1) 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
2) Trevor Company discloses supplementary operating segment information for its
three reportable segments. Data for 20X8 are available as follows:
Additional 20X8 expenses include indirect operating expenses of $200,000.
Appropriately selected common indirect operating expenses are allocated to segments
based on the ratio of each segment’s sales to total sales. The 20X8 operating profit for
Segment B was:
A.$180,000
B.$120,000
C.$150,000
D.$250,000
3) Which of the following observations concerning the comparisons between the direct
and indirect approaches of presenting a cash flow statement is true?
A.The final number of cash flows from operating activities is different under the two
approaches
B.The direct approach provides a clearer picture of cash flows related to operations
C.Authoritative bodies have generally expressed a preference for the indirect method
D.A separate reconciliation of operating cash flows and net income is required under
the indirect approach
4) If A is the total capital of a partnership before the admission of a new partner, B is
the total capital of the partnership after the admission of the new partner, C is the
amount of the new partner’s investment, and D is the amount of capital credited to the
new partner, then there is:
A.goodwill to the new partner if B > (A + C) and D < C
B.goodwill to the old partners if B = A + C and D > C
C.a bonus to the new partner if B = A + C and D > C
D.neither bonus nor goodwill if B > (A + C) and D > C
5) The Town of Pasco has no supplies inventory in its general fund on January 1, 20X8.
During 20X8, Pasco incurred expenditures of $200,000 for the acquisition of supplies.
On December 31, 20X8, Pasco’s inventory of supplies amounted to $30,000. Assume
Pasco uses the purchase method of accounting for supplies in its general fund and that
the village reports on the calendar year. On December 31, 20X8, the general fund of
Pasco should credit:
A.Expenditures for $170,000
B.Fund BalanceUnassigned for $170,000
C.Fund BalanceNonspendable for $30,000
D.Expenditures for $30,000
6) On December 5, 20X8, Texas based Imperial Corporation purchased goods from a
Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The
transaction is denominated in Saudi riyals. Imperial’s fiscal year ends on December 31,
and its reporting currency is the U.S. dollar. The exchange rates are:
Based on the preceding information, what journal entry would Imperial make on
December 31, 20X8, to revalue foreign currency payable to equivalent U.S. dollar
value?
A.Option A
B.Option B
C.Option C
D.Option D
7) Missoula Corporation disposed of one of its segments in the second quarter and
incurred a gain from disposal of discontinued segment of $600,000, net of taxes. What
is the effect of this gain from disposal of discontinued segment?
A.Increase net income from operations for the year by $600,000
B.Increase second quarter net income by $600,000
C.Increase each quarter’s net income by $150,000
D.Increase each of the last three quarters’ net income by $200,000
8) Plummet Corporation reported the book value of its net assets at $400,000 when
Zenith Corporation acquired 100 percent ownership. The fair value of Plummet’s net
assets was determined to be $510,000 on that date.
Based on the preceding information, what amount of goodwill will be reported in
consolidated financial statements presented immediately following the combination if
Zenith paid $500,000 for the acquisition?
A.$0
B.$50,000
C.$150,000
D.$40,000
9) Carlisle established a motor vehicle service and maintenance fund to service and
maintain all cars and trucks owned by the town. Revenues of the fund will only come
from billings to the funds which use the motor vehicle service and maintenance fund.
What type of fund is the motor vehicle service and maintenance fund?
A.An enterprise fund
B.A special revenue fund
C.An expendable trust fund
D.An internal service fund
10) 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
11) Which of the following items should not be included as revenue for a state
government?
A.Property taxes levied in the current fiscal year
B.Private property for which a state takes custody when the legal owner cannot be
found
C.Amounts received from other financing sources
D.Fines and licensing fees for which amounts cannot be budgeted
12) 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
13) Janet Corporation holds 75 percent of Slider Corporation’s voting common stock,
acquired at book value.The fair value of the noncontrolling interest at the date of
acquisition was equal to 25 percent of the book value of Slider Corporation. On
December 31, 20X8, Slider Corporation acquired 25 percent of Janet Corporation’s
stock. Slider records dividends received from Janet as nonoperating income. In 20X9,
Janet reported operating income of $100,000 and paid dividends of $40,000. During the
same year, Slider reported operating income of $75,000 and paid $20,000 in dividends.
Based on the information provided, what amount will be reported as income assigned to
the controlling interest for 20X9 under the treasury stock method?
