1) 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 premium on bonds payable will
be eliminated in the preparation of the 20X8 consolidated financial statements?
A.$3,500
B.$2,800
C.$5,000
D.$2,500
2) According to the provisions of the Sarbanes-Oxley Act,
A.accounting firms can provide both audit and non-audit services to the same company
B.the auditor should report directly to, and have its work overseen by, the company’s
management
C.audit committees should be composed of non-management members of a company’s
board of directors
D.both the lead audit partner and the audit review partner for publicly held companies
should be rotated at least every two years
3) 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 preceding information, Regan Company will report
A.additional paid-in capital of $0
B.additional paid-in capital of $150,000
C.additional paid-in capital of $162,000
D.additional paid-in capital of $180,000
4) Note: This is a Kaplan CPA Review Question
In government-wide statement of activities, special items are transactions or other
events that are:
A.unusual in nature or infrequent in occurrence and within management’s control
B.unusual in nature or infrequent in occurrence and not within management’s control
C.unusual in nature and infrequent in occurrence and within management’s control
D.unusual in nature and infrequent in occurrence
5) Note: This is a Kaplan CPA Review Question
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed
balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of
the outstanding common shares of Strauss. This debt is payable in ten equal annual
principal and accrued interest payments beginning December 30, 20X6. On the
acquisition date, the fair value of Strauss was $100,000, and the excess cost of the
investment over Strauss’s carrying amount of acquired net assets should be allocated
60% to inventory and 40% to goodwill.
Current assets on the January 2, 20X6, consolidated balance sheet should be:
A.$79,000
B.$120,000
C.$90,000
D.$96,000
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. Granite’s partial bond amortization schedule is as
follows:
Based on the information given above and assuming a market interest rate of 12.979
percent, what amount of interest income will be eliminated in the preparation of the
December 31, 20X9 consolidated financial statements?
A.$8,184
B.$16,296
C.$12,704
D.$18,988
7) 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
8) Bill, Page, Larry, and Scott have decided to terminate their partnership. The
partnership’s balance sheet at the time they decide to wind up is as follows:
During the winding up of the partnership, the other assets are sold for $150,000 and the
accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are
personally insolvent. The partners share profits and losses in the ratio of 4:2:1:3.
Based on the preceding information, what amount will be paid out to Bill upon
liquidation of the partnership?
A.$0
B.$25,000
C.$11,667
D.$2,500
9) According to ASC 958, Not-For-Profit entities should recognize
depreciation/amortization:
I. on all long-lived tangible assets.
II. on all long-lived intangible assets.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
10) On January 1, 20X8, Gregory Corporation acquired 90 percent of Nova Company’s
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Nova at that date. Gregory uses the equity
method in accounting for its ownership of Nova. On December 31, 20X9, the trial
balances of the two companies are as follows:
Required:
1> Give all eliminating entries required on December 31, 20X8, to prepare consolidated
financial statements.
2> Prepare a three-part consolidation worksheet as of December 31, 20X8.
11) A donor agrees to contribute $5,000 per year at the end of each of the next five
years to a voluntary health and welfare organization. The donor did not place any use
restrictions on the amount pledged. The stream of the payments is discounted at 6
percent. The first payment of $5,000 is received at the end of the first year. The present
value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
Based on the preceding information, the increase in present value of the contributions
receivable recognized at the end of the first year equals:
A.$5,000
B.$1,264
C.$4,212
D.$787
12)
Refer to the above information. Which statement below is correct if the old partners
receive a bonus upon the contribution of assets into the partnership by a new partner?
A.B < A and D = C – A
B.B + A and D > C + A
C.B < A and D = C + A
D.B > A and D = C + A
13) Gotham City acquires $25,000 of inventory on November 1, 20X7, having held no
inventory previously. On December 31, 20X7, the end of Gotham City’s fiscal year, a
physical count shows $8,000 still in stock. During 20X8, $6,500 of this inventory is
used, resulting in a $1,500 remaining balance of supplies on December 31, 20X8.
Based on the preceding information, which of the following would be the correct
account balances for 20X7 if Gotham City used the purchase method of accounting for
inventories?
A.Option A
B.Option B
C.Option C
D.Option D
14) Net income for Levin-Tom partnership for 2009 was $125,000. Levin and Tom have
agreed to distribute partnership net income according to the following plan:
Additional Information for 2009 follows:
1> Levin began the year with a capital balance of $75,000.
2> Tom began the year with a capital balance of $100,000.
3> On March 1, Levin invested an additional $25,000 into the partnership.
4> On October 1, Tom invested an additional $20,000 into the partnership.
