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:
9/1/20X1 9/30/20X1
Spot-rate 0.75 0.70
30-day forward rate 0.73 0.72
60-day forward rate 0.74 0.73
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
Mercury Company is a subsidiary of Neptune Company and is located in Valparaso,
Chile, where the currency is the Chilean Peso. Data on Mercury’s inventory and
purchases are as follows:
The beginning inventory was acquired during the fourth quarter of 20X7, and the ending
inventory was acquired during the fourth quarter of 20X8. Purchases were made evenly
over the year. Exchange rates were as follows:
Refer the information provided above. Assuming the U.S. dollar is the functional currency,
what is the amount of Mercury’s cost of goods sold remeasured in U.S. dollars?
A. $1,680
B. $1,712
C. $1,700
D. $1,692
Global Corporation acquired 85 percent of Local Company’s voting shares of stock in
20X7. During 20X8, Global purchased 50,000 picture tubes for $15 each and sold
28,000 of them to Local for $20 each. Local sold all of the units to unrelated entities
prior to December 31, 20X8, for $30 each. Both companies use perpetual inventory
systems.
Which worksheet consolidating entry is needed in preparing consolidated financial
statements for 20X8 to remove all effects of the intercompany sale?
A. Option A
B. Option B
C. Option C
D. Option D
Company X issues variable-rate debt but wishes to fix its interest rates because it
believes the variable rate may increase. Company Y has a fixed-rate bond but is looking
for a variable-rate interest because it assumes the interest rates may decrease. The two
companies agree to exchange cash flows. Such an arrangement is called:
A. a futures contract.
B. a forward contract.
C. a swap.
D. an option.
For the year ended June 30, 20X9, a university assessed its students a total of
$4,000,000 for tuition and fees. Included in this amount was $300,000 of tuition
remissions awarded to graduate teaching assistants, and $150,000 of scholarships
awarded to undergraduate students. Tuition and fees totaling $3,550,000 were collected
during the year ended June 30, 20X9. What amount should be reported in the
unrestricted fund as net revenue from tuition and fees for the year ended June 30,
20X9?
A. $4,000,000
B. $3,550,000
C. $3,700,000
D. $3,850,000
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 is the fair value of the noncontrolling interest
at the time of acquisition?
A. $47,813
B. $57,500
C. $60,000
D. $45,000
The payment to general unsecured creditors is often termed:
A. a “preference payment.”
B. a “dividend.”
C. a “write-off.”
D. a “bonus.”
Based on the preceding information, had Robert not used the forward exchange
contract, what would have been the foreign currency transaction gain or loss for the
year?
A. Gain of $200
B. Gain of $150
C. Loss of $350
D. Loss of $200
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 modified equity method.
Required:
a. Present the worksheet consolidation entries necessary to prepare consolidated financial
statements for 20X3.
b. Present the worksheet consolidation entries necessary to prepare consolidated financial
statements for 20X4.
A joint venture may be organized as a:
I. Partnership.
II. Corporation.
III. Undivided interest.
A. I only
B. II only
C. I or III only
D. I, II, or III
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 consolidating entries to complete a full
consolidation worksheet, Investment in Meta Stock at January 1, 20X9, will be credited
for:
A. $255,000.
B. $240,000.
C. $204,000.
D. $136,000.
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
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 retained earnings will be reported
in the consolidated balance sheet prepared immediately after the business combination?
A. $300,000
B. $409,000
C. $259,000
D. $191,000
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 questions 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
Xing Corporation owns 80 percent of the voting common shares of Adams Corporation.
Noncontrolling interest was assigned $24,000 of income in the 20X9 consolidated
income statement. What amount of net income did Adams Corporation report for the
year?
A. $150,000
B. $96,000
C. $120,000
D. $30,000
The general fund of Caldwell had the following operating budget for the fiscal year
beginning July 1, 20X9:
When the general fund records its operating budget on July 1, 20X9, Budgetary Fund
Balance—Unassigned should be
A. credited for $600,000.
B. debited for $900,000.
C. debited for $600,000.
D. credited for $900,000.
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 December 31, 20X8, include a:
A. Credit to Foreign Currency Payable to Exchange Broker, $4,000.
B. Debit to Foreign Currency Receivable from Exchange Broker, $6,000.
C. Debit to Foreign Currency Receivable from Exchange Broker, $186,000.
D. Debit to Foreign Currency Transaction Gain, $4,000.
Which of the following items are likely to be reported in the supplementary items
section of a statement of realization and liquidation?
A. Creditors’ claims settled during the period.
B. Trustee’s administration fees.
C. New obligations incurred by the trustee.
D. Assets subsequently acquired by the trustee.
Which of the following funds provides goods and services only to other departments or
agencies of the government on a cost-reimbursement basis?
A. Internal service funds
B. Enterprise funds
C. Special revenue funds
D. The general fund
Wakefield Company uses a perpetual inventory system. In August, it sold 2,000 units
from its LIFO-base inventory, which had originally cost $35 per unit. The replacement
cost is expected to be $45 per unit. The company is planning to reduce its inventory and
expects to replace only 1,500 of these units by December 31, the end of its fiscal year.
The company replaced 1,500 units in November at an actual cost of $50 per unit.
