1) During a “flight to quality”
A) the spread between Treasury bonds and Baa bonds increases
B) the spread between Treasury bonds and Baa bonds decreases
C) the spread between Treasury bonds and Baa bonds is not affected
D) the change in the spread between Treasury bonds and Baa bonds cannot be predicted
2) When a city enters into a capital lease for a fixed asset for the general government,
A) government-wide statements will report an Encumbrance for the leased asset.
B) government-wide statements will report the liability, Capital Lease Obligation.
C) governmental fund statements will report a fixed asset.
D) governmental fund statements will report a liability, Capital Lease Obligation.
3) Panini Corporation owns 85% of the outstanding voting stock of Strathmore
Company and Malone Corporation owns the remaining 15% of Strathmore’s voting
stock. On the consolidated financial statements of Panini Corporation and Strathmore,
Malone is
A) an affiliate
B) a noncontrolling interest
C) an equity investee
D) a related party
4) A single creditor
A) can never file a petition for bankruptcy
B) with a $12,300 or more secured claim may file a petition for bankruptcy
C) with a $12,300 or more unsecured claim may file a petition for bankruptcy, if there
are fewer than 12 unsecured creditors
D) with a $12,300 or more unsecured claim may file a petition for bankruptcy if there
are more than 12 unsecured creditors
5) Under the modified accrual basis of accounting, revenues are recognized in the
period
A) when the relevant service is done
B) when they are collected
C) when the paying entity is billed
D) when they become both measurable and available
6) Internal Service Funds differ from Enterprise Funds because Internal Service Funds
A) are a proprietary fund
B) are intended to show a profit
C) charge for their services
D) provide goods and services primarily to other government agencies
7) When a capital lease is used to lease fixed assets for the general government, the
governmental fund acquiring the fixed assets debits ________ at the ________.
A) expenditures; future value of the minimum lease payments
B) fixed assets; future value of the minimum lease payments
C) expenditures, present value of the minimum lease payments
D) fixed assets; present value of the minimum lease payments
8) The material sale of inventory items by a parent company to an affiliated company
A) enters the consolidated revenue computation only if the transfer was the result of
arm’s length bargaining
B) affects consolidated net income under a periodic inventory system but not under a
perpetual inventory system
C) does not result in consolidated income until the merchandise is sold to outside
parties
D) does not require a working paper adjustment if the merchandise was transferred at
cost
9) Durer Inc. acquired Sea Corporation in a business combination and Sea Corp went
out of existence. Sea Corp developed a patent listed as an asset on Sea Corp’s books at
the patent office filing cost. In recording the combination,
A) fair value is not assigned to the patent because the research and development costs
have been expensed by Sea Corp
B) Sea Corp’s prior expenses to develop the patent are recorded as an asset by Durer at
purchase
C) the patent is recorded as an asset at fair market value
D) the patent’s market value increases goodwill
10) In partnership liquidations, what are safe payments?
A) The amounts of distributions that can be made to the partners, after all creditors have
been paid in full
B) The amounts of distributions that can be made to the partners with assurance that
such amounts will not have to be returned to the partnership
C) The amounts of distributions that can be made to the partners, after all non-cash
assets have been adjusted to fair market value
D) The amounts of distributions that can be made to the partners during the liquidation
based on the partner’s contributed capital return
11) Push-down accounting
A) requires a subsidiary to use the same accounting principles as its parent company
B) is required when the parent company uses the equity method to account for its
investment in a subsidiary
C) is required when the parent company uses the cost method to account for its
investment in a subsidiary
D) requires the subsidiary to record the subsidiary’s assets and liabilities at fair value at
the acquisition date
12) A direct quote for the U.S. dollar is given at $1.45 per 1 foreign currency unit (fcu).
The respective indirect quote for the U.S. dollar would be reported as
A) 1.45 fcu = $1.00
B) 1.45 fcu = $.6897
C) .6897 fcu = $1.00
D) 1.00 fcu = $1.45
13) Plenty Corporation issued six thousand, $1,000 par, 6% bonds on January 1, 2010,
at par. Interest is paid on January 1 and July 1 of each year; the bonds mature on
January 1, 2015 . On January 2, 2012, Scrawn Corporation, a 75%-owned subsidiary of
Plenty, purchased 3,000 of the bonds on the open market at 102.50 . Plenty’s separate
net income for 2012 included the annual interest expense for all 3,000 bonds. Scrawn’s
separate net income for 2012 was $400,000, which included the bond interest received
on July 1 as well as the accrual of bond interest revenue earned on December 31 . Both
companies use straight-line amortization of bond discounts/premiums.
