1) Rohan Corporation holds assets with a fair value of $150,000 and a book value of
$125,000 and liabilities with a book value and fair value of $50,000. What balance will
be assigned to the noncontrolling interest in the consolidated balance sheet if Helms
Company pays $90,000 to acquire 75 percent ownership in Rohan and goodwill of
$20,000 is reported?
A.$50,000
B.$30,000
C.$40,000
D.$20,000
2) A subsidiary issues bonds. The parent can then acquire the bonds either directly from
the subsidiary or from a nonaffiliate that had originally acquired the subsidiary’s bonds.
Required:
a) Discuss the parent’s accounting as it relates to the preparation of consolidated
financial statements, for their acquisition of the bonds:
1> from the nonaffiliate.
2> directly from the subsidiary.
b) Why does it matter who the bonds are acquired from?
3) At the end of the fiscal year, uncollected property taxes in the general fund should be:
A.reclassified from current to delinquent
B.written off as uncollectible
C.charged against unassigned fund balance
D.reclassified from current to noncurrent
4) Under the modified accrual basis of accounting, revenue should be recognized when
it is:
A.measurable and earned
B.received in cash
C.available and earned
D.measurable and available
5) The transactions described in the following questions occurred in a voluntary health
and welfare organization during the year ended December 31, 20X8. For each
transaction, indicate its effect(s) on the organization’s statement of activities prepared
for the year ended December 31, 20X8. List all effects of transactions affecting more
than one class of net assets. Indicate your choice(s) by entering the letter corresponding
to the effects listed here:
Effects of Transactions on Statement of Activities
A. Increases unrestricted net assets.
B. Decreases unrestricted net assets.
C. Increases temporarily restricted net assets.
D. Decreases temporarily restricted net assets.
E. Increases permanently restricted net assets.
F. Decreases permanently restricted net assets.
G. Transaction is not reported on the statement of activities.
Incurred fund-raising costs.
6) Which of the following types of securities or securities transactions are exempt from
the need to be registered under the Securities Act of 1933?
I. Commercial paper with a maturity of nine months or less.
II. Intrastate issues in which the securities are offered and sold only within one state.
III. Securities exchanged by an issuer exclusively with its existing shareholders with no
commission charged.
A.I and II
B.II
C.I, II, and III
D.III
7) Mason Company paid its annual property taxes of $240,000 on February 15, 20X9.
Mason also anticipates that its annual repairs expense for 20X9 will be $1,200,000. This
amount is usually incurred and paid in July and August when operations are shut down
so that machinery and equipment can be repaired. What amount should Mason deduct
for property taxes and repairs in each quarter for 20X9?
A.Option A
B.Option B
C.Option C
D.Option D
8) The general fund of Battle Creek budgeted a transfer to its capital projects fund for
$110,000 to be used in operations during the year ended June 20, 20X9. On September
15, 20X8, the general fund transferred $110,000 to the capital projects fund. What
account should be debited in the general fund on September 15 to record this transfer?
A.Appropriations
B.Expenditures
C.Budgetary Fund BalanceAssigned For Encumbrances
D.Other Financing UsesTransfer Out to Capital Projects Fund
9) Note: This is a Kaplan CPA Review Question
Albee Township’s fiscal year ends on June 30. Albee uses encumbrance accounting. On
April 5, 20X5, an approved $1,000 purchase order was issued for supplies. Albee
received these supplies on May 2, 20X5, and the $1,000 invoice was approved for
payment. What journal entry should Albee make on April 5, 20X5, to record the
approved purchase order?
A.Option A
B.Option B
C.Option C
D.Option D
10) The general fund of the City of Columbia transferred money to establish an internal
service fund for the city’s data processing needs. The general fund of Columbia should
account for this transaction as a(n):
A.expenditure
B.interfund transfer
C.interfund reimbursement
D.loan
11) 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 amount of total assets will appear in the
consolidated balance sheet prepared immediately after the business combination?
A.$756,000
B.$735,000
C.$750,000
D.$642,000
12) Quid Corporation acquired 60 percent of Pro Company’s common stock on
December 31, 20X4. Goodwill (attributable to Quid’s acquisition of Pro shares) of
$150,000 was calculated under the proprietary theory approach. What is the amount of
goodwill that shouldbe reported under entity theory approach?
