1) The general fund of Hatteras acquired a fire truck during the fiscal year ended June
30, 20X9. The purchase order for the fire truck was recorded on February 15, 20X9.
Hatteras’ acquisition of the fire truck required which of the following sequences of
accounting activities?
I. Appropriation
II. Encumbrance
III. Expenditure
A.II, I, III
B.I, III, II
C.III, II, I
D.I, II, III
2) All of the following are management tools available for a U.S. company to hedge its
net investment in a foreign affiliate except for:
A.Forward exchange contracts
B.Foreign currency commitments
C.Intercompany financing arrangements including intercompany transactions
D.None of these
3) On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding shares
of Spiel Corporation for $100,000 cash. Spiel Company reported net income of $75,000
and paid dividends of $30,000 for both 20X7 and 20X8. The fair value of shares held
by Yang was $110,000 and $105,000 on December 31, 20X7 and 20X8 respectively.
Based on the preceding information, what amount will be reported by Yang as income
from its investment in Spiel for 20X8 if it used the fair value option to account for its
investment in Spiel?
A.$11,250
B.$2,500
C.$6,250
D.$7,500
4) Chapter 11 of the Bankruptcy Code provides for:
I. Reorganization.
II. Liquidation.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
5) Jupiter Corporation’s consolidated cash flow statement for the year ended December
31, 20X8, reported operating cash inflows of $160,000, financing cash outflows of
$90,000, and investing cash outflows $55,000, and an ending cash balance of $75,000.
Jupiter acquired 75 percent of Ganymede Company’s common stock on July 1, 20X6, at
book value. At that date, the fair value of the noncontrolling interest was equal to 25
percent of Ganymede Company’s book value. Ganymede reported net income of
$20,000, paid dividends of $8,000 in 20X8, and is included in Jupiter’s consolidated
statements. Jupiter paid dividends of $25,000 in 20X8. The indirect method is used in
computing cash flow from operations.
Based on the information provided, what amount was reported as dividends paid in the
cash flow from financing activities section of the consolidated statement of cash flows?
A.$25,000
B.$33,000
C.$27,000
D.$8,000
6) Estimated gross profit rates may be used to estimate a company’s cost of goods sold
and its ending inventory for:
A.quarterly but not for annual financial statements
B.both quarterly and annual financial statements
C.neither quarterly nor annual financial statements
D.annual but not for quarterly financial statements
7) Winner Corporation acquired 80 percent of the common shares and 70 percent of the
preferred shares of First Corporation at underlying book value on January 1, 20X9. At
that date, the fair value of the noncontrolling interest in First’s common stock was equal
to 20 percent of the book value of its common stock. First’s balance sheet at the time of
acquisition contained the following balances:
The preferred shares are cumulative and have a 10 percent annual dividend rate and are
four years in arrears on January 1, 20X9. All of the $5 par value preferred shares are
callable at $6 per share. During 20X9, First reported net income of $100,000 and paid
no dividends.
Based on the preceding information, what will be the amount of income to be assigned
to the noncontrolling interest in the 20X9 consolidated income statement?
A.$21,000
B.$18,000
C.$23,000
D.$15,000
8) Note: This is a Kaplan CPA Review Question
Home Care, Inc. (Home Care), a nongovernmental voluntary health and welfare
organization, received two contributions in 20X3. One contribution of $250,000 was
restricted for use as general support in 20X4. The other contribution of $200,000
carried no donor restrictions. What amount should Home Care report as temporarily
restricted contributions in its 20X3 statement of activities?
A.$200,000
B.$450,000
C.$250,000
D.$0
9) A voluntary health and welfare organization received unrestricted cash donations of
$20,000 from donors who attended a dinner held for the benefit of the organization. The
costs of the dinner, including room rental, and other expenses, amounted to $7,000. On
the statement of activities prepared for the voluntary health and welfare organization,
the expenses of the dinner should be:
A.reported as management and general expenses
B.netted against the $20,000 of contribution revenue
C.reported as fund raising costs
D.reported as programmatic expenses
10) Note: This is a Kaplan CPA Review Question
The functional currency of Nash, Inc.’s subsidiary is the French franc. Nash borrowed
French francs as a partial hedge of its investment in the subsidiary. In preparing
consolidated financial statements, Nash’s translation loss on its investment in the
subsidiary exceeded its exchange gain on the borrowing. How should the effects of the
loss and gain be reported in Nash’s consolidated financial statements?
A.The translation loss less the exchange gain is reported separately as other
comprehensive income
B.The translation loss less the exchange gain is reported in the income statement
C.The translation loss is reported separately in the stockholders’ equity section of the
balance sheet and the exchange gain is reported in the income statement
D.The translation loss is reported in the income statement and the exchange gain is
reported separately in the stockholders’ equity section of the balance sheet
11) Frahm Company incurred a first quarter operating loss before income tax effect of
$4,000,000. This is a normal occurrence for Frahm because of seasonal fluctuations.