Based on the preceding information, in the entry to record the replacement of the 1,500
units in November, Accounts Payable will be credited for:
A. $67,500.
B. $75,000.
C. $62,500.
D. $60,000.
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 the consolidated retained earnings balance
on December 31, 20X2?
A. $402,000
B. $410,000
C. $430,000
D. $562,000
On January 1, 20X7, Servant Company purchased a machine with an expected
economic life of five years. On January 1, 20X9, Servant sold the machine to Master
Corporation and recorded the following entry:
Master Corporation holds 75 percent of Servant’s voting shares. Servant reported net
income of $50,000, and Master reported income from its own operations of $100,000 for
20X9. There is no change in the estimated economic life of the equipment as a result of the
intercorporate transfer.
Based on the preceding information, in the preparation of the 20X9 consolidated income
statement, depreciation expense will be:
A. Debited for $1,000 in the consolidating entries.
B. Credited for $1,000 in the consolidating entries.
C. Debited for $15,000 in the consolidating entries.
D. Credited for $15,000 in the consolidating entries.
In accordance with ASC 958, pledges, which are temporarily restricted by donors, are
reported as increases in temporarily restricted net assets on the statement of activities of
a voluntary health and welfare organization when the
A. pledges are received in cash.
B. cash received from the pledges is expended in accordance with the donors’ wishes.
C. pledges are made by the donors.
D. cash is received from the pledges is transferred to unrestricted net assets.
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:
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, what amount of interest expense will be eliminated
in the preparation of the December 31, 20X9 consolidated financial statements?
A. $13,292
B. $18,988
C. $16,296
D. $9,483
On January 1, 20X9, Gold Rush Company acquires 80 percent ownership in California
Corporation for $200,000. The fair value of the noncontrolling interest at that time is
determined to be $50,000. It reports net assets with a book value of $200,000 and fair
value of $230,000. Gold Rush Company reports net assets with a book value of
$600,000 and a fair value of $650,000 at that time, excluding its investment in
California. What will be the amount of goodwill that would be reported immediately
after the combination under current accounting practice?
A. $50,000
B. $30,000
C. $40,000
D. $20,000
ABC, a holder of a $400,000 XYZ Inc. bond, collected the interest due on June 30,
20X8, and then sold the bond to DEF Inc. for $365,000. On that date the bond issuer,
XYZ, a 90 percent owner of DEF, had a $450,000 carrying amount for this bond.
Based on the information given above, what amount of gain or loss on bond retirement
was recorded?
A. No gain or loss
B. $85,000 gain
C. $85,000 loss
D. $35,000 loss
Which presentation method combines the component unit’s results into the primary
government’s financial results?
A. Blended presentation
B. Discrete presentation
C. Combined presentation
D. Consolidated presentation
When is a partnership considered to be insolvent?
I. When the total of all partners’ capital accounts results in a debit balance.
II. When at least one of the partners is personally insolvent.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
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
$240,000?
A. $35,000
B. $30,000
C. $20,000
D. $0
In which of the following ways can debt be restructured?
I. Assets can be transferred to the creditor.
II. An equity interest can be granted to the creditor.
III. The terms of the debt can be modified.
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
Based on the information given above, in the preparation of the 20X3 consolidated
financial statements, premium on bonds payable will be
A. credited for $95,766 in the consolidation entries.
B. debited for $95,766 in the consolidation entries.
C. credited for $100,784 in the consolidation entries.
D. debited for $100,784 in the consolidation entries.
On September 1, 20X1, Bain Corp. received an order for equipment from a foreign
customer for 300,000 local currency units (LCU) when the U.S. dollar equivalent was
$96,000. Bain shipped the equipment on October 15, 20X1, and billed the customer for
300,000 LCU when the U.S. dollar equivalent was $100,000. Bain received the
customer’s remittance in full on November 16, 20X1, and sold the 300,000 LCU for
$105,000. In its income statement for the year ended December 31, 20X1, Bain should
report a foreign exchange gain of
A. $9,000
B. $4,000
C. $0
D. $5,000
A voluntary health and welfare organization received $200,000 of pledges from donors
on February 15, 20X9. The donors did not place either time or use restrictions on the
amount pledged. The governing board estimated that 10 percent of the pledges would
be uncollectible. During the remainder of fiscal 20X9, cash received from pledges
amounted to $184,000. For the year ended June 30, 20X9, what amount should the
voluntary health and welfare organization report as Contributions-Unrestricted?
A. $0
B. $200,000
C. $184,000
D. $180,000
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company’s
common stock for $210,000 cash. The fair value of the noncontrolling interest at that
date was determined to be $90,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
Interstate Catapult
Cash $50,000 $15,000
Accounts Receivable 70,000 25,000
Inventory 30,000 20,000
Land 150,000 80,000
Buildings and Equipment 250,000 200,000
Less: Accumulated Depreciation (70,000) (20,000)
Investment in Catapult Co. 210,000
Total Assets $690,000 $320,000
Accounts Payable $40,000 $10,000
Bonds Payable 150,000 40,000
Common Stock 300,000 90,000
Retained Earnings 200,000 180,000
Total Liabilities and Equity $690,000 $320,000
At the date of the business combination, the book values of Catapult’s assets and
liabilities approximated fair value except for inventory, which had a fair value of
$30,000, and land, which had a fair value of $95,000.
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. $190,000
B. $230,000
C. $240,000
D. $440,000