A.$18,750
B.$156,250
C.$175,000
D.$100,000
14) Note: This is a Kaplan CPA Review Question
Company X acquired for cash all of the outstanding common stock of Company Y. How
should Company X determine in general the amounts to be reported for the inventories
and long-term debt acquired from Company Y?
A.Option A
B.Option B
C.Option C
D.Option D
15) 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, 20X8, the trial
balances of the two companies are as follows:
Required:
1>Provide all eliminating entries required as of December 31, 20X8, to prepare
consolidated financial statements.
2> Prepare a three-part consolidation worksheet.
16) Silver Corporation acquired 100 percent of Bronze Company on January 1, 20X5,
for $350,000. Following are selected account balances from Silver and Bronze
Corporation as of December 31, 20X5:
Additional Information:
1> On January 1, 20X5 the fair market value of Bronze’s assets equaled their book
value with the exception of Plant Assets (with an estimated economic life of 6 years)
which had a fair market value in excess in Bronze’s depreciable assets of $33,000.
2> Silver used the equity-method in accounting for its investment in Bronze.
3> Detailed analysis of receivables and payables showed that Bronze owed Silver
$10,000 on December 31, 20X5.
Required:
a. Give all journal entries recorded by Silver with regard to its investment in Bronze
during 20X5.
b. Give all eliminating entries needed to prepare a full set of consolidated financial
statements for 20X5.
c. Prepare a three-part consolidation worksheet as of December 31, 20X5.
17) Which system helps the SEC accomplish its primary purpose of increasing the
efficiency and fairness of the securities markets by expediting the receipt, acceptance,
dissemination, and analysis of time-sensitive data filed with it?
A.EDI
B.ESEC
C.EDGAR
D.EMMA
18) The assets listed below of a foreign subsidiary have been converted to U.S. dollars
at both current and historical exchange rates. Assuming that the local currency of the
foreign subsidiary is the functional currency, what total amount should appear for these
assets on the U.S. company’s consolidated balance sheet?
A.$636,000
B.$648,000
C.$708,000
D.$960,000
19) 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.
Noncurrent liabilities on the January 2, 20X6, consolidated balance sheet should be:
A.$109,000
B.$55,000
C.$104,000
D.$131,000
20) On the statement of revenues, expenditures, and changes in fund balance prepared
for a debt service fund, the cash paid to retire matured serial bonds is reported as:
I. expenditures.
II. a direct deduction from unreserved fund balance.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
21) Lloyd Corporation reports the following information for 20X8 for its three
operating segments:
Indirect operating expenses are allocated to segments based upon the ratio of each
segment’s traceable operating expenses to total traceable operating expenses. Interest
expense is allocated to segments based upon the ratio of each segment’s sales to total
sales.
Required:
a) Calculate the operating profit or loss for each of the segments for 20X8.
b) Determine which segments are reportable, applying the operating profit or loss test.
22) 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 retained earnings will be reported
in the consolidated balance sheet prepared on December 31, 20X4?
A.$235,000
B.$210,000
C.$310,000
D.$225,000
23) 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
24) 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 of inventory must be eliminated
from the consolidated balance sheet for 20X8?
A.$2,400
B.$9,000
C.$12,000
D.$3,000
25) Note: This is a Kaplan CPA Review Question
Under GASB 34, capital assets and non-current debt are:
A.reported in the government-wide statement of net assets
B.reported in the fixed asset and long-term debt group of accounts
C.reported in the governmental funds balance sheet
D.no longer reported under GASB 34
26) Note: This is a Kaplan CPA Review Question
GASB 34 requires budgetary comparison schedules
A.Be reported for the general fund and each major special revenue fund with a legally
adopted budget
B.Be reported for all proprietary funds
C.Be reported for the permanent funds
D.Should not be reported
27) Lea Company acquired all of Tenzing Corporation’s stock on January 1, 20X6 for
$150,000 cash. On December 31, 20X8, the trial balances of the two companies were as
follows:
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. At December 31, 20X8, Tenzing owed Lea $4,000 for services provided.
Based on the preceding information, all of the following are eliminating entries required
on December 31, 20X8, to prepare consolidated financial statements, except:
A.Option A
B.Option B
C.Option C
D.Option D
28) Listen and Hear are thinking of dissolving their partnership. Listen has a friend who
told him to complete a “lump-sum” liquidation. Hear wants to complete an
“installment” liquidation. They have come to you for advice. What do you recommend
and Why?
29) Both the FCPA (Foreign Corrupt Practices Act of 1977) and SOX (Sarbanes-Oxley
Act of 2002) contain provisions related to Internal Control. Discuss some significant
differences between how the two acts impact internal control practices for publicly held
companies.