Experience has demonstrated the income earned during the remaining quarters far
exceeds the first quarter losses each year. Frahm estimates its annual income tax rate
will be 30 percent. What net loss should Frahm report for the first quarter?
A.$4,000,000
B.$2,800,000
C.$700,000
D.$0
12) For which of the following reporting units is the preparation of combined financial
statements most appropriate?
A. A corporation and a foreign subsidiary with nonintegrated homogeneous operations
B. A corporation and a majority-owned subsidiary with nonhomogeneous operations
C. Several corporations with related operations owned by one individual
D.Several corporations with related operations with some common individual owners
13) 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:
Based on the preceding information, the translation of cost of goods sold for 20X8,
assuming that the Spanish peseta is the functional currency is:
A.$1,700
B.$1,760
C.$1,680
D.$1,692
14) Quid Corporation acquired 75 percent of Pro Company’s common stock on
December 31, 20X6. Goodwill (attributable to Quid’s acquisition of Pro shares) of
$300,000 was reported in the consolidated financial statements at December 31, 20X6.
Parent company approach was used in determining this amount. What is the amount of
goodwill to be reported under proprietary theory approach?
A. $300,000
B. $400,000
C. $150,000
D. $100,000
15) Pursuing an inorganic growth strategy, Wilson Company acquired Venus
Company’s net assets and assigned them to four separate reporting divisions. Wilson
assigned total goodwill of $134,000 to the four reporting divisions as given below:
Based on the preceding information, what amount of goodwill will be reported for
Alpha at year-end?
A.$0
B.$20,000
C.$30,000
D.$10,000
16) The governing board of Samaritan Hospital, which is operated by a religious
organization, designated $500,000 of cash for future expansion of the hospital. On the
hospital’s balance sheet, the cash designated for future plant expansion would be
disclosed in which of the following classes of net assets?
A.Temporarily restricted net assets
B.Unrestricted net assets
C.Plant replacement and expansion
D.Board designated net assets
17) The transactions listed in the following questions occurred in a private,
not-for-profit hospital during 20X8. For each transaction, indicate its effect on the
hospital’s statement of operations for the year ended December 31, 20X8.
Transaction: A gain was realized from the sale of endowment investments. The gain is
not expendable.
Effect on Statement of Operations:
A.Increases operating income
B.Decreases operating income
C.The transaction is reported on the statement of operations, but there is no effect on
operating income
D.The transaction is not reported on the statement of operations
18) 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.
“Reported as an expenditure of the fund using plant and equipment” describes which
term listed above?
19) In a private, not-for-profit hospital, which fund would record cash and investments
which have been restricted by the governing board for acquisitions of equipment and
construction of a new hospital addition?
A.The plant replacement and expansion fund
B.The specific purpose fund
C.The endowment fund
D.The general fund
20) On December 31, 20X8, Mercury Corporation acquired 100 percent ownership of
Saturn Corporation. On that date, Saturn reported assets and liabilities with book values
of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and
retained earnings of $150,000. The book values and fair values of Saturn’s assets and
liabilities were identical except for land which had increased in value by $10,000 and
inventories which had decreased by $5,000.
Based on the preceding information, what amount of goodwill will be reported if the
acquisition price was $240,000?
A.$0
B.$40,000
C.$15,000
D.$35,000
21) The government-wide financial statements prepared for a municipality should
include assets acquired by the following funds:
A.Option A
B.Option B
C.Option C
D.Option D
22) On December 1, 20X8, Winston Corporation acquired 100 shares of Linked
Corporation at a cost of $40 per share. Winston classifies them as available-for-sale
securities. On this same date, it decides to hedge against a possible decline in the value
of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the
100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:
Assume that Winston exercises the put option and sells Linked shares on February 20,
20X9.
Based on the preceding information, the journal entry made on December 31, 20X8 to
record decrease in the time value of the options will include:
A.a debit to Loss on Hedge Activity for $150
B.a credit to Put Option for $300
C.a debit to Loss on Hedge Activity for $300
D.a credit to Put Option for $100
23) Which of the following fiduciary funds does not require a statement of changes in
net assets?
I. Private-purpose trust fund
II. Agency fund.
A.I only
B.II only
C.Both I and II
D.Neither I nor II
24) Due to an error, the general fund of Pueblo did not record an encumbrance for
police equipment which had been ordered but not received on June 30, 20X9, the end of
its fiscal year. Pueblo’s outstanding encumbrances at year-end are nonlapsing. What was
the effect of this error on the balance sheet of Pueblo’s general fund?
