In accordance with the Single Audit Act of 1984, external auditors issue the standard
audit report on the governmental unit’s financial statements and must also issue:
I. a special report on the effectiveness with which the governmental unit is achieving its
social objectives.
II. a special report on the governmental unit’s internal control system.
III. a special report on the governmental unit’s compliance with laws and regulations.
A. I only
B. I and II
C. II and III
D. I, II, and III
Nash Company acquired Seel Corporation through an exchange of common shares. All
of Seel’s assets and liabilities were immediately transferred to Nash. Nash’s common
stock was trading at $25 per share at the time of the exchange. The total par value of
Nash’s stock outstanding before and after the acquisition was $750,000 and $840,000,
respectively. Nash’s additional paid-in capital before and after the acquisition were
$200,000 and $560,000, respectively.
Based on the preceding information, what is the fair value of Seel’s net assets if
goodwill of $20,000 is recorded in the acquisition?
A. $430,000
B. $470,000
C. $540,000
D. $580,000
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
On December 31, 20X1, Oak Corporation acquired 100 percent ownership of Cherry
Corporation. On that date, Cherry reported assets and liabilities with books values of
$450,000 and $200,000, respectively, common stock outstanding of $150,000, and
retained earnings of $100,000. The book values and fair values of Cherry’s assets and
liabilities were identical except for land which had increased in value by $15,000 and
inventories which had decreased by $5,000.
Based on the preceding information, what amount of goodwill will be reported in the
consolidated balance sheet on the acquisition date if the acquisition price was
$280,000?
A. $10,000
B. $20,000
C. $30,000
D. $35,000
Identify the regulation that created an entity which insures investors from possible
losses if an investment house enters bankruptcy.
A. Federal Deposit Insurance Protection Act
B. Securities Investor Protection Act
C. Investment Advisers Act
D. Federal Bankruptcy Acts
The capital projects fund of Hood River completed construction of an addition to its
city hall at a cost of $4,000,000. The city council approved payment of the amount due
the general contractor, less a 10 percent retainage. How should the capital projects fund
account for the 10 percent retainage?
I. As a credit of $400,000 to Deferred Revenue-Retained Percentage
II. As a credit for $400,000 to Contracts Payable-Retained Percentage.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
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 elimination entry to prepare the consolidated
financial statements on December 31, 20X7 would include a:
A. credit to common stock for $625,000
B. debit to retained earnings for $37,500
C. credit to Investment in Siena Co. for $976,500
D. credit to NCI in the net assets of Siena Co. for $232,500
Pilfer Company acquired 90 percent ownership of Scrooge Corporation in 20X7, at
underlying book value. On that date, the fair value of noncontrolling interest was equal
to 10 percent of the book value of Scrooge Corporation. Pilfer purchased inventory
from Scrooge for $90,000 on August 20, 20X8, and resold 70 percent of the inventory
to unaffiliated companies on December 1, 20X8, for $100,000. Scrooge produced the
inventory sold to Pilfer for $67,000. The companies had no other transactions during
20X8.
Based on the information given above, what inventory balance will be reported by the
consolidated entity on December 31, 20X8?
A. $51,490
B. $53,100
C. $37,000
D. $20,100
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
The following information pertains to Auburn’s water and sewer fund, an enterprise
fund, for the year ended June 30, 20X9:
Based upon the information presented, what was the increase in the enterprise funds
unrestricted net assets for the fiscal year ended June 30, 20X9?
A. $200,000
B. $240,000
C. $300,000
D. $320,000
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, Siena sold an additional 12,500 shares to a nonaffiliate for $25 per
share.
Based on the preceding information, what is the ending balance in noncontrolling interest
in the net assets of Siena?
A. $186,000
B. $418,500
C. $523,125
D. $232,500
When an internal service fund (ISF) enters into a capital lease the transaction is
recorded in the:
I. fixed assets of the ISF.
II. long-term debt of the ISF.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
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
Suppose the direct foreign exchange rates in U.S. dollars are as follows:
1 Swiss franc = $1.0371
1 Swedish krona = $0.1526
Based on the information given above, the indirect exchange rates for the Swiss franc
and the Swedish krona (from a U.S. perspective) are
A. 0.9642 Swiss francs and 6.5531 Swedish krona respectively.
B. 1.6893 Swiss francs and 5.2563 Swedish krona respectively.
C. 1.0371 Swiss francs and 0.1527 Swedish krona respectively.
D. 0.8372 Swiss francs and 4.2713 Swedish krona respectively.
Electric Corporation holds 80 percent of Utility Company’s voting common shares,
acquired at book values, but none of its preferred shares. At the date of acquisition, the
fair value of the noncontrolling interest was equal to 20 percent of the book value of
Utility Company. Summary balance sheets for the companies on December 31, 20X8,
are as follows:
Neither of the preferred issues is convertible. Electric’s preferred pays a 8 percent
annual dividend, and Utility’s preferred pays a 12 percent dividend. Utility reported net
income of $30,000 and paid a total of $10,000 of dividends in 20X8. Electric reported
income from its separate operations of $70,000 and paid total dividends of $25,000 in
20X8.
