Accounting Theory Practice Exam
Course Introduction
Accounting Theory explores the fundamental principles, concepts, and frameworks that underpin the discipline of accounting. This course examines the historical development, philosophical underpinnings, and contemporary issues in accounting theory, including the standard-setting process, measurement approaches, and the role of accounting in economic decision-making. Students will analyze how accounting policies and practices are influenced by regulatory bodies, ethical considerations, and societal expectations, and critically assess the strengths and limitations of various accounting models. By integrating theoretical perspectives with real-world applications, the course prepares students to understand and evaluate the rationale behind accounting standards and practices in a dynamic business environment.
Recommended Textbook
Advanced Financial Accounting 8th Edition by Richard Baker
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Based on the information provided,what amount will be reported immediately following the business combination for Buildings and Equipment (net)in the combined company's balance sheet?
A)$300,000
B)$370,000
C)$330,000
D)$340,000
Answer: C
Q2) The fair value of net identifiable assets of a reporting unit of Y Company is $270,000.The carrying value of the reporting unit's net assets on Y Company's books is $320,000,including $50,000 goodwill.If the reported goodwill impairment for the unit is $10,000,what would be the fair value of the reporting unit?
A)$320,000
B)$310,000
C)$270,000
D)$290,000
Answer: B
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3
Chapter 2: Reporting Intercorporate Interests
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Q1) Under the cost method of accounting for a stock investment,the differential:
A)is written off.
B)is amortized.
C)is written down if related to limited-life assets.
D)is not amortized or written off.
Answer: D
Q2) Based on the preceding information,what amount will Rotor report as the balance in the investment account on Dec 31,2008?
A)$150,000
B)$157,500
C)$153,400
D)$153,500
Answer: C
Q3) Based on the preceding information,during 2008,Firewire will report:
A)an increase in the investment account balance of $8,000.
B)a decrease in the investment account balance of $15,500.
C)an increase in the investment account balance of $20,000.
D)a decrease in the investment account balance of $8,500.
Answer: D
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Page 4
Chapter 3: The Reporting Entity and Consolidated Financial Statements
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Q1) Based on the preceding information,what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition?
A)$500,000
B)$530,000
C)$280,000
D)$660,000
Answer: D
Q2) When a primary beneficiary's consolidation of a variable interest entity (VIE)is appropriate,the amounts of the VIE to be consolidated are: I.Book values for assets and liabilities transferred by the primary beneficiary.
II)Fair values when the primary beneficiary relationship became established.
A)I
B)II
C)Both I and II
D)Neither I nor II
Answer: C
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
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Q1) Based on the preceding information,what amount will be present in the revaluation capital account,when eliminating entries are prepared?
A)$0
B)$65,000
C)$60,000
D)$15,000
Q2) Based on the information provided,the amount of differential assigned to buildings and equipment that is amortized for the year is:
A)$5,000.
B)$4,000.
C)$10,000.
D)$3,600.
Q3) Based on the preceding information,what amount should be allocated to goodwill in the consolidated balance sheet,prepared after this business combination?
A)$0
B)$25,000
C)$70,000
D)$45,000
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6
Chapter 5: Consolidation of Less-Than-Wholly Owned Subsidiaries
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Q1) Based on the information given,what is the amount of unpaid consulting services at December 31,2008,on work done by X Company for Y Company?
A)$0
B)$10,000
C)$5,000
D)$15,000
Q2) Based on the preceding information,what amount will be reported as total stockholders' equity in the consolidated balance sheet prepared immediately after the business combination?
A)$445,000
B)$205,000
C)$565,000
D)$550,000
Q3) Based on the preceding information,what amount would be reported as total liabilities in the consolidated balance sheet at December 31,2009?
A)$330,000
B)$712,000
C)$318,000
D)$130,000
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Chapter 6: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,what amount of receivable/payable should be eliminated in the 2008 consolidated financial statements?
A)$125,432
B)$7,900
C)$5,560
D)$140,000
Q2) Based on the preceding information,in the preparation of the 2008 consolidated financial statements,equipment will be:
A)debited for $50,000.
B)debited for $40,000.
C)credited for $70,000.
D)debited for $25,000.
Q3) Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,2008?
A)$145,000
B)$220,000
C)$197,000
D)$160,000
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Chapter 7: Intercompany Inventory Transactions
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Q1) Based on the information given above,what will be the consolidated net income for 2006?
