Advanced Accounting
Chapter Exam Questions
Course Introduction
Advanced Accounting delves into complex financial reporting topics beyond the introductory level, including the accounting for business combinations, consolidations, foreign currency transactions, and partnership accounting. The course explores advanced methods for preparing and analyzing consolidated financial statements and addresses the unique requirements of multinational operations and intercompany transactions. Students will also examine contemporary issues such as segment reporting, interim financial reporting, and governmental and not-for-profit accounting, applying relevant accounting standards and ethical considerations to challenging real-world scenarios.
Recommended Textbook
Advanced Accounting International 11th edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) With respect to goodwill,an impairment
A)will be amortized over the remaining useful life.
B)is a two-step process which analyzes each business reporting unit of the entity.
C)is a one-step process considering the entire firm.
D)occurs when asset values are adjusted to fair value in a purchase.
Answer: B
Q2) Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as
A)an expense for the current year.
B)a prior period adjustment to retained earnings.
C)additional cost to investment of Slope on the consolidated balance sheet.
D)a reduction in additional paid-in capital.
Answer: A
Q3) Goodwill arising from a business combination is
A)charged to Retained Earnings after the acquisition is completed.
B)amortized over 40 years or its useful life,whichever is longer.
C)amortized over 40 years or its useful life,whichever is shorter.
D)never amortized.
Answer: D
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Page 3
Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) Shebing Corporation had $80,000 of $10 par value common stock outstanding on January 1,2010,and retained earnings of $120,000 on the same date.During 2010 and 2011,Shebing earned net incomes of $30,000 and $45,000,respectively,and paid dividends of $8,000 and $10,000,respectively.
On January 1,2010,Pentz Company purchased 25% of Shebing's outstanding common stock for $60,000.On January 1,2011,Pentz purchased an additional 10% of Shebing's outstanding stock for $30,200.The payments made by Pentz in excess of the book value of net assets acquired were attributed to equipment,with each excess value amount depreciable over 8 years under the straight-line method.
Required:
1.What is the adjustment to Investment Income for depreciation expense relating to Pentz's Investment in Shebing in 2010 and 2011?
2.What will be the December 31,2011 balance in the Investment in Shebing account after all adjustments have been made?
Answer: 11ea7e71_c245_7fb2_ba34_574eec691775_TB1535_00_TB1535_00
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Pardo Corporation paid $140,000 for a 70% interest in Spedeal Inc.on January 1,2011,when Spedeal had Capital Stock of $50,000 and Retained Earnings of $100,000.Fair values of identifiable net assets were the same as recorded book values.During 2011,Spedeal had income of $40,000,declared dividends of $15,000,and paid $10,000 of dividends.On December 31,2011,the consolidated financial statements will show
A)investment in Spedeal account of $170,000.
B)investment in Spedeal account of $165,000.
C)consolidated goodwill of $50,000.
D)consolidated dividends receivable of $5,000.
Answer: C
Q2) Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2011.During 2011,Sedacor reported net income of $130,000 and paid dividends of $40,000.At what amount should Pental's Investment in Sedacor account be reported on December 31,2011?
A)$400,000
B)$481,000
C)$490,000
D)$530,000
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Q1) What amount of Inventory will be reported?
A)$170,000
B)$169,000
C)$186,500
D)$192,000
Q2) What is the reported amount for the noncontrolling interest?
A)$80,000
B)$84,400
C)$98,000
D)$122,500
Q3) Which one of the following will increase consolidated retained earnings?
A)An increase in the value of goodwill associated with a subsidiary subsequent to the parent's date of acquisition
B)The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value
C)The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value
D)The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) If the intercompany sale was an upstream sale,the total amount of consolidated cost of goods sold for 2012 will be
A)$300,000.
B)$430,000.
C)$470,000.
D)$477,000.
Q2) The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31,2012 will show consolidated cost of sales of A)$120,000.
B)$136,000.
C)$148,000.
D)$210,000.
Q3) The 2011 consolidated income statement showed noncontrolling interest share of A)$3,200.
B)$6,400.
C)$8,800.
D)$12,000.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) On January 2,2011,Paogo Company sold a truck with book value of $15,000 to Sanall Corporation,its wholly-owned subsidiary,for $20,000.The truck had a remaining useful life of five years with zero salvage value.Both firms use the straight-line depreciation method.If Paogo failed to make year-end adjustments/eliminations on the consolidated working papers in 2011,consolidated depreciation expense for 2011 would be
A)$5,000 too high.
B)$5,000 too low.
C)$1,000 too low.
D)$1,000 too high.