Based on the preceding information, what is the consolidated earnings per share for
20X5?
A. $16.97
B. $17.42
C. $18.72
D. $19.17
ASC 280 requires certain disclosures about major customers. All of the following
statements about those disclosures are true with the exception of which statement?
A. The identity of the segment reporting the revenue from a significant customer must
be disclosed a footnote.
B. The amount of revenue from a significant customer must be disclosed in a footnote.
C. For applying the disclosure test a threshold of 10 percent of total revenues is
mandated.
D. A local, state, or foreign government can be considered a major customer.
Two sole proprietors, L and M, agreed to form a partnership on January 1, 20X9. The
trial balance for each proprietorship is shown below as of January 1, 20X9.
The LM partnership will take over the assets and assume the liabilities of the
proprietors as of January 1, 20X9.
Required:
a) Prepare a balance sheet, for financial accounting purposes, for the LM partnership as
of January 1, 20X9.
b) In addition, assume that M agreed to recognize the goodwill generated by L’s
business. Accordingly, M agreed to recognize an amount for L’s goodwill such that L’s
capital equaled M’s capital on January 1, 20X9. Given this alternative, how does the
balance sheet prepared for requirement A change?
Senior Inc. owns 85 percent of Junior Inc. During 20X8, Senior sold goods with a 25
percent gross profit to Junior. Junior sold all of these goods in 20X8. How should 20X8
consolidated income statement items be adjusted?
A. No adjustment is necessary.
B. Sales and cost of goods sold should be reduced by 85 percent of the intercompany
sales.
C. Net income should be reduced by 85 percent of the gross profit on intercompany
sales.
D. Sales and cost of goods sold should be reduced by the intercompany sales.
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 cost of goods sold should be
eliminated in the consolidation worksheet for 20X8?
A. $82,000
B. $70,000
C. $95,000
D. $60,000
On July 1, 20X4, Denver Corp. purchased 3,000 shares of Eagle Co.’s 10,000
outstanding shares of common stock for $20 per share. On December 15, 20X4, Eagle
paid $40,000 in dividends to its common stockholders. Eagle’s net income for the year
ended December 31, 20X4, was $120,000, earned evenly throughout the year. In its
20X4 income statement, what amount of income from this investment should Denver
report?
A. $12,000
B. $36,000
C. $18,000
D. $6,000
Which combination of fund and measurement basis is correct?
A. Option A
B. Option B
C. Option C
D. Option D
The SEC administers many laws and regulations governing the information made in
files reports.
Required:
a) What is the difference in issues covered by Regulation S-X and Regulation S-K?
b) How do the issues covered by these regulations differ from the AAERs and SABs?
On October 15, 20X1, Jerry Company sold inventory to Garcia Corporation, its
Mexican subsidiary. The goods cost Jerry $2,700 and were sold to Garcia for $3,500,
payable in Mexican pesos. The goods are still on hand at the end of the year on
December 31. The Mexican peso is the functional currency of Garcia. The exchange
rates follow:
October 15 1 peso = $0.07
December 31 1 peso = $0.08
Based on the preceding information, what amount of unrealized intercompany gross
profit is eliminated in preparing the consolidated financial statements for the year?
A. $0
B. $800
C. $1,000
D. $1,300
Mazeppa, Inc. is a multinational entity with its head office located in Toronto, Canada.
Its main foreign subsidiary is in Paris, France, but the primary economic environment in
which the foreign subsidiary generates and expends cash is in the United States. Based
on this information, which of the following statements is most likely true for Mazeppa,
Inc.?
A. The functional currency is the Euro.
B. The local currency is the U.S. dollar.
C. The reporting currency is the Canadian dollar.
D. The reporting currency is the U.S. dollar.
Blue Corporation holds 70 percent of Black Company’s voting common stock. On
January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected
economic life. Black uses straight-line depreciation for all depreciable assets. On
December 31, 20X8, Blue purchased the building from Black for $180,000. Blue
reported income, excluding investment income from Black, of $140,000 and $162,000
for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000
for 20X8 and 20X9, respectively.
Based on the preceding information, the amount of income assigned to the controlling
shareholders in the consolidated income statement for 20X9 will be:
A. $207,000.
B. $202,000.
C. $212,000.
D. $190,000.
All of the following items are reported in a statement of realization and liquidation
except:
A. Cash
B. Prepaid assets
C. Depreciable assets (net)
D. Receiver’s expenses
Which of the following describes how a governmental fund (e.g. general fund) accounts
for a capital lease?
