1) The JPB partnership reported net income of $160,000 for the year ended December
31, 20X8. According to the partnership agreement, partnership profits and losses are to
be distributed as follows:
How should partnership net income for 20X8 be allocated to J, P, and B?
A.Option A
B.Option B
C.Option C
D.Option D
2) In the AD partnership, Allen’s capital is $140,000 and Daniel’s is $40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following question is independent of the others.
Refer to the information provided above. David invests $40,000 for a one-fifth interest
in the total capital of $220,000. What are the capital balances of Allen and Daniel after
David is admitted into the partnership?
A.Option A
B.Option B
C.Option C
D.Option D
3) Which of the following characteristics are emphasized in the accounting for state and
local government entities?
I. Revenues should be matched with expenditures to measure success or failure of the
government entity.
II. There is an emphasis on expendability of resources to accomplish objectives of the
governmental entity.
A.I only
B.II only
C.I and II
D.Neither I nor II
4) Public Equity Corporation acquired Lenore Company through an exchange of
common shares. All of Lenore’s assets and liabilities were immediately transferred to
Public Equity. Public’s common stock was trading at $20 per share at the time of
exchange. Following selected information is also available.
Based on the preceding information, what number of shares was issued at the time of
the exchange?
A.5,000
B.17,500
C.12,500
D.10,000
5) Note: This is a Kaplan CPA Review Question
Sphinx Co. (Sphinx) records its transactions in U.S. dollars. A sale of goods resulted in
a receivable denominated in Japanese yen, and a purchase of goods resulted in a
payable denominated in Euros. Sphinx recorded a foreign exchange transaction gain on
collection of the receivable and an exchange transaction loss on the settlement of the
payable. The exchange rates are expressed as so many units of foreign currency to one
dollar. Did the number of foreign currency units exchangeable for a dollar increase or
decrease between the contract and settlement dates?
A.Option A
B.Option B
C.Option C
D.Option D
6) ABC Corporation purchased land on January 1, 20X6, for $50,000. On July 15,
20X8, it sold the land to its subsidiary, XYZ Corporation, for $70,000. ABC owns 80
percent of XYZ’s voting shares.
Based on the preceding information, what will be the worksheet eliminating entry to
remove the effects of the intercompany sale of land in preparing the consolidated
financial statements for 20X8?
A.Option A
B.Option B
C.Option C
D.Option D
7) Vision Corporation acquired 75 percent of the stock of Meta Company on January 1,
20X7, for $225,000.At that date, the fair value of the noncontrolling interest was
$75,000. Meta’s balance sheet contained the following amounts at the time of the
combination:
During each of the next three years, Meta reported net income of $30,000 and paid
dividends of $10,000. On January 1, 20X9, Vision sold 1,500 shares of Meta’s $10 par
value shares for $60,000 in cash. Vision used the fully adjusted equity method in
accounting for its ownership of Meta Company.
Based on the preceding information, in the journal entry recorded by Vision for sale of
shares:
A.Cash will be credited for $60,000
B.Investment in Meta Stock will be credited for $51,000
C.Investment in Meta Stock will be credited for $60,000
D.Additional Paid-in Capital will be credited for $45,000
8) Which of the following funds report fixed assets on their balance sheets?
I. Capital Projects fund
II. Internal Service fund
III. Enterprise fund
IV. Agency funds
A.I, II
B.II, III
C.I, IV
D.III, IV
9) A private, not-for-profit hospital received a cash contribution of $100,000 from
Samantha Hicks on November 14, 20X8. Ms. Hicks specified the money be used to
acquire equipment. On December 31, 20X8, the hospital had not expended any of Ms.
Hicks’ contribution. On the statement of changes in net assets for the year ended
December 31, 20X8, the hospital should report the contribution as a $100,000 increase
in
A.temporarily restricted net assets
B.unrestricted net assets
C.fund balance
D.deferred revenue
10) Net assets restricted as to time or purpose should be classified as:
I. temporarily restricted.
II. permanently restricted.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
11) The town of Decorah issued general obligation serial bonds at par to finance
construction of several new streets in the town. Construction activity was accounted for
in a capital projects fund. On the date the general obligation serial bonds were issued,
what account was credited in Decorah’s capital projects fund?
A.Serial Bonds Payable
B.Due to Debt Service Fund
C.Revenues
D.Other Financing Sources-Bond Issue Proceeds
12) Micron Corporation owns 75 percent of the common shares and 60 percent of the
preferred shares of Stanley Company, all acquired at underlying book value on January
1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley’s common
stock was equal to 25 percent of the book value of its common stock. The balance
sheets of Micron and Stanley immediately after the acquisition contained these
balances:
Stanley’s preferred stock pays a 12 percent dividend and is cumulative. For 20X8,
Stanley reports net income of $40,000 and pays no dividends. Micron reports income
from its separate operations of $75,000 and pays dividends of $30,000 during 20X8.