If the bonds were originally issued at 106, and 80% of them were purchased by Scrawn
on January 2, 2013 at 98, the gain or (loss) from the intercompany purchase was
A) $(384,000)
B) $(211,200)
C) $ 211,200
D) $ 384,000
14) Match the following definitions to the appropriate government accounting terms
(numbered below).
A.Legally separate organization for which primary government is financially
accountable
B.The use of governmental fund working capital
C.Appropriation for a specific time period
D.Governmental and Proprietary fund revenues and expenses presented using full
accrual accounting
E.Approved or authorized expenditures
F.Revenues recognized when available to meet current obligations
G.Self-balancing set of accounts
H.Each state government and each general-purpose local government
I.The responsibility to demonstrate compliance with public decisions with regard to the
use of financial resources
J.Governmental and Internal Service Funds assets and liabilities presented together
_____1>Modified Accrual Basis
_____2>Fund
_____3>Primary Government
_____4>Appropriation
_____5>Statement of Net Assets
_____6>Fiscal Accountability
_____7>Allotment
_____8>Component Unit
_____9>Statement of Activities
_____10>Expenditures
15) On November 2, 2011, Bellamy Corporation sells product to their Danish customer.
At the same time, Bellamy signed a forward contract to sell 200,000 Danish krone in
ninety days to hedge the account receivable at $0.1905, the 90-day forward rate. The
receivable is expected to be collected in ninety days. Assume the forward contract will
be settled net and this is a fair value hedge. The related exchange rates are shown
below:
Assuming a present value factor of 1 for simplicity, what is the fair value of this
forward contract on December 31?
A) $160 asset
B) $160 liability
C) $140 asset
D) $140 liability
16) When the billing for a U.S. company’s sale to a company in a foreign country is
denominated in U.S. dollars, ________ is required when preparing journal entries for
the sale.
A) translation to a foreign currency
B) conversion to a foreign currency
C) translation to U.S. dollars
D) no translation
17) On January 1, 2011, Pinnead Incorporated paid $300,000 for an 80% interest in
Shalle Company. At that time, Shalle’s total book value was $300,000. Patents were
undervalued in the amount of $10,000. Patents had a 5-year remaining useful life, and
any remaining excess value was attributed to goodwill. The income statements for the
year ended December 31, 2011 of Pinnead and Shalle are summarized below:
PinneadShalle
Sales$800,000$300,000
Income from Shalle 78,400
Cost of sales (100,000)(100,000)
Depreciation (70,000)(30,000)
Other Expenses (130,000)(70,000)
Net Income $578,400$100,000
Requirements:
1>Calculate the goodwill that will appear in the consolidated balance sheet of Pinnead
and Subsidiary at December 31, 2011 .
2>Calculate consolidated net income for 2011 .
3>Calculate the noncontrolling interest share for 2011 .
18) Southtown Community Hospital (SCH) shows the following balances on its trial
balance at June 30, 2011, their fiscal year end. SCH is a not-for-profit,
nongovernmental hospital. $260,000 cash was spent on equipment from donations
restricted for that purpose.
Debits:
Administrative services expense200,000
Contractual allowances1,200,000
Depreciation expense700,000
Employee discounts300,000
General services expense900,000
Loss on sale of fixed assets100,000
Nursing services expense4,000,000
Resident and visiting professional services expense3,000,000
Provision for bad debts600,000
Credits:
Income from investment in clinic120,000
Patient service revenues10,000,000
Pharmacy400,000
Cafeteria services200,000
Unrestricted contributions350,000
Unrestricted income from endowment funds280,000
Restricted donations for equipment purchases500,000
Required:
Prepare a statement of operations for Southtown Community Hospital at June 30, 2011 .
19) On January 1, 2011, Pilgrim Imaging purchased 90% of the outstanding common
stock of Snapshot Productions for $585,000 cash. The remaining 10% of Snapshot had
an assessed fair value of $65,000 at that time. Snapshot had equipment that was
undervalued on their books by $50,000, and an unrecorded patent with a fair value of
$15,000. The equipment had five years remaining to its useful life, and the patent had
10 years remaining to its useful life.