30) A personal statement of financial condition dated December 31, 2008, is to be
prepared for Wilhelm Holz. He provides the following information for your use in
preparing the statements. All amounts are as of December 31, 2008.
1> Cash on hand and in bank is $4,000.
2> Investments costing $30,000 have a market value of $78,000.
3> His personal residence cost $150,000 ten years ago, and is currently worth $320,000.
4> The payoff balance of his home mortgage is $80,000.
5> The fair value of his 401(k) retirement account is $700,000. All withdrawals from
the account will be fully taxable.
6> Amounts due on credit card debt total $5,000.
7> Estimated income taxes on his calendar 2008 earnings amount to $15,000. Taxes
withheld in 2008 were $14,000.
8> Assume an income tax rate of 30 percent.
Required:
Prepare a statement of financial condition for Mr. Holz as of December 31, 2008.
Assume any gain on subsequent sale of the residence will not be tax-exempt.
31) Windsor Corporation acquired 90 percent of Agro Corporation’s common shares on
January 1, 20X6, at underlying book value. At that date, the fair value of the
noncontrolling interest was equal to 10 percent of the book value of Agro. Agro
Corporation prepared the following balance sheet as of January 1, 20X9:
The company is considering the following alternatives:
1> A 3-for-1 stock split
2> A stock dividend of 7,000 shares
3> A stock dividend of 2,000 shares on its $5 par value common stock
The current market price per share of Agro stock on January 1, 20X9, is $15.
Required:
Give the investment elimination entry required to prepare a consolidated balance sheet
at the close of business on January 1, 20X9, for each of the alternative transactions
under consideration by Agro Corporation.
32) On December 1, 20X8, Denizen Corporation entered into a 120-day forward
contract to purchase 200,000 Canadian dollars (C$). Denizen’s fiscal year ends on
December 31. The forward contract was to hedge a firm commitment agreement made
on December 1, 20X8, to purchase electronic goods on January 30, with payment due
on March 31, 20X8. The derivative is designated as a fair value hedge. The direct
exchange rates follow:
Required:
Prepare all journal entries for Denizen Corporation.
33) What are the conditions necessary for using fresh start reporting in reorganization?
34) On January 1, 20X7, InfinityCorporationacquired 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 eliminating 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.
35) On December 1, 20X8, Secure Company bought a 90-day forward contract to
purchase 200,000 euros () at a forward rate of 1 = $1.35 when the spot rate was $1.33.
Other exchange rates were as follows:
Required:
1> Prepare all journal entries related to Secure Company’s foreign currency speculation
from December 1, 20X8, through March 1, 20X9, assuming the fiscal year ends on
December 31, 20X8.
2> Did the company gain or lose on its purchase of the forward contract?
36) Iona Corporation is in the process of preparing its financial statements for the first
quarter of 20X9 and has asked your advice as to how to report several items. These
items include the following events which took place during the first quarter of 20X9
(assume all amounts are material):
1> Iona redeemed bonds with a carrying value of $4,000,000 at a cost of $3,760,000.
This early extinguishment occurred because Iona wants to issue new debt at lower
interest rates.
2> Iona uses the LIFO method for its inventories. On January 1, 20X9, inventories
amounted to $10,000,000, while, on March 31, 20X9, inventories totaled $9,200,000.
Iona expects to replace the liquidated inventory at the beginning of the second quarter
at a cost of $1,000,000.
3> Iona changed its depreciation method on $4,000,000 of its delivery trucks from the
declining balance method to the straight-line method. On January 1, 20X9, accumulated
depreciation under the declining balance method was $2,800,000. Had the straight-line
method been used, accumulated depreciation on January 1, 20X9, would have been
$2,300,000. The remaining life of the trucks is two years.
4> Iona pays its top executives a bonus at year-end of 6 percent of operating income
before bonus and income taxes. Operating income before bonus and income taxes for
the three months ended March 31, 20X9, was $10,000,000. Iona estimates that its
yearly operating income before bonus and income taxes will be $60,000,000.
5> Iona closes its manufacturing operations in July of each year in order to make its
major annual repairs. Iona estimates that the cost of these repairs in 20X9 will be
$1,000,000.
Required:
For each of the events numbered 1 through 5, indicate how that event should be
reported on Iona’s income statement for the three months ended March 31, 20X9, and
the balance sheet accounts effects at March 31, 20X9. Ignore income taxes.