Based on the preceding information, what amount of income is attributable to the
controlling interest in the consolidated income statement for 20X8?
A.$75,000
B.$105,000
C.$96,000
D.$103,200
13) Blue Ridge Township uses the consumption method of accounting for its inventory
of supplies. On the December 31, 20X7 balance sheet for the general fund, the township
reported $10,000 of supplies inventory. During 20X8, expenditures for supplies
amounted to $40,000, and, at December 31, 20X8, unused supplies totaled $7,000. In
the adjusting entry for supplies at December 31, 20X8,
A.Expenditures should be credited for $3,000
B.Expenditures should be debited for $3,000
C.Fund BalanceNonspendable should be debited for $7,000
D.Fund BalanceNonspendable should be credited for $7,000
14) Which of the following statements is(are) correct?
I. The amount assigned to the noncontrolling interest may be affected by a constructive
retirement of bonds.
II. A constructive retirement of bonds normally results in an extraordinary gain or loss.
III. In constructive retirement, the entity would still consider the bonds outstanding,
even though they are treated as if they were retired in preparing consolidated financial
statements.
A.I
B.II
C.I and III
D.I, II, and III
15) Note: This is a Kaplan CPA Review Question
Cott Co.’s four business segments have revenues and identifiable assets expressed as
percentages of Cott’s total revenues and total assets as follows:
Which of these business segments are deemed to be reportable segments?
A.Ebon, Fair, Gel, and Hak
B.Ebon only
C.Ebon and Fair only
D.Ebon, Fair, and Gel only
16) Which of the following best describes a “red herring” prospectus?
A.A shortened version of registration Form S-1 available to those companies that
already have publicly traded securities
B.A prospectus containing material irregularities and deficiencies
C.Preliminary information provided to investors about an upcoming issue, and issued
between the time a registration statement is presented to the SEC and its effective date
D.Disclosure in the business press, outlined in red, informing investors of an upcoming
offering
17) On January 1, 20X4, Plimsol Company acquired 100 percent of Shipping
Corporation’s voting shares, at underlying book value. Plimsol uses the cost method in
accounting for its investment in Shipping. Shipping’s retained earnings was $75,000 on
the date of acquisition. On December 31, 20X4, the trial balance data for the two
companies are as follows:
Based on the information provided, what amount of net income will be reported in the
consolidated financial statements prepared on December 31, 20X4?
A.$100,000
B.$85,000
C.$110,000
D.$125,000
18) 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.
Expended 75 percent of the contributions previously received from donors for research.
19) 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.
Received pledges from donors who placed no time or use restrictions on how the
pledges were to be spent.
20) 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 will be included as investment in
Venus Corporation in the consolidated balance sheet immediately following the
acquisition?
A.$0
B.$395,000
C.$255,000
D.$300,000
21) 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, immediately after the transfer,
A.Conservative’s total assets decreased by $23,000
B.Conservative’s total assets decreased by $20,000
C.Conservative’s total assets increased by $56,000
D.Conservative’s total assets remained the same
22) The general fund of Loveland ordered a new fire truck on November 12, 20X8, for
$150,000. The order was appropriately encumbered on this date. Loveland received the
fire truck on January 15, 20X9, and issued a voucher to the manufacturer for $148,600.
Loveland uses the calendar year for reporting, and outstanding encumbrances at
December 31, 20X8, are lapsing. On January 15, 20X9, the general fund of Loveland
should debit:
A.Fund Balanceassigned for Encumbrances for $148,600
B.Expenditures for $148,600
C.Expenditures-20X8 for $148,600
D.Encumbrances for $148,600
23) Mortar Corporation acquired 80 percent of Granite Corporation’s voting common
stock on January 1, 20X7. On January 1, 20X8, Mortar received $350,000 from Granite
for equipment Mortar had purchased on January 1, 20X5, for $400,000. The equipment
is expected to have a 10-year useful life and no salvage value. Both companies
depreciate equipment on a straight-line basis.