A.Assets are overstated
B.Liabilities are understated
C.Total fund balance is overstated
D.Unassigned fund balance is overstated
25) On January 2, 20X8, Johnson Company acquired a 100% interest in the capital
stock of Perth Company for $3,100,000. Any excess cost over book value is attributable
to a patent with a 10-year remaining life. At the date of acquisition, Perth’s balance
sheet contained the following information:
Perth’s income statement for 20X8 is as follows:
The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at
various dates for 20X8 follow:
Assume Perth’s revenues, purchases, operating expenses, depreciation expense, and
income taxes were incurred evenly throughout 20X8.
Refer to the above information. Assuming the U.S. dollar is the functional currency,
what is Perth’s net income for 20X8 in U.S. dollars (include the remeasurement gain or
loss in Perth’s net income)?
A.$238,000
B.$228,000
C.$219,500
D.$202,000
26) Companies issuing stock to the public have to aware of certain terms. Using
complete sentences define the following:
a) Comment Letter
b) Preliminary Prospectus.
c) Shelf Registration.
27) On January 1, 20X9, Company A acquired 80 percent of the common stock and 60
percent of the preferred stock of Company B, for $400,000 and $60,000, respectively.
At the time of acquisition, the fair value of the common shares of Company B held by
the noncontrolling interest was $100,000. Company B’s balance sheet contained the
following balances:
For the year ended December 31, 20X9, Company B reported net income of $100,000
and paid dividends of $40,000. The preferred stock is cumulative and pays an annual
dividend of 10 percent.
Based on the preceding information, the eliminating entry to prepare the consolidated
financial statements for Company A as of December 31, 20X9 will include a credit to
Investment in Company BCommon Stock for:
A.506,000
B.440,000
C.400,000
D.500,000
28) Perfect Corporation acquired 70 percent of Trevor Company’s shares on December
31, 2008, for $140,000. At that date, the fair value of the noncontrolling interest was
$60,000. On January 1, 2010, Perfect acquired an additional 10 percent of Trevor’s
common stock for $32,500. Summarized balance sheets for Trevor on the dates
indicated are as follows:
Trevor paid dividends of $10,000 in each of the three years. Perfect uses the fully
adjusted equity method in accounting for its investment in Trevor and amortizes all
differentials over 5 years against the related investment income.All differentials are
assigned to patents in the consolidated financial statements.
Based on the preceding information, what was the balance in Perfect’s Investment in
Trevor Company Stock account on December 31, 2009?
A.$164,500
B.$157,500
C.$165,000
D.$168,000
29) Sub Company sells all its output at 20 percent above cost to Par Corporation. Par
purchases its entire inventory from Sub. The incomes reported by the companies over
the past three years are as follows:
Sub Company sold inventory for $300,000, $262,500 and $337,500 in the years 20X6,
20X7, and 20X8 respectively. Par Company reported ending inventory of $105,000,
$157,500 and $180,000 for 20X6, 20X7, and 20X8 respectively. Par acquired 70
percent of the ownership of Sub on January 1, 20X6, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.
Based on the information given above, what will be the income assigned to controlling
interest for 20X7?
A.$448,375
B.$495,000
C.$486,250
D.$615,375
30) Spiralling crude oil prices prompted AMAR Company to purchase call options on
oil as a price-risk-hedging device to hedge the expected increase in prices on an
anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for
20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1,
20X9, call date. The following is the pricing information for the term of the call:
The information for the change in the fair value of the options follows:
On February 1, 20X9, AMAR sells the options at their value on that date and acquires
20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112
per barrel.
Based on the preceding information, which of the following entries will be required on
February 1, 20X9?
A.Option A
B.Option B
C.Option C
D.Option D
31) On October 15, 20X8, an enterprise fund of Blacksburg purchased office supplies at
a cost of $10,000. The inventory of office supplies on hand at the June 30, 20X9, fiscal
year end was $4,000. There was no beginning inventory. Blacksburg should make
entries that include:
A.debiting Supplies $10,000 at October 15, and debiting Expenses $4,000 on June 30
B.debiting Expenditures $10,000 at October 15, and debiting Supplies $4,000 at June
30
C.debiting Supplies $10,000 at October 15, and crediting Supplies $6,000 on June 30
D.debiting Expenditures $10,000 at October 15, and crediting Expenses $4,000 at June
30
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 January 1, 20X8, for $122,000. 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 premium on bonds payable will
be eliminated in the preparation of the 20X8 year-end consolidated financial
statements?
32) A.$4,276
B.$4,923
C.$6,108
D.$7,033
33) 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 is the par value of Public’s common stock?
A.$10
B.$1
C.$5
D.$4