1) On December 31, 20X9, Add-On Company acquired 100 percent of Venus
Corporation’s common stock for $300,000. Balance sheet information Venus just prior
to the acquisition is given here:
At the date of the business combination, Venus’s net assets and liabilities approximated
fair value except for inventory, which had a fair value of $60,000, land which had a fair
value of $125,000, and buildings and equipment (net), which had a fair value of
$250,000.
Based on the information provided, what amount of inventory will be included in the
consolidated balance sheet immediately following the acquisition?
A.$60,000
B.$75,000
C.$15,000
D.$45,000
2) Parent Corporation owns 90 percent of Subsidiary 1 Company’s stock and 75 percent
of Subsidiary 2 Company’s stock. During 20X8, Parent sold inventory purchased in
20X7 for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the inventory at
its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8, Subsidiary 2 sold
$45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in inventory at
December 31, 20X8.
Based on the information given above, what amount should be reported in the 20X8
consolidated income statement as cost of goods sold?
A.$36,000
B.$12,000
C.$48,000
D.$45,000
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A
consolidated balance sheet was prepared immediately. Partial balance sheet data for the
two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet
paid for them. There were no other receivables or payables between the companies at
December 31, 20X8.
Based on the information given, what percentage of Y Company’s shares were acquired
by X Company?
3) A.100 percent
B.60 percent
C.80 percent
D.75 percent
4) The personal financial statements of a partner include which of the following?
I. Statement of financial condition.
II. Statement of changes in net worth.
III. Statement of cash flows.
A.I and II
B.I and III
C.II and III
D.I, II, and III
5) Company X acquires 100 percent of the voting shares of Company Y for $275,000
on December 31, 20X8.The fair value of the net assets of Company X at the date of
acquisition was $300,000. This is an example of a(n):
A.positive differential
B.bargain purchase
C.extraordinary loss
D.revaluation adjustment
6) An investor purchases a put option with a strike price of $100 for $3. This option is
considered “in the money” if the underlying is trading:
A.below $100
B.at $100
C.above $100
D.above$103
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A
consolidated balance sheet was prepared immediately. Partial balance sheet data for the
two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet
paid for them. There were no other receivables or payables between the companies at
December 31, 20X8.
Based on the information given, X Company and Y Company reported wages payable
of
7) A.$50,000 and $28,000 respectively
B.$60,000 and $32,000 respectively
C.$40,000 and $35,000 respectively
D.$28,000 and $60,000 respectively
8) 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: Expended 50 percent of the contributions restricted for research 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
9) At June 30, 20X9, total assets for the various funds of a local municipality were as
follows:
Applying GASB 34 criteria, which of the above are major funds for reporting purposes?
A.GF, CPF, EF
B.CPF, EF
C.CPF, ISF, EF
D.GF, CPF, ISF, EF
10) Which of the following characteristics best describes an enterprise fund?
A.Capital maintenance, revenues from general public user charges, and net income
B.Operating budgets, expenditures, and tax revenues from general public
C.Capital maintenance, revenues from user charges to other funds, and net income
D.Capital maintenance, tax revenues from general public, and net income
11) 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 modified 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.
12) Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian
reais on December 1, 20X8, with payment due on January 20, 20X9. The exchange
rates were:
Based on the preceding information, what is the Heavy’s overall net gain or net loss
from its foreign currency exposure related to this transaction?
A.$4,860 loss
B.$2,600 loss
C.$9,018 gain
D.$2,260 gain
13) Which of the following presents the results of actions taken against accountants,
brokers, and other participants for filing false or misleading statements?
A.Financial Reporting Releases
B.Financial Reporting Interpretations
C.Accounting and Auditing Enforcement Releases
D.Staff Accounting Bulletins
14) Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs
(SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1,
20X8, the company also entered into a 60-day forward contract to purchase 100,000
Swiss francs. The forward contract is not designated as a hedge. The rates were as
follows:
Based on the preceding information, the entries on January 30, 20X9, include a:
A.Credit to Foreign Currency Units (SFr), $184,000
B.Credit to Cash, $180,000
C.Debit to Foreign Currency Transaction Loss, $4,000
D.Debit to Dollars Payable to Exchange Broker, $184,000
15) Moon Corporation issued $300,000 par value 10-year bonds at 107 on January 1,
20X3, which Star Corporation purchased. On July 1, 20X7, Sun Corporation purchased
$120,000 face value of Moon bonds from Star. The bonds pay 12 percent interest
annually on December 31. The preparation of consolidated financial statements for
Moon and Sun at December 31, 20X9, required the following eliminating entry:
Based on the information given above, what percentage of the subsidiary’s ownership
does the parent company hold?
