Company, fill in the following matrix:
20142015
Noncontrolling interest in consolidated net income
Controlling interest in consolidated net income
10) The primary beneficiary of a variable interest entity (VIE) must consolidate the VIE
into its financial statements whenever
a.substantially all of the entitys activities are conducted on behalf of an investor who
has disproportionally few voting rights
b.the voting rights are not proportional to the obligations to absorb the expected losses
or receive expected residual returns
c.the total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties
d.the holders of the equity investment at risk have the right to receive the residual
returns of the legal entity
In preparing consolidated financial statements of a U.S. parent company and a foreign
subsidiary, the foreign subsidiarys functional currency is the currency:11) a.of the
country the parent is located
b.of the country the subsidiary is located
c.in which the subsidiary primarily generates and spends cash
d.in which the subsidiary maintains its accounting records
12) The difference between normal earnings and expected future earnings is
a.average earnings
b.excess earnings
c.ordinary earnings
d.target earnings
13) In a business combination, which of the following costs are assigned to the
valuation of the security?
Professional orSecurity
consulting feesissue costs
a.YesYes
b.YesNo
c.NoYes
d.NoNo
14) Pratt Company purchased 40,000 shares of Silas Companys common stock for
$860,000 on January 1, 201 At that time Silas Company had $500,000 of $10 par value
common stock and $300,000 of retained earnings. Silas Companys income earned and
increase in retained earnings during 2013 and 2014 were:
20132014
Income earned$260,000$360,000
Increase in Retained Earnings200,000300,000
Silas Company income is earned evenly throughout the year.
On September 1, 2014, Pratt Company sold on the open market, 12,000 shares of its
Silas Company stock for $460,000. Any difference between cost and book value relates
to Silas Company land. Pratt Company uses the cost method to account for its
investment in Silas Company.
Required:
A.Compute Pratt Companys reported gain (loss) on the sale.
B.Prepare all consolidated statements workpaper eliminating entries for a workpaper on
December 31, 2014.
15) An NNO obtained cash for the acquisition of property and equipment as follows:
Loan proceeds$200,000
Contributions$400,000
These funds are used to acquire land. In addition, $20,000 in principal and $2,000 in
interest is paid on indebtedness relating to property and equipment. Depreciation on
property and equipment for the year is $80,000.
Required:
Prepare all necessary entries in the affected funds of the NNO, assuming that the NNO
is a:
a.Voluntary health and welfare organization
b.University
c.Hospital
16) Resources of an unrestricted fund that are designated by the governing board for
endowment purposes are accounted for in the unrestricted fund by all NNOs except
a.voluntary health and welfare organizations
b.hospitals
c.colleges and universities
d.other NNOs
17) Which statement with respect to gains and losses on troubled debt restructuring is
correct?
a.Creditors losses on restructuring are extraordinary
b.Debtors gains and losses on asset transfers and debtors gains on restructuring are
combined and treated as extraordinary
c.Debtor gains and creditor losses on restructuring are extraordinary, if material in
amount
d.Debtor losses on asset transfers and debtor gains on restructuring are reported as a
component of net income
18) Pentagon Company acquired 90% of Smoker Company’s common stock for
$1,300,000 and 40% of its preferred stock for $300,000.On January 1, 2013, the date of
acquisition, the companies reported the following account balances:
Pentagon CompanySmoker Company
Preferred stock, $100 par value$ 800,000$ 600,000
Common stock, $10 par value2,000,0001,000,000
Other contributed capital320,000230,000
Retained earnings 350,000 180,000
Total stockholders’ equity$3,470,000$2,010,000
The preferred stock is 10%, cumulative, nonparticipating, and has a liquidation value
equal to 102% of par value.Dividends were not paid during 2012.During 2013, Smoker
Company reported net income of $200,000 and declared and paid cash dividends in the
amount of $120,000.
Noncontrolling interest in the 2013 reported net income of SmokerCompany is
a.$50,000
b.$20,000
c.$80,000
d.$56,000
e.none of these
19) When the goodwill method is used to record the admission of a new partner, total
partnership capital increases by an amount
a.equal to the new partners investment
b.greater than the new partners investment
c.less than the new partners investment
d.that may be more or less than the new partners investment
20) P Co. issued 5,000 shares of its common stock, valued at $200,000, to the former
shareholders of S Company two years after S Company was acquired in an all-stock
transaction. The additional shares were issued because P Company agreed to issue
additional shares of common stock if the average post combination earnings over the
next two years exceeded $500,000. P Company will treat the issuance of the additional
shares as a (decrease in)
a.consolidated retained earnings
b.consolidated goodwill
c.consolidated paid-in capital
d.non-current liabilities of S Company assumed by P Company
21) The following balance sheet information is for the partnership of Abele, Boule, and
Cayman:
Cash$ 210,000Liabilities$ 510,000
Other assets1,500,000 Abele, Capital (40%)300,000
Boule, Capital (40%)480,000
Cayman, Capital (20%) 420,000
$1,710,000$1,710,000
Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If the assets are fairly valued on the above balance sheet and the partnership wishes to
admit Dann as a new 1/5 partner without recording goodwill or bonus, Dann should
invest cash or other assets of
a.$427,500
b.$240,000
c.$300,000
d.$342,000
22) Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing
14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on
January 1, 2013. Suburbia reported net income in 2013 of $90,000 and in 2014 of
$120,000 earned evenly throughout the respective years. Prime received no bold –
inconsistent$24,000 dividends from Suburbia in 2013 and $36,000 in 2014. Prime uses
the equity method to record its investment.
