1) Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
A. Fair value
B. Unrestricted net assets
C. GASB
D. FASB
E. Statement of Revenues, Expenditures, and Changes in Fund Balance
F. Lower of cost or market
G. Accrual method
H. Statement of Activities
I. General fund, restricted fund, endowment fund
J. Modified accrual method
K. Permanently restricted net assets
L. Temporarily restricted net assets
M. Endowment fund
N. Unrestricted, temporarily restricted, permanently restricted
O. Depreciation
P. Works of art and other historical treasures
Q. General fund
R. Cost
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
“Classification of investment income from endowment investments if there are no
donor restrictions as to income” describes which term listed above?
2) If the functional currency is the local currency of a foreign subsidiary, what exchange
rates should be used to translate the items below, assuming the foreign subsidiary is in a
country which has not experienced hyperinflation over three years?
A.Option A
B.Option B
C.Option C
D.Option D
3) The following condensed balance sheet is presented for the partnership of D, E, and
F who share profits and losses in the ratio of 5:3:2, respectively:
The partners agreed to liquidate the partnership after selling the other assets.
Refer to the above information. If the other assets are sold for $80,000, and all partners
are personally insolvent, how much should E receive upon liquidation?
A.$0
B.$6,000
C.$10,000
D.$20,000
4) 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 consolidated net income will A
Company report for 20X9?
A.$175,000
B.$285,000
C.$356,250
D.$400,000
5) Princeton Company acquired 75 percent of the common stock of Sheffield
Corporation on December 31, 20X9. On the date of acquisition, Princeton held land
with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a
book value of $100,000 and fair value of $500,000. Using the entity theory, at what
amount would land be reported in a consolidated balance sheet prepared immediately
after the combination?
A. $650,000
B. $500,000
C. $550,000
D. $375,000
6) 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.
Based on the information given above, what amount of interest expense will be
eliminated in the preparation of the 20X9 consolidated financial statements?
A.$17,000
B.$13,300
C.$18,500
D.$22,200
7) Parisian Co. is a French company located in Paris. Yankee Corp., located in New
York City, acquires Parisian Co. Parisian has the Euro as its local currency and the
Swiss Franc as its functional currency. Yankee has the U.S. dollar as its local currency
and the U.S. dollar as its functional currency.
Required:
a) The year-end consolidated financial statements will be prepared in which currency?
b) Explain which method is appropriate to use to use at year-end: Translation or
Remeasurement?
8) Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of
Company Esstwo. Company Esstwo owns 100 percent of Company Essthree.
Consolidated financial statements should be prepared to report the financial status and
results of operations for:
A. Pea
B. Pea plus Essone
C. Pea plus Essone plus Esstwo
D. Pea plus Essone plus Esstwo plus Essthree
9) The computation of a safe installment payment for the XYZ partnership resulted in
only partner Z receiving cash. Which of the following statements is correct?
I. Partner Z lent the partnership cash, and the partnership had to pay back the loan to Z
before distributing cash to X and Y.
II. After assuming all noncash assets were potentially worthless and that assumed
capital deficits created in X’s and Y’s capital balances were losses to be allocated to Z;
Z’s capital balance was the only capital balance left with a credit.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
10) 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: Acquired equipment with all of the contributions received in the previous
item.
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
11) A parent and its 80 percent owned subsidiary have made several intercompany sales
of noncurrent assets during the past two years. The amount of income assigned to the
noncontrolling interest for the second year should include the noncontrolling interest’s
share of gains:
A.unrealized in the second year from upstream sales made in the second year
B.realized in the second year from downstream sales made in both years
C.realized in the second year from upstream sales made in both years
D.both realized and unrealized from upstream sales made in the second year
12) Phobos Company holds 80 percent of Deimos Company’s voting shares. During the
preparation of consolidated financial statements for 20X9, the following eliminating
entry was made:
Which of the following statements is correct?
A.Phobos Company purchased land from Deimos Company during 20X9
B.Phobos Company purchased land from Deimos Company before January 1, 20X9
C.Deimos Company purchased land from Phobos Company during 20X9
D.Deimos Company purchased land from Phobos Company before January 1, 20X9
13) Note: This is a Kaplan CPA Review Question
On August 31, 20X1, Wood Corp. issued 100,000 shares of its $20 par value common
stock for the net assets of Pine, Inc. in a business combination accounted for by the
acquisition method. The market value of Wood’s common stock on August 31 was $36
per share. Wood paid a fee of $160,000 to the consultant who arranged this acquisition.
Costs of registering and issuing the equity securities amounted to $80,000. No goodwill
was involved in the purchase. What amount should Wood capitalize as the cost of
acquiring Pine’s net assets?