A.75 percent
B.65 percent
C.80 percent
D.95 percent
16) Note: This is a Kaplan CPA Review Question
The following condensed balance sheet is presented for the partnership of Fisher, Taylor
and Simon who share profits and losses in the ratio of 6:2:2, respectively:
The assets and liabilities are fairly valued on the above balance sheet, and it was agreed
to by all the partners that the partnership would be liquidated after selling the other
assets. What would each of the partners receive at this time if the other assets are sold
for $80,000?
A.Option A
B.Option B
C.Option C
D.Option D
17) Tom, Dick, and Harry are partners in an equipment leasing business that has not
been able to generate the type of revenue expected by the partners. They share profits
and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold
all the assets except for one piece of heavy machinery. All partnership liabilities have
been settled and all the partners are personally insolvent. The machinery has a book
value of $85,000, and the partners have capital account balances as follows:
Each of the following are independent cases.
Refer to the information given above. What amount of cash will each partner receive as
a liquidating distribution if the machinery is sold for 21,100 dollars?
A.Option A
B.Option B
C.Option C
D.Option D
18) 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. On the statement of fiduciary net assets at June 30,
20X9, the nonexpendable trust fund should report investments and interest receivable
of:
A.Option A
B.Option B
C.Option C
D.Option D
19) An internal service fund had the following transactions during the year ended June
30, 20X9, its first year of existence:
(1) Received $1,000,000 contribution from the general fund.
(2) Acquired fleet of cars for $950,000, paying cash.
(3) Billed departments in other funds $500,000 for using cars.
(4) Incurred operating costs, exclusive of depreciation, of $240,000.
(5) Depreciation expense amounted to $250,000.
Refer to the above information. On the internal service fund’s balance sheet on June 30,
20X9, total net assets should be reported at:
A.$1,000,000
B.$1,010,000
C.$1,250,000
D.$910,000
20) Each of the following questions names an item. Select the correct description of the
item from this list. Indicate your selection by entering the letter of the description.
Descriptions
a. Provides preliminary information to investors about an upcoming issue.
b. Informs investors of an upcoming offering.
c. Required annual filing to the SEC.
d. Discloses unscheduled material events.
e. Includes amendments to the Securities Act, additional disclosure requirements, and
other current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination by the SEC of a registration statement.
g. Issued by the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities may be offered or sale.
h. Quarterly report to SEC.
i. Includes new or revised administrative practices and interpretations used in reviewing
financial statements.
j. Includes the results of actions taken against accountants or other participants because
false or misleading statements were filed.
k. Includes Regulations S-X and S-K.
Staff Accounting Bulletins
21) On January 1, 20X8, William Company acquired 30 percent of eGate Company’s
common stock, at underlying book value of $100,000. eGate has 100,000 shares of $2
par value, 5 percent cumulative preferred stock outstanding. No dividends are in
arrears. eGate reported net income of $150,000 for 20X8 and paid total dividends of
$72,000. William uses the equity method to account for this investment.
Based on the preceding information, what amount would William Company receive as
dividends from eGate for the year?
A.$62,000
B.$21,600
C.$18,600
D.$54,000
22) The general fund of Reston acquired computer equipment costing $70,000 during
the fiscal year ended June 30, 20X9. Machinery and Equipment should be reported in
Reston’s General Fund Balance Sheet and government-wide Statement of Net Assets at
June 30, 20X9, as follows:
A.Option A
B.Option B
C.Option C
D.Option D
23) ASC 805 requires that ongoing research and development projects be treated in all
of the following ways except:
A.Recorded at acquisition-date fair values
B.Classified as intangible assets having indefinite lives
C.Expensed immediately
D.Tested for impairment periodically
24) Transferable interest of a partner includes all of the following except:
A.the partner’s share of the profits and losses of the partnership
B.the right to receive distributions
C.the right to receive any liquidating distribution
D.the authority to transact any of the partnership’s business operations
25) 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 fair value option to account
for its investment in Spiel?