A)$357,500
B)$375,000
C)$490,000
D)$317,750
Q2) During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary.The subsidiary also makes sales of inventory at a profit to its parent during the same year.Both the parent and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one another.Consolidated revenues for the year should exclude:
A)80 percent of the total revenues from intercompany sales.
B)total revenues from intercompany sales.
C)only the revenues from the subsidiary's intercompany sales.
D)only the revenues from the parent's intercompany sales.
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of gain or loss on bond retirement will be reported in the 2008 consolidated financial statements?
A)$17,000 loss
B)$12,800 loss
C)$18,500 gain
D)$22,200 gain
Q2) Based on the information given above,what amount of gain or loss on bond retirement is included in the 2007 consolidated income statement?
A)$6,600
B)$4,800
C)$6,000
D)$5,400
Q3) Based on the information given above,what amount of consolidated net income should be reported for 2008?
A)$163,750
B)$161,250
C)$146,250
D)$148,750
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10
Chapter 9: Consolidation Ownership Issues
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Q1) Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock.Elven,in turn,owns 15 percent of Windsor's outstanding common stock.What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement?
A)None
B)100 percent
C)85 percent
D)75 percent
Q2) Based on the preceding information,what is the total stockholders' equity reported in the consolidated balance sheet as of January 1,2008?
A)$450,000
B)$530,000
C)$490,000
D)$370,000
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) 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
Q2) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash used in investing activities for 2009?
A)$180,000
B)$100,000
C)$255,000
D)$110,000
Q3) Based on the information provided,what is the diluted earnings per share for the consolidated entity for 2008?
A)4.53
B)4.33
C)4.00
D)3.80
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12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,what journal entry would Imperial make on January 10,2009,to revalue foreign currency payable to equivalent U.S.dollar value?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) On March 1,2008,Wilson Corporation sold goods for a U.S.dollar equivalent of $31,000 to a Thai company.The transaction is denominated in Thai bahts.The payment is received on May 10.The exchange rates were: What entry is required to revalue foreign currency payable to U.S.dollar equivalent value on May 10?
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Which of the following observations is true of futures contracts?
A)Contracted through a dealer,usually a bank.
B)Customized to meet contracting company's terms and needs.
C)Typically no margin deposit required.
D)Traded on an exchange and acquired through an exchange broker
Page 13
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) 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
Q2) Dividends of a foreign subsidiary are translated at:
A)the average exchange rate for the year.
B)the exchange rate on the date of declaration.
C)the current exchange rate on the date of preparation of the financial statement.
D)the exchange rate on the record date.
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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14
Chapter 13: Segment and Interim Reporting
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Q1) Interim income statements are required for Smith Orchards.Smith does most of its sales in the fall quarter of the year.These sales are both to individual and commercial customers.How do you recommend Smith report sales during the spring quarter of the year?
Q2) Samuel Corporation foresees a downturn in its business in the medium term.It expects to sustain an operating loss of $160,000 for the full year ending December 31,2008.Samuel's tax rate is 35 percent.Anticipated tax credits for 2008 total $8,000.No permanent differences are expected.Realization of the full tax benefit of the expected operating loss and realization of anticipated tax credits are assured beyond any reasonable doubt because they will be carried back.For the first quarter ended March 31,2008,Samuel reported an operating loss of $30,000.How much of a tax benefit should Samuel report for the interim period ended March 31,2008?
A)$8,000
B)$12,000
C)$13,500
D)$15,500
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Chapter 14: Sec Reporting
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Q1) Regulation S-X and Regulation S-K:
A)govern the preparation of financial statements and associated disclosures.
B)govern the registration requirements for private placements.
C)outline responsibilities for audit committees of publicly held companies.
D)prohibit artificial pyramids of capital in public utilities.
Q2) "Tombstone ad"
Q3) Regulation D of the SEC presents important exemptions from full registration requirements for:
A)private placements.
B)issuances of securities by savings and loan associations.
C)issuances of securities by common carriers regulated by the Interstate Commerce Commission.
D)foreign companies.
Q4) "Red Herring" Prospectus
Q5) Staff Accounting Bulletins
Q6) The history of securities regulation can be traced to:
A)the stock market crash of 1929.