Q2) An elimination entry at December 31,2011 for the intercompany sale will include a A)credit of $6,000 to Depreciation Expense.
B)credit of $6,000 to Accumulated Depreciation.
C)credit of $6,000 to Equipment.
D)credit of $6,000 to Gain on Sale of Equipment.
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8
Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Pachelor Corporation owns 70% of the outstanding stock of Stabb Company.On January 1,2010,Stabb issued $1,000,000 in 7% bonds that matured on January 1,2015.At the time of issuance,the bonds were sold at a discount of $125,000.At January 2,2012,Pachelor purchased the bonds for $1,400,000,and constructively retired the debt.Interest is paid annually on January 1.Straight-line amortization is used by both companies.
Required:
1.Calculate the gain or loss that the consolidated entity incurred to retire the debt. 2.Prepare eliminating/adjusting entries for the consolidating work papers for the year ended December 31,2012.
Q2) If an affiliate purchases bonds in the open market,the book value of the intercompany bond liability at the time of purchase is
A)always assigned to the parent company because it has control.
B)the par value of the bonds less the unamortized discount or plus the unamortized premium.
C)par value.
D)the par value of the bonds plus the unamortized discount or less the unamortized premium.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?
A)Utah Company records a gain on sale of stock.
B)Utah Company increases additional paid-in capital.
C)Utah Company decreases additional paid-in capital.
D)Utah Company assigns any excess cost over book value acquired to increase undervalued identifiable assets or goodwill as appropriate.
Q2) Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2011.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is A)66-2/3%.
B)80%.
C)83-1/3%.
D)86-2/3%
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Chapter 9: Indirect and Mutual Holdings
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Q1) Padhy Corporation owns 80% of Abrams Corporation,Abrams Corporation owns 60% of Bacud Corporation,and Bacud Corporation owns 10% of Abrams Corporation.The separate net incomes (excluding investment income)of Padhy,Abrams,and Bacud are $300,000,$100,000,and $80,000,respectively.Assume the investments were acquired at a cost equal to the book value of each investment,which also equals the fair value. Required:
Calculate the controlling interest share of consolidated net income and the noncontrolling interest shares for Padhy Corporation and its subsidiaries.Use the conventional method for your solution.
Q2) When mutually-held stock involves subsidiaries holding the stock of each other,the ________ method is not used.
A)equity
B)cost
C)conventional
D)treasury stock
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11
Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Parker Corporation owns an 80% interest in Sample Corporation's common stock.Throughout 2010,Sample had 10,000 shares of common stock outstanding and Parker had 100,000 shares of common stock outstanding.Sample's only dilutive security consists of $50,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sample stock.Parker and Sample's separate incomes for the year are $100,000 and $75,000,respectively.Assume a 34% flat income tax rate.
Required:
Compute the amount of basic and diluted earnings per share for Parker (Consolidated)and Sample Corporations.
Q2) Peyton Corporation owns an 80% interest in Sampe Corporation's common stock.Throughout 2011,Sampe had 10,000 shares of common stock outstanding and Peyton had 100,000 shares of common stock outstanding.Sampe's only dilutive security consists of $100,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sampe stock.Peyton and Sampe's separate net incomes for the year are $200,000 and $150,000,respectively.Assume a 34% flat income tax rate.
Required:
Compute the amount of basic and diluted earnings per share for Peyton (consolidated)and Sampe Corporations.
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Chapter
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Q1) Under parent company theory,the amount of consolidated net income is equal to the amount of ________ under entity theory.
A)noncontrolling interest share
B)noncontrolling interest income
C)income attributable to controlling stockholders
D)income attributable to noncontrolling stockholders
Q2) Noncontrolling interest share was reported in the 2011 consolidated income statement at
A)$5,000.
B)$6,000.
C)$8,000.
D)$10,000.
Q3) Pascoe's income from Sarabet under the equity method for 2011 was A)$72,000.
B)$87,500.
C)$90,000.
D)$100,000.
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Page 13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) On December 5,2010,Unca Corporation,a U.S.firm,bought inventory items from Skagerrak Corporation of Norway for 1,000,000 Norwegian kroner when the spot rate for kroner was $0.166.The purchase was denominated in kroner.At Unca's fiscal year end,December 31,2010,the spot rate was $0.171.On January 4,2011,Unca purchased 1,000,000 kroner for $167,500 and paid the invoice.How much gain or (loss)did Unca report in its 2010 and 2011 income statements,respectively?
A)$(5,000)and $1,500
B)$0 and ($1,500)
C)($5,000)and $3,500
D)$0 and ($3,500)
Q2) On September 1,2011,Bylin Company purchased merchandise from Himeji Company of Japan for 20,000,000 yen payable on October 1,2011.The spot rate for yen was $0.0079 on September 1 and the spot rate was $0.0077 on October 1.The purchase was paid on October 1,2011.