On January 1, 2012, Pilgrim sold Snapshot a building for $100,000 that had originally
cost $140,000. The book value was $60,000 at the date of transfer, and had a five-year
remaining life at the date of transfer. Straight-line depreciation is used with no salvage
value. Several line items from the companies’ separate December 31, 2012 trial
balances are shown below.
Required: Determine consolidated balances for each of the accounts listed as of
December 31, 2012 .
20) The partnership of Georgia, Holly, and Izzy was dissolved, and by July 1, 2011, all
assets had been converted into cash and all partnership liabilities were paid. The
partnership balance sheet on July 1, 2011 (with partner residual profit and loss sharing
percentages) was as follows:
Cash$10,000Georgia, capital (40%)$(20,000)
Holly, capital (30%)(10,000)
Izzy, capital (30%)40,000
Total assets$10,000Total liab./equity$10,000
The value of the partners’ personal assets and liabilities on July 1, 2011 were as follows:
GeorgiaHollyIzzy
Personal assets$45,000$30,000$25,000
Personal liabilities30,00020,00010,000
Required:
Prepare the final statement of partnership liquidation.
21) Partridge Corporation purchased an 80% interest in Sandy Corporation for
$840,000 on January 1, 2011 . Sandy’s balance sheet book values and accompanying
fair values on this date are shown below.
Parent
Entity Company
TheoryTheory
Push-Push-
Down Down
BookFairBalanceBalance
Value Value Sheet Sheet
Cash$30,000$30,000________________
Receivables200,000200,000________________
Inventory300,000360,000________________
Land50,00090,000________________
Plant assets-net250,000300,000________________
Total Assets$830,000$980,000________________
Current liabilities$180,000$180,000________________
Other liabilities120,000100,000________________
Common Stock400,000________________
Retained Earnings130,000________________________
Total Liab. & Equity$830,000________________________
Required:
Complete the push-down columns of Sandy Corporation’s restructured balance sheet
using entity theory and parent company theory.
22) The trial balance for the General Fund for Golden City held the following balances
at June 30, 2011, just before closing entries were made:
Due from other funds$2,700
Fund balance – unassigned51,000
Estimated revenues208,000
Revenues198,900
Appropriations196,500
Expenditures – current year193,800
Expenditures – prior year4,500
Other Financing Sources – Transfer from Debt Service Fund6,000
Required:
Prepare the necessary closing entries.
23) On December 31, 2011, Dixie Corporation has the following information available:
Common stock, $10 par$200,000
Additional paid-in capital60,000
Retained earnings40,000
Total stockholders’ equity$300,000
On December 31, 2011, Grimsled Corporation buys an 80% interest in Dixie
Corporation for $240,000. On December 31, 2011, the fair value of Dixie’s assets and
liabilities are equal to the respective book values.
Required:
1> On January 1, 2012, Dixie Corporation sells 5,000 additional shares of common
stock to noncontrolling stockholders at $20 per share. Prepare the journal entry for
Grimsled Corporation on January 1, 2012 .
2> On January 1, 2012, Dixie Corporation sells 5,000 additional shares of common
stock to noncontrolling stockholders at $35 per share. Prepare the journal entry for
Grimsled Corporation on January 1, 2012 .
3> On January 1, 2012, Dixie Corporation sells 5,000 additional shares of common
stock to noncontrolling stockholders at $10 per share. Prepare the journal entry for
Grimsled Corporation on January 1, 2012 .
24) Pelami Corporation owns a 90% interest in Sunbird Corporation. At December 31,
2010, Sunbird had $3,000,000 of par value 6% bonds outstanding with an unamortized
premium of $30,000. The bonds have interest payment dates of January 1 and July 1
and mature on January 1, 2015 .
On January 2, 2011, Pelami purchased $1,200,000 par value of Sunbird’s outstanding
bonds for $1,210,000. Assume straight-line amortization.
Required:
Prepare the necessary consolidation working paper entries with respect to the
intercompany bonds for the year ending December 31, 2011 .
25) Stilt Corporation purchased a 40% interest in the common stock of Shallow
Company for $2,660,000 on January 1, 2011, when the book value of Shallow’s net
equity was $6,000,000. Shallow’s book values equaled their fair values except for the
following items:
BookFair
ValueValueDifference
Inventories$450,000$500,000$ 50,000
Land100,000450,000350,000
Building-net400,000200,000(200,000)
Equipment-net350,000400,00050,000
Required:
Prepare a schedule to allocate any excess purchase cost to identifiable assets and
goodwill.
