1) 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.
Based on the information given above, what amount of gain or loss on bond retirement
will be reported in the 20X8 consolidated financial statements?
A.$17,000
B.$12,800
C.$18,500
D.$22,200
2) If the U.S. dollar is the currency in which the foreign affiliate’s books and records are
maintained, and the U.S. dollar is also the functional currency,
A.the translation method should be used for restatement
B.theremeasurement method should be used for restatement
C.either translation or remeasurement could be used for restatement
D.no restatement is required
3) The gain or loss on the effective portion of a U.S. parent company’s hedge of a net
investment in a foreign entity should be treated as:
A.an adjustment to the retained earnings account in the stockholders’ equity section of
its balance sheet
B.other comprehensive income
C.a translation gain or loss in the computation of net income for the reporting period
D.an adjustment to a valuation account in the asset section of its balance sheet
4) On January 1, 20X8, Bristol Company acquired 80 percent of Animation Company’s
common stock for $280,000 cash. At that date, Animation reported common stock
outstanding of $200,000 and retained earnings of $100,000, and the fair value of the
noncontrolling interest was $70,000. The book values and fair values of Animation’s
assets and liabilities were equal, except for other intangible assets which had a fair
value $50,000 greater than book value and an 8-year remaining life. Animation reported
the following data for 20X8 and 20X9:
Bristol reported net income of $100,000 and paid dividends of $30,000 for both the
years.
Based on the preceding information, what is the amount of comprehensive income
attributable to the controlling interest for 20X8?
A.$123,750
B.$118,750
C.$119,000
D.$104,000
5) Paul and Ray sell musical instruments through their partnership. To bring in
additional funds and expertise, they decide to admit Janet to the partnership. Paul’s
capital is $400,000, Ray’s capital is $200,000, and they share income in a ratio of 7:3,
respectively.
Required
Record Janet’s admission and the recording of goodwill or inventory write-down, as
indicated, for each of the following independent situations:
a) Janet invests $180,000 for a one-fourth interest. Goodwill is to be recorded.
b) Paul and Ray agree that some of the inventory is obsolete. The inventory account is
decreased before Janet is admitted. Janet invests $190,000 for a one-fourth interest.
6) 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
7) Push Company owns 60% of Shove Company’s outstanding common stock.
Intra-entity sales are as follows:
Assume Push sold the inventory to Shove. Using the fully adjusted equity method, what
journal entry would be recorded by Push to recognize the realization of the 20X1
deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory
sales to Shove?
A.Option A
B.Option B
C.Option C
D.Option D
8) Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
Based on the information given above, how many U.S. dollars must be paid for a
purchase of citrus fruits costing 10,000 Cyprus pounds?
A.$25,132
B.$15,132
C.$3,979
D.$35,775
9) Note: This is a Kaplan CPA Review Question
Park Co.’s wholly-owned subsidiary, Schnell Corp., maintains its accounting records in
German marks. Because all of Schnell’s branch offices are in Switzerland, its functional
currency is the Swiss franc. Remeasurement of Schnell’s 20X1 financial statements
resulted in a $7,600 gain, and translation of its financial statements resulted in an
$8,100 gain. What amount should Park report as a foreign exchange gain in its income
statement for the year ended December 31, 20X1?
A.$15,700
B.$0
C.$8,100
D.$7,600
10) 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 sales must be eliminated from
the consolidated income statement for 20X8?
A.$117,000
B.$120,000
C.$150,000
D.$128,000
11) Parent Company purchased 100 percent of Son Inc. on January 1, 20X2 for
$420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during
20X2.
Based on the preceding information and assuming Parent uses the cost method to
account for its investment in Son, what is the balance in Parent’s Investment in Son
account on December 31, 20X2, prior to consolidation?
A.$416,000
B.$420,000
C.$424,000
D.$498,000
12) Which of the following usually does not represent a variable interest?
A.Common stock, with no special features or provisions
B.Senior debt
C.Subordinated debt
D.Loan or asset guarantees
13) Following its acquisition of the net assets of Dan Company, Empire Company
assigned goodwill of $60,000 to one of the reporting divisions. Information for this
division follows:
Based on the preceding information, what amount of amount of goodwill impairment
will be recognized for this division if its fair value is determined to be $245,000?
A.$0
B.$5,000
C.$60,000
D.$55,000
14) On November 1, 20X8, Denver Company borrowed 500,000 local currency units
(LCU) from a foreign lender evidenced by an interest-bearing note due on November 1,
20X9, which is denominated in the currency of the lender. The U.S. dollar equivalent of
the note principal was as follows:
In its income statement for 20X9, what amount should Denver include as a foreign
exchange gain or loss on the note principal?
A.15,000 gain
B.25,000 gain
C.15,000 loss
D.40,000 loss
15) In the RST partnership, Ron’s capital is $80,000, Stella’s is $75,000, and Tiffany’s is
$50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the
partnership. Each of the following question is independent of the others.