B)medieval times.
C)18<sup>th</sup> century creation of the New York Stock Exchange.
Page 16
D)18<sup>th</sup> century English Parliament's passage of the Bubbles Acts.
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account,which of the following explains the difference? I.The retiring partner is receiving a bonus from the other partners.
II)The retiring partner's goodwill is being recognized.
A)I only
B)II only
C)Either I or II
D)Neither I nor II
Q2) 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
Q3) Apple and Betty are planning on beginning a new business.They plan on forming a partnership.Apple will contribute $300,000 and will not be working.Betty will be working full time.They plan on splitting profits equally.They approach you,as an accounting major,to confirm their thoughts.What do you recommend?
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Chapter 16: Partnerships: Liquidation
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Q1) (p.Appendix: A)The personal financial statements of a partner include which of the following? I.Statement of financial condition.
II)Statement of changes in net worth.
III)Statement of cash flows.
A)I and II
B)I and III
C)II and III
D)I,II,and III
Q2) Partner A has a smaller capital balance than Partner L.Partner A,however,has a higher profit-and-loss-sharing percentage than Partner L.The LA partnership has decided to liquidate.As a result of the information given,
A)Partner L will have a smaller loss absorption power than A
B)Partner L will receive cash only after A has received cash.
C)Partner A will have a smaller loss absorption power than L.
D)Partner A will never receive any cash from partnership liquidation.
Q3) A partnership may be involved in "Dissociation" or "Dissolution".
Required:
Describe "Dissociation" and "Dissolution."
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Chapter 17: Governmental Entities: Introduction and General
Fund Accounting
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Q1) Which governmental fund includes resources that are legally restricted so that the governmental entity must maintain the principal and can use only the earnings from the fund's resources to benefit the government's programs for all of its citizens?
A)General fund
B)Special revenue fund
C)Capital projects fund
D)Permanent fund
Q2) The general fund of Loveland ordered a new fire truck on November 12,2008,for $150,000.The order was appropriately encumbered on this date.Loveland received the fire truck on January 15,2009,and issued a voucher to the manufacturer for $148,600.Loveland uses the calendar year for reporting,and outstanding encumbrances at December 31,2008,are lapsing.On January 15,2009,the general fund of Loveland should debit:
A)Fund Balance-Reserved for Encumbrances for $148,600.
B)Expenditures for $148,600.
C)Expenditures-2008 for $148,600.
D)Encumbrances for $148,600.
Q3) Briefly discuss the various types of governmental funds and proprietary funds.
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) Upon completion of construction,and full payment of all construction costs in a capital projects fund,the entry to record the transfer of any remaining cash should include a debit to: I.Contract Payable-Retained Percentage.
II)Transfer Out to Debt Service Fund.
A)I only
B)II only
C)Either I or II
D)Neither I nor II
Q2) Government-wide financial statements prepared for a municipality include the following:
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Which of the following funds report fixed assets on their balance sheets?
A)I,II
B)II,III
C)I,IV
D)III,IV
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Chapter 19: Not-For-Profit Entities
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Q1) Good Care Hospital,which is operated by a religious organization,received contributions of $1,000,000 from donors who stipulated that the cash be used to construct an addition to the hospital.As of the balance sheet date,none of the contributions had been expended for construction.On the hospital's balance sheet,the cash contributions would be disclosed in which of the following classes of net assets?
A)Temporarily restricted net assets
B)Donor restricted net assets
C)Assets whose use is limited
D)Permanently restricted net assets
Q2) "Classification of contributions restricted by purpose" describes which term listed above?
Q3) A private,not-for-profit hospital uses a fund structure which includes a general fund and donor restricted funds.The hospital's revenues from nursing programs and gift shops should be accounted for in the:
A)specific purpose fund.
B)restricted current fund.
C)general fund.
D)time-restricted fund.
Q4) Depreciation expense for the year was recorded.
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Chapter 20: Corporations in Financial Difficulty
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Q1) 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
Q2) A debtor-in-possession balance sheet should report: I.Liabilities not subject to compromise.
II)Liabilities subject to compromise.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q3) Based on the preceding information,what is the total amount of unsecured claims?
A)$113,000
B)$126,000
C)$93,000
D)$121,000
Q4) What are the conditions necessary for using fresh start reporting in reorganization?
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