Required:
1.Did the U.S.dollar strengthen or weaken from September to October and what are the implications for Bylin's business?
2.What journal entry did Bylin record on September 1,2011?
3.What journal entry did Bylin record on October 1,2011?
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) On January 1,2011,Bambi borrowed $500,000 from Lonni.The five-year term note carries a variable rate interest,based on LIBOR,and interest is payable at December 31 of each year,compounded annually.The first year's rate of interest is 6% and Bambi would like to assure that their rate does not increase.Bambi enters into a pay-fixed,receive-variable interest rate swap agreement with Third National Bank,under which Bambi will pay 6%,fixed.At December 31,2011,it is determined that Bambi's interest rate to Lonni for the next year will be 5%.Treat as a cash flow hedge.
Required:
Determine the estimated fair value of the hedge at December 31,2011,and prepare the related journal entry required to document this hedge and the related interest payment at December 31,2011.Assume the interest rate curve is flat.
Q2) What is the fair value of the forward contract at December 31,2011?
A)$400.00 liability
B)$400.00 asset
C)$396.04 liability
D)$396.04 asset
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Chapter 14: Foreign Currency Financial Statements
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Q1) Which of the following assets and/or liabilities are considered monetary?
A)Intangible Assets and Plant,Property,and Equipment
B)Bonds Payable and Common Stock
C)Cash and Accounts Payable
D)Notes Receivable and Inventories carried at cost
Q2) Selvey Inc.is a wholly-owned subsidiary of Parsfield Incorporated,a U.S.firm.The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions.Therefore,for purposes of preparing consolidated financial statements,the functional currency is
A)its reporting currency.
B)its current rate method currency.
C)the US dollar.
D)its local currency.
Q3) Accounts representing an allowance for uncollectible accounts are converted into U.S.dollars at
A)historical rates when the U.S.dollar is the functional currency.
B)current rates only when the U.S.dollar is the functional currency.
C)historical rates regardless of the functional currency.
D)current rates regardless of the functional currency.
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) Jacana Company uses the LIFO inventory method.During the second quarter,Jacana experienced a 100-unit liquidation in its LIFO inventory at a LIFO cost of $430 per unit.Jacana considered the liquidation temporary and expects to replace the units in the third quarter at an estimated replacement cost of $460 a unit.The cost of goods sold computation in the interim report for the second quarter will
A)include the 100 liquidated units at the $460 estimated replacement unit cost.
B)include the 100 liquidated units at the $430 LIFO unit cost.
C)be understated by $3,000.
D)be overstated by $3,000.
Q2) What is the purpose of interim reporting?
A)Provide shareholders with more timely information
B)Provide shareholders with more accurate information
C)Provide shareholders with more extensive detail about specific accounts and transactions
D)Provide shareholders with more current audited information
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17
Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) What is the weighted-average capital for Bertram and Ernest in 2011?
A)$224,000 and $245,000
B)$203,333 and $221,167
C)$221,333 and $239,167
D)$256,000 and $220,000
Q2) What is the total amount for the allocation of interest,salary,and bonus,and how much over-allocation is present?
A)$180,000 and $0
B)$240,000 and $60,000
C)$249,000 and $0
D)$249,000 and $69,000
Q3) Partnerships
A)are required to prepare annual reports.
B)are required to file income tax returns but do not pay Federal income taxes.
C)are required to file income tax returns and pay Federal income taxes.
D)are not required to file income tax returns or pay Federal income taxes.
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Chapter 17: Partnership Liquidation
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Q1) What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account?
A)The loan is ignored in liquidation.
B)The loan is offset against the debit balance in the capital account.
C)The loan is charged off to the capital accounts of all the partners in their profit and loss sharing ratios.
D)The loan is held for payment after all other capital accounts are covered.
Q2) If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated,then
A)the partner receives further allocations of liquidation losses,but not gains.
B)the partner receives further allocations of liquidation gains,but not losses.
C)the partner is no longer obligated to partnership creditors.
D)the partner has an obligation of personal net assets to the other partners.
Q3) In a schedule of assumed loss absorptions
A)the partner with lowest loss absorption is eliminated last.
B)it is necessary to have a cash distribution plan first.
C)the least vulnerable partner is eliminated first.
D)the most vulnerable partner is eliminated first.
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Page 19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) A single creditor
A)can never file a petition for bankruptcy.
B)with a $12,300 or more secured claim may file a petition for bankruptcy.