Refer to the above information. Tiffany is paid $56,000, and all implied goodwill is
recorded. What is the total amount of goodwill recorded?
A.$0
B.$6,000
C.$30,000
D.$36,000
16) Tom, Dick, and Harry are partners in an equipment leasing business that has not
been able to generate the type of revenue expected by the partners. They share profits
and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold
all the assets except for one piece of heavy machinery. All partnership liabilities have
been settled and all the partners are personally insolvent. The machinery has a book
value of $85,000, and the partners have capital account balances as follows:
Each of the following are independent cases.
Refer to the information given above. What amount of cash will each partner receive as
a liquidating distribution if the machinery is sold for 33,000 dollars?
A.Option A
B.Option B
C.Option C
D.Option D
17) Note: This is a Kaplan CPA Review Question
The following balance sheet is for the partnership of Able, Bayer, and Cain which
shares profits and losses in the ratio of 4:4:2, respectively.
The original partnership was dissolved when its assets, liabilities, and capital were as
shown on the above balance sheet and liquidated by selling assets in installments. The
first sale of noncash assets having a book value of $90,000 realized $50,000, and all
cash available after settlement with creditors was distributed. How much cash should
the respective partners receive (to the nearest dollar)?
A.Able $0; Bayer $3,000; Cain $17,000
B.Able $8,000; Bayer $8,000; Cain $4,000
C.Able $6,667; Bayer $6,667; Cain $6,666
D.Able $0; Bayer $13,333; Cain $6,667
18) What is defined as a condition in which a company is unable to meet debts as the
debts mature?
A.Deficit
B.Liability
C.Insolvency
D.Credit squeeze
19) New Life Corporation has just finished preparing a consolidated balance sheet,
income statement, and statement of changes in retained earnings for 20X9. The
following items are proposed for inclusion in the consolidated cash flow statement:
New Life holds 75 percent of the voting stock of Shane Pharmaceuticals, acquired at
book value on June 21, 20X6. On the date of the acquisition, the fair value of the
noncontrolling interest was equal to 25 percent of the book value of Shane.
Based on the preceding information, what amount will be reported in the consolidated
cash flow statement as net cash used in financing activities for 20X9?
A.$40,000
B.$55,000
C.$90,000
D.$10,000
20) Which of the following forms is the most comprehensive registration statement?
A.Form S-1
B.Form F-2
C.Form S-3
D.Form S-2
21) The British subsidiary of a U.S. company reported cost of goods sold of 75,000
pounds (sterling) for the current year ended December 31. The beginning inventory was
10,000 pounds, and the ending inventory was 15,000 pounds. Spot rates for various
dates are as follows:
Assuming the pound is the functional currency of the British subsidiary, the translated
amount of cost of goods sold that should appear in the consolidated income statement
is:
A.$108,750
B.$112,500
C.$114,300
D.$125,700
22) Note: This is a Kaplan CPA Review Question
A budgetary fund balance – assigned in excess of a balance of encumbrances indicates
A.A recording error
B.An excess of vouchers payable over encumbrances
C.An excess of purchase orders over invoices received
D.An excess of appropriations over encumbrances
23) Which of the following statements best describes the reporting process for profit
seeking and governmental entities?
A.In profit-seeking enterprises the measurement focus is on the flow of all economic
resources of the firm, whereas the focus for governmental funds is on current financial
resources
B.In profit-seeking enterprises the measurement focus is on the flow of current financial
resources, whereas the focus for government funds is on all economic resources
C.Both Profit-seeking enterprises and governmental entities have an objective to
measure profitability
D.Both Profit-seeking enterprises and governmental entities use the accrual or cash
basis of accounting to record and report transactions
24) Elan, a U.S. corporation, completed the December 31, 20X8, foreign currency
translation of its 70 percent owned Swiss subsidiary’s trial balance using the current rate
method. The translation resulted in a debit adjustment of $25,000. The subsidiary had
reported net income of 800,000 Swiss francs for 20X8 and paid dividends of 50,000
Swiss francs on September 1, 20X8. The translation rates for the year were:
The January 1 balance of the Investment in the Swiss subsidiary account was
$1,600,000. Elan acquired its interest in the Swiss subsidiary at book value with no
differential or goodwill recorded at acquisition.
Elan’s Investment in Swiss subsidiary account at December 31, 20X8, is:
A.$1,881,050
B.$1,916,050
C.$1,923,950
D.$2,051,500
25) Under the temporal method, which of the following is usually used to translate
monetary amounts to the functional currency?
I. The current exchange rate
II The historical exchange rate
III. Average exchange rate
A.I
B.III
C.II
D.Either I or II
26) Which of the following acts requires that a trustee be appointed for sales of bonds,
debentures, and other debt securities of public corporations?
A.Securities Investor Protection Act
B.Trust Indenture Act
C.Investment Company Act
D.Investment Advisors Act
27) The fair value of net identifiable assets of a reporting unit of X Company is
$300,000. On X Company’s books, the carrying value of this reporting unit’s net assets
is $350,000, including $60,000 goodwill. If the fair value of the reporting unit as a
whole is $335,000, what amount of goodwill impairment will be recognized for this
unit?