5> Throughout 2009, each partner withdrew $200 per week in anticipation of
partnership net income. The partners agreed that these withdrawals are not to be
included in the computation of average capital balances for purposes of income
distributions.
Required:
a. Prepare a schedule that discloses the distribution of partnership net income for 2009.
Show supporting computations in good form.
b. Prepare the statement of partners’ capital at December 31, 2009.
c. How would your answer to part a change if all of the provisions of the income
distribution plan were the same except that the salaries were $45,000 to Levin and
$60,000 to Jack?
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 is the amount of unpaid consulting services at
December 31, 20X8, on work done by X Company for Y Company?
15) A.$0
B.$10,000
C.$5,000
D.$15,000
16) Hunter Corporation holds 80 percent of the voting shares of Moss Company. On
January 1, 20X8, Moss purchased $100,000 par value 12 percent first mortgage bonds
of Hunter from Cruse for $115,000. Hunter originally issued the bonds to Cruse on
January 1, 20X6, for $110,000. The bonds have an 8-year maturity from the date of
issue. Moss’ reported net income of $65,000 for 20X8, and Hunter reported income
(excluding income from ownership of Moss’s stock) of $90,000.
Based on the information given above, what amount of interest expense does Hunter
record annually?
A.$10,750
B.$9,500
C.$2,500
D.$12,000
17) ASC 958 requires that an “other not-for-profit entity” (ONPO) provide three
financial statements. Which of the following is NOT one among them?
A.A statement of functional expenses
B.A statement of financial position
C.A statement of activities
D.A statement of cash flows
18) 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 $280,000, how much
should F receive upon liquidation?
A.$44,000
B.$50,000
C.$76,000
D.$90,000
19) 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?
20) Works of art and historical treasures purchased by the general fund should be
reported as:
I. an expenditure in the general fund.
II. assets in the government-wide financial statements.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
21) When the old partners receive a bonus upon admission of a new partner into a
partnership, the bonus is allocated to:
I. all the partners in their profit and loss sharing ratio.
II. the existing partners in their profit and loss sharing ratio.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
22) A private not-for-profit university generally must depreciate all tangible fixed
assets, except:
I. works of art and other historical treasures.
II. administration buildings.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
23) Note: This is a Kaplan CPA Review Question
The following condensed balance sheet is presented for the partnership of Cooke,
Dorry, and Evans who share profits and losses in the ratio of 4:3:3, respectively:
Assume that the partners decide to liquidate the partnership. If the other assets are sold
for $600,000, how much of the available cash should be distributed to Cooke?
A.$212,000
B.$170,000
C.$182,000
D.$300,000
24) Bill, Page, Larry, and Scott have decided to terminate their partnership. The
partnership’s balance sheet at the time they decide to wind up is as follows:
During the winding up of the partnership, the other assets are sold for $150,000 and the
accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are
personally insolvent. The partners share profits and losses in the ratio of 3:2:1:4.
Based on the preceding information, what amounts will be distributed to Page and
Larry upon liquidation of the partnership?
A.Option A
B.Option B
C.Option C
D.Option D
25) Under Chapter 11 proceedings, what represents the fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay for the
entity’s assets?
A.Reorganization value
B.Fire sale value
C.Fresh start value
D.Excess value
26) On the statement of revenues, expenditures, and changes in fund balance for a
capital projects fund, proceeds of general obligation bonds should be reported:
A.in the revenue section of the statement
B.as a direct addition to the beginning balance of unreserved fund balance
C.in the other financing sources (uses) section of the statement
D.as a subtraction from construction expenditures
27) Which regulation resulted in the creation of the Public Company Accounting
Oversight Board?
A.Investment Advisers Act
B.Securities Investor Protection Act
C.Sarbanes-Oxley Act
D.Trust Indenture Act
28) The preparation of which of the following items is covered by Regulation S-K?
A.Descriptions of business
B.Pro forma disclosures
C.Schedules
D.Reports of accountants
29) Big Corporation receives management consulting services from its 92 percent
owned subsidiary, Small Inc. During 20X7, Big paid Small $125,432 for its services.
For the year 20X8, Small billed Big $140,000 for such services and collected all but
$7,900 by year-end. Small’s labor cost and other associated costs for the employees
providing services to Big totaled $86,000 in 20X7 and $121,000 in 20X8. Big reported
$2,567,000 of income from its own separate operations for 20X8, and Small reported
net income of $695,000.
Based on the preceding information, what amount of consolidated net income should be
reported in 20X8?
A.$3,262,000
B.$4,050,000
C.$3,254,100
D.$3,122,000
30) Which of the following accounts could be found in the general ledger of a
partnership?
A.Option A
B.Option B
C.Option C
D.Option D