A. noncurrent liability
B. bond accounting
C. an asset and a lease liability
D. none of the above identifies the appropriate way to account for a capital lease.
Based on the preceding information, what is the overall effect on net income of
Robert’s use of the forward exchange contract?
A. No effect
B. Net loss of $150
C. Net loss of $200
D. Net gain of $350
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.
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s
common stock for $160,000 cash. The fair value of the noncontrolling interest at that
date was determined to be $40,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull’s net assets and
liabilities approximated fair value except for inventory, which had a fair value of $45,000,
and land, which had a fair value of $60,000.
Based on the preceding information, what amount of total liabilities will be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $395,000
B. $280,000
C. $275,000
D. $195,000
On January 2, 20X1, Pencil Co. purchased 15 percent of Eraser, Inc.’s outstanding
common shares for $500,000. Pencil is the largest single shareholder in Eraser and is
able to exercise significant influence over Eraser. Eraser reported net income of
$400,000 for 20X1 and paid dividends of $100,000. In its December 31, 20X1, balance
sheet, what amount should Pencil report as investment in Eraser?
A. $485,000
B. $500,000
C. $545,000
D. $560,000
Based on the information given above, what amount of cost of goods sold must be
reported in the consolidated income statement for 20X4?
A. $1,612,000
B. $2,418,000
C. $2,790,000
D. $3,596,000
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:
Endowment income was earned. The donor specified that the income be used for
community service.
On January 1, 20X7, Infinity Corporation acquired 90 percent of Trader Corporation’s
common stock for $315,000. At the date of acquisition, the fair value of the
noncontrolling interest was $35,000, and Trader reported common stock outstanding of
$150,000 and retained earnings of $180,000. The differential is assigned to a patent
with a remaining life of eight years. Each year since acquisition, Trader has reported
income from operations of $50,000 and paid dividends of $30,000.
Trader acquired 75 percent ownership of Minnow Company on January 1, 20X9, for
$187,500. At that date, the fair value of the noncontrolling interest was $62,500, and
Minnow reported common stock outstanding of $100,000 and retained earnings of
$130,000. In 20X9, Minnow reported net income of $20,000 and paid dividends of
$8,000. The differential is assigned to buildings and equipment with an economic life of
10 years at the date of acquisition.
Required:
1) Prepare the journal entries recorded by Trader for its investment in Minnow during
20X9.
2) Prepare the journal entries recorded by Infinity for its investment in Trader during
20X9.
3) Prepare the consolidating entries related to Trader’s investment in Minnow and
Infinity’s investment in Trader needed to prepare consolidated financial statements for
Infinity and its subsidiaries at December 31, 20X9.
Lea Company acquired all of Tenzing Corporation’s stock on January 1, 20X6 for
$150,000 cash. On December 31, 20X7, the balance sheets of the two companies
showed the following amounts:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.
The difference between the acquisition price and underlying book value is assigned to
buildings and equipment with a remaining economic life of five years from the date of
acquisition.
Required:
1) Give the appropriate consolidating entry or entries needed to prepare a consolidated
balance sheet as of December 31, 20X7.
2) Prepare a consolidated balance sheet worksheet as of December 31, 20X7.
GASB 34 established four types of interfund activities. Interfund activities are
recognized as revenue in a governmental fund for an:
Newport Village was recently incorporated and began financial operations on January 1,
20X8, the beginning of its fiscal year. The following transactions occurred during this
first fiscal year, January 1, 20X8, to December 31, 20X8:
1) The village council adopted a budget for general operations for the fiscal year ending
December 31, 20X8. Revenue was estimated at $650,000. Legal authorizations for
budgeted expenditures totaled $620,000.
2) Property taxes were levied in the amount of $630,000; 3 percent of this amount was
estimated to prove uncollectible. These taxes are available as of the date of levy to
finance current expenditures.
3) During the year, a village resident donated marketable securities valued at $75,000 to
the village under the terms of a trust agreement which stipulates that the principal
amount be kept intact. The revenue generated by the securities is restricted to providing
support to the village library. Revenue earned and received on these amounted to
$3,000 through December 31, 20X8.
4) A general fund transfer of $8,000 was made to establish an internal service fund to
provide for a permanent investment in inventory.
5) The village decided to construct a small recreation facility through a special
assessment project authorized to do so at a cost of $100,000. The city is obligated if the
property owners default on their special assessments. Special assessment bonds were
issued in the amount of $90,000, and the first year’s special assessment of $22,500 was
levied against the village’s property owners. The remaining $10,000 for the project will
be contributed from the village’s general fund.