A.$0
B.$10,000
C.$25,000
D.$35,000
28) The capital balances, prior to the liquidation of the XYZ partnership, were as
follows:
X, Y, and Z share profits and losses in the ratio of 5:3:2. As a result of a loan, the
partnership owes Y $80,000. Using the information above, which partner has the
highest Loss Absorption Power (LAP) prior to liquidation?
A.X
B.Y
C.Z
D.Both X and Y
29) 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 eliminating 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
30) Which of the following describes a situation when a parent company would not
consolidate a foreign subsidiary?
A.Restrictions on foreign exchange in the foreign country
B.Restrictions on transfers of property in the foreign country
C.Other governmentally imposed uncertainties
D.All of these
31) 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: Received cash contribution from donor who stipulated the contribution be
permanently invested.
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
32) What portion of the subsidiary stockholders’ equity account balances should be
eliminated in preparing the consolidated balance sheet?
A.Common stock
B.Additional paid-in capital
C.Retained Earnings
D.All of the balances are eliminated
33) On March 1, 20X9, the ABC partnership decides to complete a lump-sum
liquidation as soon as possible. The partnership balance sheet prepared on March 1
appears below:
The partners share profits and losses in the ratio of 3:4:3. Partner B is personally
insolvent, but partners A and C have sufficient personal assets to satisfy any capital
deficits. On March 15, 20X9, the non-cash assets are sold for $550,000. Lump sum
payments are made to the partners on March 16, immediately after the creditors have
been paid.
Required:
Prepare a statement of partnership realization and liquidation.
34) On January 1, 20X9, Zigma Company acquired 100 percent of Standard Company’s
common shares at underlying book value. Zigma uses the equity method in accounting
for its ownership of Standard. On December 31, 20X9, the trial balances of the two
companies are as follows:
Required:
1> Prepare the eliminating entries needed as of December 31, 20X9, to complete a
consolidation worksheet.
2> Prepare a three-part consolidation worksheet as of December 31, 20X9.
35) Prior to closing the accounts at the end of the most recent fiscal year, the Town of
Sonora reports the following amounts (in thousands):
Required:
Applying the criteria specified in GASB 34, determine which of the above funds should
be classified as major funds for reporting purposes.
36) To obtain cash quickly, DebCo. sold $750,000 of its receivables to Finco., with
recourse. As the accountant for DebCo., what issues do you need to resolve in order to
determine the appropriate accounting treatment?
37) Dear Corporation acquired 100 percent of the voting shares of Therry Inc. by
issuing 10,000 new shares of $5 par value common stock with a $30 market value.
Required:
1> Which company is the parent and which is the subsidiary?
2> Define a subsidiary corporation.
3> Define a parent corporation.
4> Which entity prepares consolidated worksheet?
5> Why are elimination entries used?
38) On December 31, 20X9, Thessaly Corporation acquired all of Ionian Company’s
common shares, for $570,000 cash. On that date, Ionian’s balance sheet appeared as
follows:
The fair values of all of Ionian’s assets and liabilities were equal to their book values
except for the following:
In recording this acquisition, push-down accounting was used.
Required:
1> Record the acquisition of Ionian’s stock on Thessaly’s books on December 31, 20X9.
2> Record any entries that would be made on December 31, 20X9, on Ionian’s books
related to the business combination.
3> Present all eliminating entries that would appear in the worksheet to prepare a
consolidated balance sheet immediately after the combination.
39) A cash dividend returns assets to the stockholders while reducing corporate
liquidity. Why are not all cash dividends considered to be “liquidating dividends”? In
your response include a discussion of how an investor accounts for a liquidating
dividend.
40) The Securities Exchange Act of 1934 requires publicly held companies to file
periodic financial disclosures as updates of their economic activity. The three basic
forms used for this updating are Form 10-K, Form 10-Q, and Form 8-K.
Required:
Describe the information contained in each of the three basic forms noted above.
41) Following are four independent transactions or events that relate to a voluntary
health and welfare organization:
1>Cash disbursement of $45,000 was made from the general fund’s unrestricted assets
for the purchase of new equipment for the organization.
2> The organization receives an unrestricted cash gift of $80,000 from a donor.
3> Common stock investments with a total carrying value of $100,000 were sold by a
permanently restricted endowment fund for $112,000 before any dividends were earned
on these stocks. The gain is donor-restricted to remain in the permanently restricted
fund.
4> General obligation bonds payable with a face amount of $750,000 were sold at par,
with the proceeds required to be used solely for construction of a new building. This
building was completed at a total cost of $750,000, and the total amount of bond issue
proceeds was disbursed toward this cost. Disregard interest capitalization.
Required:
For each of these transactions or events, prepare journal entries specifying the affected
funds and showing how these transactions or events should be recorded by the
organization.