Based on the preceding information, in the preparation of the 20X8 consolidated
financial statements, equipment will be:
A.debited for $50,000
B.debited for $40,000
C.credited for $70,000
D.debited for $25,000
24) Pisa Company acquired 75 percent of Siena Company on January 1, 20X3 for
$712,500. The fair value of the noncontrolling interest was equal to 25 percent of book
value. On the date of acquisition, Siena had common stock outstanding of $300,000 and
a balance in retained earnings of $650,000. During 20X3, Siena purchased inventory for
$35,000 and sold it to Pisa for $50,000. Of this amount, Pisa reported $20,000 in ending
inventory in 20X3 and later sold it in 20X4. In 20X4, Pisa sold inventory it had
purchased for $40,000 to Siena for $60,000. Siena sold $45,000 of this inventory in
20X4.
Income and dividend information for Siena for 20X3 and 20X4 are as follows:
Pisa Company uses the fully adjusted equity method.
Required:
a. Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X3.
b. Present the worksheet elimination entries necessary to prepare consolidated financial
statements for 20X4.
25) Bristle Corporation acquired 75 percent of Silver Corporation’s common stock on
December 31, 20X8, for $300,000. The fair value of the noncontrolling interest at that
date was determined to be $100,000. Silver’s balance sheet immediately before the
combination reflected the following balances:
A careful review of the fair value of Silver’s assets and liabilities indicated that
inventory, land, and buildings and equipment (net) had fair values of $65,000,
$100,000, and, $300,000 respectively. Goodwill is assigned proportionately to Bristle
and the noncontrolling shareholders.
Based on the preceding information, what amount of inventory will be included in the
consolidated balance sheet immediately following the acquisition?
A.$0
B.$65,000
C.$70,000
D.$60,000
26) On June 30, 20X8, String Corporation incurred a $220,000 net loss from disposal of
a business component. Also, on June 30, 20X8, String paid $60,000 for property taxes
assessed for the calendar year 20X8. What amount of the preceding items should be
included in the determination of String’s net income or loss for the six-month interim
period ended June 30, 20X8?
A.$250,000
B.$220,000
C.$140,000
D.$280,000
27) 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 of investment income will William
Company report from its investment in eGate for the year?
A.$45,000
B.$42,000
C.$62,000
D.$35,000
28) Elvis Company purchases inventory for $70,000 on Mar 19, 20X8 and sells it to
Graceland Corporation for $95,000 on May 14, 20X8. Graceland still holds the
inventory on December 31, 20X8, and determines that its market value (replacement
cost) is $82,000 at that time. Graceland writes the inventory down from $95,000 to its
lower market value of $82,000 at the end of the year. Elvis owns 75 percent of
Graceland.
Based on the information given above, what amount of inventory should be eliminated
in the consolidation worksheet for 20X8?
A.$15,000
B.$14,000
C.$12,000
D.$13,000
29) 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.
“Basis for measuring expenditures for contributed services requiring special skills”
describes which term listed above?
30) In the AD partnership, Allen’s capital is $140,000 and Daniel’s is $40,000 and they
share income in a 3:1 ratio, respectively. They decide to admit David to the partnership.
Each of the following question is independent of the others.
Refer to the information provided above. David directly purchases a one-fifth interest
by paying Allen $34,000 and Daniel $10,000. The land account is increased before
David is admitted. By what amount is the land account increased?
A.$40,000
B.$10,000
C.$36,000
D.$20,000
31) The PQ partnership has the following plan for the distribution of partnership net
income (loss):
Required:
Calculate the distribution of partnership net income (loss) for each independent
situation below (for each situation, assume the average capital balance of P is $140,000
and of Q is $240,000).
1> Partnership net income is $360,000.
2> Partnership net income is $240,000.
3> Partnership net loss is $40,000.
32) Prepare a schedule providing a proof of the translation adjustment using the
information provided below.
33) Locus Corporation acquired 80 percent ownership of Stereo Company on January 1,
20X6, at underlying book value. At that date, the fair value of the noncontrolling
interest was equal to 20 percent of the book value of Stereo Company. Consolidated
balance sheets at January 1, 20X8, and December 31, 20X8, are as follows:
The consolidated income statement for 20X8 contained the following amounts:
Locus and Stereo paid dividends of $25,000 and $15,000, respectively, in 20X8.
Required:
1> Prepare a worksheet to develop a consolidated statement of cash flows for 20X8
using the indirect method of computing cash flows from operations.
2> Prepare a consolidated statement of cash flows for 20X8.
34) Apple and Betty are planning on beginning a new business. They plan on forming a
partnership. Apple will contribute $300,000 and will not be working. Betty will be
working full time. They plan on splitting profits equally. They approach you, as an
accounting major, to confirm their thoughts. What do you recommend?
35) The ABC partnership had net income of $100,000 for 20X9. They allocate profits
and losses in the ratio 5:3:2. After closing the 12/31/20X9 books they discovered that
$30,000 was spent on a piece of land in December 20X9 and was expensed. What
should happen?