6) The special assessments for the lighting project are due over a four-year period, and
the first year’s assessments of $22,500 were collected. The $10,000 transfer from the
village’s general fund was received by the lighting capital projects fund.
7) A contract for $100,000 was let for the installation of the lighting. The capital
projects fund was encumbered for the contract. On December, 20X8, the contract was
completed and the contractor was paid.
8) During the year, the internal service fund purchased various supplies at a cost of
$3,000.
9) Current property taxes collected during the year was $615,000. Licenses and permit
fees collected amounted to $15,000. The allowance for estimated uncollectible taxes is
adjusted to $15,000.
Required:
Prepare journal entries to record each of these transactions in the appropriate fund or
funds of Newport Village for the fiscal year ended December 31, 20X8. Use the
following funds: general fund, capital projects fund, internal service fund, and
private-purpose trust fund. Closing entries are not required. Organize your answer using
the following format:
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 20X8 if Gotham City used the consumption method of accounting
for inventories?
Cosby Corporation acquired 60 percent of Huxtable Corporation’s voting common
stock. Huxtable’s buildings and equipment had a book value of $200,000 and a fair
value of $250,000 at the time of the acquisition. What will be the amount at which
Huxtable’s buildings and equipment will be reported in consolidated statements on the
acquisition date?
A. $150,000
B. $200,000
C. $230,000
D. $250,000
On January 1, 20X4, Timber Company acquired 25% of Johnson Company’s common
stock at underlying book value of $200,000. Johnson has 80,000 shares of $10 par
value, 6 percent cumulative preferred stock outstanding. No dividends are in arrears.
Johnson reported net income of $270,000 for 20X4 and paid total dividends of
$140,000. Timber uses the equity method to account for this investment.
Based on the preceding information, what amount would Timber Company receive as
dividends from Johnson for the year?
A. $23,000
B. $35,000
C. $37,500
D. $92,000
Alpha Company acquired 100 percent of the voting common shares of Gamma
Corporation by issuing bonds with a par value and fair value of $200,000. Immediately
prior to the acquisition, Alpha reported total assets of $600,000, liabilities of $370,000,
and stockholders’ equity of $230,000. At that date, Gamma reported total assets of
$500,000, liabilities of $300,000, and stockholders’ equity of $200,000. Included in
Gamma’s liabilities was an account payable to Alpha in the amount of $50,000, which
Alpha included in its accounts receivable.
Based on the preceding information, what amount of total assets did Alpha report in its
balance sheet immediately after the acquisition?
A. $1,100,000
B. $1,000,000
C. $800,000
D. $1600,000
Partners David and Goliath have decided to liquidate their business. The following
information is available:
Cash $100,000
Inventory $200,000
$300,000
Accounts Payable $80,000
David, Capital $140,000
Goliath, Capital $80,000
$300,000
David and Goliath share profits and losses in a 3:1 ratio, respectively. During the first
month of liquidation, half the inventory is sold for $70,000, and $50,000 of the
accounts payable are paid. During the second month, the rest of the inventory is sold for
$55,000, and the remaining accounts payable are paid. Cash is distributed at the end of
each month, and the liquidation is completed at the end of the second month.
Refer to the information provided above. Assume instead that the remaining inventory
was sold for $20,000 in the second month. What payments will be made to David and
Goliath at the end of the second month?
David Goliath
A. $0 $0
B. $10,000 $10,000
C. $15,000 $5,000
D. $20,000 $0
Tuttle Company discloses supplementary operating segment information for its three
reportable segments. Data for 20X3 are available as follows:
Segment A Segment B Segment C
Sales $500,000 $300,000 $200,000
Traceable operating expenses 250,000 120,000 90,000
Additional 20X3 expenses include indirect operating expenses of $100,000.
Appropriately selected common indirect operating expenses are allocated to segments
based on the ratio of each segment’s sales to total sales. The 20X3 operating profit for
Segment A was
A. $150,000
B. $180,000
C. $200,000
D. $250,000
Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
”Financial statement of a private NFP entity” describes which term listed above?
Phips Co. purchases 100 percent of Sips Company on January 1, 20X2, when Phips’
retained earnings balance is $320,000 and Sips’ is $120,000. During 20X2, Sips reports
$20,000 of net income and declares $8,000 of dividends. Phips reports $125,000 of
separate operating earnings plus $20,000 of equity-method income from its 100 percent
interest in Sips; Phips declares dividends of $35,000.
Based on the preceding information, what is Sips’ post-closing retained earnings
balance on December 31, 20X2?
A. $108,000
B. $120,000
C. $132,000
D. $140,000
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:
Received cash contributions restricted by donors for research.