A.$150,000
B.$200,000
C.$250,000
D.$100,000
13) Which of the following accounts is not maintained for each partner in its accounting
records?
A.Capital account
B.Drawing account
C.Earnings account
D.Loan account
14) On January 1, 20X9, Heathcliff Corporation acquired 80 percent of Garfield
Corporation’s voting common stock. Garfield’s buildings and equipment had a book
value of $300,000 and a fair value of $350,000 at the time of acquisition.
Based on the preceding information, what will be the amount at which Garfield’s
buildings and equipment will be reported in consolidated statements using the current
accounting practice?
A. $350,000
B. $340,000
C. $280,000
D. $300,000
15) All restricted funds of private, not-for-profit hospitals account for resources:
A.whose use is restricted by the donor
B.received and expended in the hospital’s primary health care mission
C.that are only temporarily restricted
D.received or pledged by donors for use in future periods
16) Which of the following observations is consistent with the equity method of
accounting?
A.Dividends declared by the investee are treated as income by the investor
B.It is used when the investor lacks the ability to exercise significant influence over the
investee
C.It may be used in place of consolidation
D.Its primary use is in reporting nonsubsidiary investments
17) ASC 280, Disclosure about Segments of an Enterprise and Related Information, has
taken what has been referred to as a “management approach” to the definition of a
segment and the allocation of costs to a segment.
Required:
a) What is meant by a management approach? How does this concept of a management
approach impact the decision to disclose information?
b) How are decisions about cost allocation handled in segment disclosures?
18) During its inception, Devon Company purchased land for $100,000 and a building
for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a
newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan’s
$10 par value stock. Devon uses straight-line depreciation. Useful life for the building
is 30 years, with zero residual value. An appraisal revealed that the building has a fair
value of $200,000.
Based on the information provided, what amount would be reported by Devon
Company as investment in Regan Company common stock?
A.$312,000
B.$180,000
C.$330,000
D.$150,000
19) A debtor-in-possession balance sheet should report:
I. Liabilities not subject to compromise.
II. Liabilities subject to compromise.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
20) Note: This is a Kaplan CPA Review Question
On September 1, 20X1, Brady Corp. entered into a foreign exchange contract for
speculative purposes by purchasing 50,000 deutsche marks for delivery in 60 days. The
rates to exchange $1 for 1 deutsche mark follow:
In its September 30, 20X1 income statement, what amount should Brady report as
foreign exchange loss?
A.$1,000
B.$2,500
C.$1,500
D.$500
21) On July 25, 20X8, the city of Pullman, which reports on a calendar-year basis,
ordered five police cars at an estimated cost of $200,000. On August 26, 20X8, the
police cars were received, and the actual cost amounted to $197,000. Pullman
encumbered the appropriation for police cars in its general fund when the cars were
ordered. When the police cars were received, the general fund of Pullman should:
A.Credit Budgetary Fund Balance Assigned for Encumbrances for $197,000
B.Debit Encumbrances for $200,000
C.Debit Expenditures for $197,000
D.Credit Budgetary Fund Balance Assigned for Expenditures for $200,000
22) In order to reduce the risk associated with a new line of business, Conservative
Corporation established Spin Company as a wholly owned subsidiary. It transferred
assets and accounts payable to Spin in exchange for its common stock. Spin recorded
the following entry when the transaction occurred:
Based on the preceding information, what amount did Conservative report as its
investment in Spin after the transfer of assets and liabilities?
A.$181,000
B.$221,000
C.$263,000
D.$243,000
23) 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 ending balance in Additional Paid-In Capital
would be:
A.$0
B.$187,500
C.$312,500
D.$125,000
24) Note: This is a Kaplan CPA Review Question
The key to reporting accounting information by segments is determining what
constitutes a segment. Of the following, which is not a method of determining a
reportable segment?
A.Operating profit
B.Revenues
C.Number of employees
D.Combined identifiable assets
25) New Life Corporation has just finished preparing a consolidated balance sheet,
income statement, and statement of changes in retained earnings for 20X9. The
following items are proposed for inclusion in the consolidated cash flow statement:
New Life holds 75 percent of the voting stock of Shane Pharmaceuticals, acquired at
book value on June 21, 20X6. On the date of the acquisition, the fair value of the
noncontrolling interest was equal to 25 percent of the book value of Shane.