Prime should record investment income from Suburbia during 2014 of:
a.$36,000
b.$120,000
c.$84,000
d.$48,000
23) Plain Corporation acquired a 75% interest in Swampy Company on January 1,
2013, for $2,000,000. The book value and fair value of the assets and liabilities of
Swampy Company on that date were as follows:
Book ValueFair Value
Current Assets$ 600,000$ 600,000
Property & Equipment (net)1,400,0001,800,000
Land700,000900,000
Deferred Charge 300,000 300,000
Total Assets$3,000,000$3,600,000
Less Liabilities 600,000 600,000
Net Assets$2,400,000$3,000,000
The property and equipment had a remaining life of 6 years on January 1, 2013, and the
deferred charge was being amortized over a period of 5 years from that date. Common
stock was $1,500,000 and retained earnings was $900,000 on January 1, 2013. Plain
Company records its investment in Swampy Company using the cost method.
Required:
Prepare, in general journal form, the December 31, 2013, workpaper entries necessary
to:
A.Eliminate the investment account.
B.Allocate and amortize the difference between implied and book value.
24) Sales from one subsidiary to another are called
a.downstream sales
b.upstream sales
c.intersubsidiary sales
d.horizontal sales
25) When a bankruptcy court enters an order for relief it has:
a.accepted the petition
b.dismissed the petition
c.appointed a trustee
d.started legal action against the debtor by its creditors
26) The first step in estimating goodwill in the excess earnings approach is to
a.determine normal earnings
b.identify a normal rate of return for similar firms
c.compute excess earnings
d.estimate expected future earnings
27) Paid-in capital accounts are translated using the historical exchange rate under:
a.the current rate method only
b.the temporal method only
c.both the current rate and temporal methods
d.neither the current rate nor temporal methods
28) The workpaper entry in the year of sale to eliminate unrealized intercompany profit
in ending inventory includes a
a.credit to Ending Inventory (Cost of Sales)
b.credit to Sales
c.debit to Ending Inventory (Cost of Sales)
d.debit to Inventory – Balance Sheet
29) Which of the following items is not I would be consistent and use just bold, no
underline or italics a specified priority for unsecured creditors in a bankruptcy petition?
a.Administration fees incurred in administering the bankrupts estate
b.Unsecured claims for wages earned within 90 days and are less than $4,650 per
employee
c.Unsecured claims of governmental units for unpaid taxes
d.Unsecured claims on credit card charges that do not exceed $3,000
30) Accounting terminology that differs between IFRS and US GAAP include all of the
following except:
a.the use by IFRS of turnover for revenue
b.the use by IFRS of share premium for additional paid-in-capital
c.the use by IFRS of other capital reserves for retained earnings
d.the use by IFRS of issued capital for common stock
31) In the absence of an agreement among the partners
a.interest is allowed on capital investments
b.interest is charged on partners drawings
c.interest is allowed on advances to the firm made by partners beyond agreed
investments
d.compensation is allowed partners for extra time devoted to the partnership
32) The donated services of volunteer workers on fundraising campaigns are usually
not given ac-counting recognition. Why?
33) List four advantages of a business combination as compared to internal expansion.
34) Define a tender offer and describe its use.
35) In SFAS No. 131, the FASB requires all public companies to report a variety of
information for reportable segments. Define a reportable segment and identify the
information to be reported for each reportable segment.
36) Pennington Corporation purchased 80% of the voting common stock of Stafford
Corporation for $3,200,000 cash on January 1, 2013. On this date the book values and
fair values of Stafford Corporation’s assets and liabilities were as follows:
Book ValueFair Value
Cash$ 70,000 $ 70,000
Receivables240,000240,000
Inventories600,000700,000
Other Current Assets340,000405,000
Land600,000720,000
Buildings net1,050,0001,920,000
Equipment net 850,000 750,000
$3,750,000$4,805,000
Accounts Payable$ 250,000$250,000
Other Liabilities740,000670,000
Capital Stock2,400,000
Retained Earnings 360,000
$3,750,000
Required:
Prepare a schedule showing how the difference between Stafford Corporation’s implied
value and the book value of the net assets acquired should be allocated.
37) Which of the following is not a budgetary account?
e.Appropriations
f.Estimated Revenues
g.Encumbrances
h.Reserve for Encumbrances
38) What is the difference between net income, or earnings, and comprehensive
income?