A.$3,680,000
B.$3,600,000
C.$3,760,000
D.$3,840,000
14) On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding
shares of Spiel Corporation for $100,000 cash. Spiel Company reported net income of
$75,000 and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of
shares held by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8
respectively.
Based on the preceding information, what amount will be reported by Yang as balance
in investment in Spiel on December 31, 20X8, if it used the equity method of
accounting?
A.$108,250
B.$118,750
C.$100,000
D.$122,500
15) 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 price did Senior pay to purchase the Junior
bonds?
A.$530,000
B.$516,875
C.$533,750
D.$550,625
16) Blue Company owns 80 percent of the common stock of White Corporation. During
the year, Blue reported sales of $1,000,000, and White reported sales of $500,000,
including sales to Blue of $80,000. The amount of sales that should be reported in the
consolidated income statement for the year is:
A. $500,000
B. $1,300,000
C. $1,420,000
D. $1,500,000
17) 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, 20X 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 provided by operating activities for 20X9?
A.$207,000
B.$163,000
C.$180,000
D.$149,000
18) During the third quarter of 20X8, Pride Company sold a piece of equipment at an
$8,000 gain. What portion of the gain should Pride report in its income statement for
the third quarter of 20X8?
A.$0
B.$2,000
C.$4,000
D.$8,000
19) Sub Company sells all its output at 20 percent above cost to Par Corporation. Par
purchases its entire inventory from Sub. The incomes reported by the companies over
the past three years are as follows:
Sub Company sold inventory for $300,000, $262,500 and $337,500 in the years 20X6,
20X7, and 20X8 respectively. Par Company reported ending inventory of $105,000,
$157,500 and $180,000 for 20X6, 20X7, and 20X8 respectively. Par acquired 70
percent of the ownership of Sub on January 1, 20X6, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.
Based on the information given above, what will be the income to noncontrolling
interest for 20X8?
A.$39,750
B.$37,875
C.$71,275
D.$70,875
20) On January 1, 20X9, Company A acquired 80 percent of the common stock and 60
percent of the preferred stock of Company B, for $400,000 and $60,000, respectively.
At the time of acquisition, the fair value of the common shares of Company B held by
the noncontrolling interest was $100,000. Company B’s balance sheet contained the
following balances:
For the year ended December 31, 20X9, Company B reported net income of $100,000
and paid dividends of $40,000. The preferred stock is cumulative and pays an annual
dividend of 10 percent.
Based on the preceding information, what will be the equity method income reported by
Company A from its investment in Company B during 20X9?
A.$32,000
B.$30,000
C.$72,000
D.$48,000
21) Cutler Company owns 80 percent of the common stock of Marina Inc. Cutler
acquires some of Marina’s bonds from an unrelated party for less than the carrying
value on Marina’s books and holds them as a long-term investment. For consolidated
reporting purposes, how is the acquisition of Marina’s bonds treated?
A.As a decrease in the Bonds Payable account on Marina’s books
B.As an increase in noncurrent assets
C.Everything related to the bonds is eliminated in the consolidation worksheet, and
nothing related to the bonds appears in the consolidated financial statements
D.As a retirement of bonds
22) Note: This is a Kaplan CPA Review Question
The following related entries were recorded in sequence in the general fund of a
municipality:
The sequence of entries indicates that
A.Encumbrances were anticipated but later failed to materialize and were reversed. A
liability of $12,350 was incurred
B.An adverse event was foreseen and a reserve of $12,000 was created; later the reserve
was cancelled and a liability for the item was acknowledged
C.An order was placed for goods or services estimated to cost $12,000; the actual cost
was $12,350 for which a liability was acknowledged upon receipt
D.The first entry was erroneous and was reversed; a liability of $12,350 was
acknowledged
23) Parent Corporation purchased land from S1 Corporation for $220,000 on December
26, 20X8. This purchase followed a series of transactions between P-controlled
subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a
nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19,
20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has
control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, at what amount should the land be reported in the
consolidated balance sheet as of December 31, 20X8?
A.$145,000
B.$220,000
C.$197,000
D.$160,000
24) Pace Corporation acquired 100 percent of Spin Company’s common stock on
January 1, 20X 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, at what amount should total land be reported in the
consolidated balance sheet prepared immediately after the business combination?
A.$130,000
B.$105,000
C.$115,000
D.$120,000
25) On a partner’s personal statement of financial condition, how are assets valued?
A.Historical cost
B.Book value
C.Discounted value
D.Estimated current value
26) 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 is the differential associated with the
acquisition?
A.$15,000
B.$21,000
C.$6,000
D.$10,000