A.$105,000
B.$118,750
C.$100,000
D.$122,500
On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of
Perth Company for $3,100,000. Any excess cost over book value is attributable to a
patent with a 10-year remaining life. At the date of acquisition, Perth’s balance sheet
contained the following information:
Perth’s income statement for 20X8 is as follows:
The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at
various dates for 20X8 follow:
Assume Perth’s revenues, purchases, operating expenses, depreciation expense, and
income taxes were incurred evenly throughout 20X8.
Refer to the above information. Assuming Perth’s local currency is the functional
currency, what is the balance in Johnson’s investment in foreign subsidiary account at
December 31, 2008?
26) A.$3,216,500
B.$3,560,000
C.$3,568,300
D.$3,577,694
27) 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.
What was the amount of intercompany sales from Pare to Shel during 20X5?
A.$12,000
B.$6,000
C.$64,000
D.$58,000
28) Which of the following observations is true of futures contracts?
A.Contracted through a dealer, usually a bank
B.Customized to meet contracting company’s terms and needs
C.Typically no margin deposit required
D.Traded on an exchange and acquired through an exchange broker
29) Beta Company acquired 100 percent of the voting common shares of Standard
Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of
$150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000,
liabilities of $280,000, and stockholders’ equity of $220,000. At that date, Standard
Video reported total assets of $400,000, liabilities of $250,000, and stockholders’ equity
of $150,000. Included in Standard’s liabilities was an account payable to Beta in the
amount of $20,000, which Beta included in its accounts receivable.
Based on the preceding information, what amount of stockholders’ equity was reported
in the consolidated balance sheet immediately after acquisition?
A.$220,000
B.$150,000
C.$370,000
D.$350,000
30) Regulation S-X and Regulation S-K:
A.govern the preparation of financial statements and associated disclosures
B.govern the registration requirements for private placements
C.outline responsibilities for audit committees of publicly held companies
D.prohibit artificial pyramids of capital in public utilities
31) Perth Corporation owns 90 percent of Dundee Company’s stock. At the end of
20X8, Perth and Dundee reported the following partial operating results and inventory
balances:
Perth regularly prices its products at cost plus a 30 percent markup for profit. Dundee
prices its sales at cost plus a 10 percent markup. The total sales reported by Perth and
Dundee include both intercompany sales and sales to nonaffiliates.
Based on the information given above, what balance will be reported for inventory in
the consolidated balance sheet for December 31, 20X8?
A.$56,573
B.$23,846
C.$32,727
D.$67,000
32) Top Corporation acquired 80 percent of Bottom Corporation’s common stock on
January 1, 20X8, for $520,000. At that date, Bottom reported common stock
outstanding of $250,000 and retained earnings of $375,000. Assume the fair value of
the noncontrolling interest on January 1, 20X8 was $130,000. The book values and fair
values of Bottom’s assets and liabilities were equal on the acquisition date, except for
other intangible assets, which had a fair value $25,000 greater than book value and a
5-year remaining life. Top and Bottom reported the following data for 20X8 and 20X9:
a. Compute consolidated comprehensive income for 20X8 and 20X9.
b. Compute comprehensive income attributable to the controlling interest for 20X8 and
20X9.
33) Agency funds report:
A.only assets and liabilities
B.assets, liabilities, fund balance, revenues, and expenditures
C.assets, liabilities, and fund balance
D.only revenues and expenditures
34) Note: This is a Kaplan CPA Review Question
An investor uses the equity method to account for its 30% investment in common stock
of an investee. Amortization of the investor’s share of the excess of fair value over book
value of depreciable assets should be reported in the investor’s income statement as part
of
A.Amortization of goodwill
B.Other expense
C.Depreciation expense
D.Income from investee
35) 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, the eliminating entry to prepare the consolidated
financial statements for Company A as of December 31, 20X9 will include a credit to
noncontrolling interest in net income of Company B for:
A.140,000
B.154,000
C.152,000
D.150,000