C)with a $12,300 or more unsecured claim may file a petition for bankruptcy,if there are fewer than 12 unsecured creditors.
D)with a $12,300 or more unsecured claim may file a petition for bankruptcy if there are more than 12 unsecured creditors.
Q2) A primary difference between voluntary and involuntary bankruptcy petitions is that
A)creditors file the petition in an involuntary filing.
B)trustees are not used in an voluntary filing.
C)voluntary petitions are not subject to review by the bankruptcy court.
D)the debtor corporation files the petition in an involuntary filing.
Q3) When a corporation's total liabilities are greater than the fair value of total assets,the firm is
A)a distressed corporation.
B)a bankrupt corporation.
C)insolvent in the equity sense.
D)insolvent in the bankruptcy sense.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to as
A)appropriations.
B)allotments.
C)allocations.
D)encumbrances
Q2) The following are transactions for the city of Clinton.
a.Borrowed $100,000 by issuing a one-year,5% note,three months before year-end.
b.Accrued interest at year end,but did not pay the interest at year end.
c.Charges for services rendered of $2,500 were billed and collected immediately.
d.Incurred salary costs of $5,000,unpaid.
Required:
Analyze the above transactions by using the accounting equation for a governmental fund.
Q3) The accounting equation for an agency fund is
A)Current assets - Current liabilities = Fund Balance.
B)Assets - Liabilities = Equity.
C)Assets = Equity + Liabilities.
D)Assets = Liabilities.
Page 21
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Goodwill County had the following transactions for their General Fund in the first month of their fiscal 2012 year,which ends June 30,2012.
1.The budget was approved,with $1,200,000 expected from property taxes,and another $5,000,000 expected from sales taxes.The budget showed these funds were expected to be spent on Salaries and Wages,$3,100,000;Utilities,$1,800,000;Rent,$900,000;and Supplies,$200,000.
2.Supplies were ordered in the amount of $33,000.
3.The electric bill was paid upon receipt in the amount of $75,000.
4.Property taxes were billed in the amount of $1,200,000,due on December 31.Bad debts are estimated at 1% of receivables.
5.Supplies were received,but the invoice amount was $35,000 and will be paid in 35 days.Supplies are used quickly and are not inventoried.
6.Property tax payments were received amounting to $100,000.
7.Payment was received from merchants for sales tax collections amounting to $400,000.
Required:
Prepare the journal entries for the General Fund that would be required for these transactions.
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Thoroughgood County has a municipal golf course and tennis club which is funded by the membership fees it charges.The club also has 6% bonds outstanding amounting to $20,000,000 on which it pays interest semi-annually.The club had the following transactions.
1.An addition to the golf clubhouse was added for $2,000,000,funded out of operations.
2.The following expenses were incurred and paid: $80,000 wages;$10,000 payroll taxes;$45,000 water bill;and $12,000 equipment repair.
3.Interest on the bonds was paid amounting to $600,000.
4.$5,000,000 of operating cash excess was repaid to the general fund for a previous loan.
5.Depreciation of $500,000 was recorded for the buildings.
Required:
Prepare the necessary journal entries for each of the above transactions for the Enterprise Fund.
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) An alumnus made a donation of adjoining land to a not-for-profit,nongovernmental university.The donor made no specifications regarding the time period or use of the land.The university would record the gift as
A)an endowment asset.
B)temporarily restricted revenue.
C)unrestricted revenue.
D)permanently restricted support.
Q2) Voluntary health and welfare organizations (VHWO)measure contributions at fair value unless
A)fair value is less than the original cost of the item.
B)the contributed item is not intended to be re-sold by the VHWO.
C)fair value cannot be reasonably determined.
D)the contributions are not in cash or cash equivalents.
Q3) Voluntary health and welfare organizations must report expenses classified by A)restriction.
B)function and natural classification.
C)restriction and natural classification.
D)restriction,function and natural classification.
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Chapter 23: Estates and Trusts
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Q1) Cindy Lou's parents passed away while she was still dependent on them,and their will designated that a trust should be established with their estate proceeds to care for her.The following transactions occurred in the first two months following their deaths.
1.The trust account was opened with the $2,000,000 in funds received from the estate.The funds were deposited into a non-interest bearing checking account to be used for expenses.
2.$1,500,000 was put into a multi-year certificate of deposit which earned 3% annually,with interest paid monthly back to the checking account.
3.One month's interest from the certificates of deposit was received.
4.The bank's trust administration fee was paid for $65.
5.Tuition was paid for the boarding school where Cindy Lou was living for $6,500. Required:
Prepare the journal entries for the listed transactions.Disregard the impact of estate and income taxes.
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