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.$350,000
B.$463,000
C.$335,000
D.$421,000
26) GASB 31 “Accounting for Financial Reporting for Certain Investments and for
External Reporting Investment Pools,” establishes a general rule that government
entities value investments in option contracts, open-ended mutual funds, and debt
securities for balance sheet presentation at:
A.lower of cost or market
B.fair value
C.cost
D.amortizedcost
27) Investment income for not-for-profit entities may include:
I. interest from debt investments.
II. dividends from equity investments.
III. changes in the fair values of both debt and equity investments.
A.I only
B.I and II only
C.I and III only
D.I, II, and III
28) Derby Company pays its executives a bonus of 6 percent of income before
deducting the bonus and income taxes. For the quarter ended March 31, 20X8, Derby
had income before the bonus and income tax of $12,000,000. For the year ended
December 31, 20X8, Derby estimates that its income before bonus and income taxes
will be $70,000,000. For the quarter ended March 31, 20X8, what is the amount of the
bonus that Derby should deduct on its income statement?
A.$4,200,000
B.$720,000
C.$1,050,000
D.$180,000
29) Which of the following observations is true of an S corporation?
A.It elects to be taxed in the same manner as a corporation
B.It does not have the burden of double taxation of corporate income
C.Its shareholders have personal liability for the corporation’s obligations
D.Its primary income source should be passive investments
30) For the year ended June 30, 20X9, a private college received contributions from
alumni which were restricted for faculty research stipends to be awarded during the
next fiscal year. For the year ended June 30, 20X9, these contributions should be
disclosed on the statement of activities of the private college as an increase in:
A.the fund balance of the restricted current fund
B.temporarily restricted net assets
C.deferred revenues
D.temporarily restricted fund balance
31) A private university offers graduate assistantships to qualified students each year. In
exchange for the waiver of tuition, graduate assistants are required to assist faculty
members with research and other activities. Assume a graduate assistant received a
$4,000 tuition waiver for the current academic year. Based on these facts, the university
should record
A.tuition revenues of $4,000 and expenditures of $4,000
B.tuition revenues of $0 and expenditures of $0
C.tuition revenues of $4,000 and expenditures of $0
D.tuition revenues of $4,000 and a reduction of tuition revenues of $4,000
32) How would a company report a change in an accounting principle made on the last
day of the third quarter?
A.Retrospective application to all pre-change interim periods reported
B.No change is required
C.Apply to current and prospective interim periods only
D.Apply to prospective interim periods only
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, in the entry to record the increase in the intrinsic
value of the options on December 31, 20X8,
A.Purchased Call Options will be credited for $100,000
B.Purchased Call Options will be debited for $130,000
C.Retained Earnings will be credited for $100,000
D.Other Comprehensive Income will be credited for $100,000
34) On January 1, 20X8, Gulfstream Corporation acquired 40 percent of the voting
shares of Hunter Company for $65,000. Hunter reported net income of $45,000 and
paid dividends of $10,000 in 20X8. Gulfstream reported operating income of $50,000
for the year. There is 80 percent exemption of intercompany dividends and the effective
tax rate is 35 percent. Assume that the equity method is being used.
Based on the preceding information, what amount would Gulfstream report as net
income (after taxes) for the year?
A.$49,240
B.$68,000
C.$64,000
D.$67,500
35) GASB 34 specifies two criteria for determining major governmental funds to be
reported separately in the Governmental Fund Balance Sheet and Statement of
Revenues, Expenditures, and Changes in Fund Balances. To be considered a major
governmental fund, a fund must:
A.meet at least one criterion
B.be the general fund or meet at least one criterion
C.be the general fund or meet two criteria
D.either meet at least one criterion or be the general fund or meet two criteria
36) On July 1, 20X8, Fair Logic Corporation acquires 75 percent of Integrated Systems
Inc. common stock for its underlying book value. At the time of acquisition, the fair
value of the noncontrolling interest is equal to its proportionate share of book value of
Integrated Systems. On January 1, 20X8 Integrated reported common stock of $100,000
and retained earnings of $130,000. For the year 20X8, Integrated reports the following
items:
Fair Logic uses the equity method in accounting for this investment.
Based on the preceding information, what journal entry would Fair Logic make to
record equity method income for the year?
A.Option A
B.Option B
C.Option C
D.Option D