Advanced Accounting Exam Review
Course Introduction
Advanced Accounting delves into complex financial accounting topics beyond the intermediate level, focusing on specialized transactions and reporting requirements. Key areas include business combinations, consolidations, international accounting standards, foreign currency transactions, partnership accounting, and nonprofit/governmental accounting. The course emphasizes problem-solving and analytical skills, preparing students to interpret and apply advanced accounting concepts for business entities with multifaceted organizational structures. Through practical examples and case studies, students learn to navigate the regulatory environment and produce sophisticated financial reports that meet the standards of professional practice.
Recommended Textbook
Fundamentals of Advanced Accounting 6th Edition by Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) What is the justification for the timing of recognition of income under the equity method?
Answer: According to the equity method, the investor should recognize its share of the investee's income in the same period in which it is earned by the investee. The equity method applies accrual accounting when the investor could exercise significant influence over the investee.
Q2) On January 3, 2013, Roberts Company purchased 30% of the 100,000 shares of common stock of Thomas Corporation, paying $1,500,000. There was no goodwill or other cost allocation associated with the investment. Roberts has significant influence over Thomas. During 2013, Thomas reported income of $300,000 and paid dividends of $100,000. On January 4, 2014, Roberts sold 15,000 shares for $800,000. What was the balance in the investment account before the shares were sold?
A)$1,560,000.
B)$1,600,000.
C)$1,700,000.
D)$1,800,000.
E)$1,860,000.
Answer: A
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Page 3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Using the acquisition method for a business combination, goodwill is generally defined as:
A)Cost of the investment less the subsidiary's book value at the beginning of the year.
B)Cost of the investment less the subsidiary's book value at the acquisition date.
C)Cost of the investment less the subsidiary's fair value at the beginning of the year.
D)Cost of the investment less the subsidiary's fair value at acquisition date.
E)is no longer allowed under federal law.
Answer: D
Q2) Acquired in-process research and development is considered as
A)a definite-lived asset subject to amortization.
B)a definite-lived asset subject to testing for impairment.
C)an indefinite-lived asset subject to amortization.
D)an indefinite-lived asset subject to testing for impairment.
E)a research and development expense at the date of acquisition.
Answer: D
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Chapter 3: Consolidations-Subsequent to the Date of Acquisition
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Sample Questions
Q1) Red Co. acquired 100% of Green, Inc. on January 1, 2012. On that date, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2012. Also, on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2012 related to the acquisition allocations of Green?
A)$43,000.
B)$33,000.
C)$5,000.
D)$15,000.
E) 0
Answer: D
Q2) For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping is the easiest for the parent to use?
Answer: The initial value method is the easiest to use.
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Page 5
Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) On January 1, 2015, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's net assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000.
Required:
At what amount would the building appear on a consolidated balance sheet prepared immediately after the combination, under the acquisition method of accounting for business combinations?
Q2) Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2014. For 2014, Kailey reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. What is the amount of the non-controlling interest's share of Kailey's income for 2014?
A)$22,000.
B)$24,000.
C)$48,000.
D)$66,000.
E)$72,000.
Q3) What is preacquisition income?
Q4) Where should a non-controlling interest appear on a consolidated balance sheet?
Page 6
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Chapter 5: Consolidated Financial Statementsintra-Entity
Asset Transactions
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Sample Questions
Q1) Patti Company owns 80% of the common stock of Shannon, Inc. In the current year, Patti reports sales of $10,000,000 and cost of goods sold of $7,500,000. For the same period, Shannon has sales of $200,000 and cost of goods sold of $160,000. During the year, Patti sold merchandise to Shannon for $60,000 at a price based on the normal markup. At the end of the year, Shannon still possesses 30 percent of this inventory. Compute consolidated cost of goods sold.
A)$7,500,000.
B)$7,600,000.
C)$7,615,000.
D)$7,604,500.
E)$7,660,000.
Q2) Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards' inventory in 2013. The transfer price was equal to 30 percent of the sales price. When preparing consolidated financial statements, what amount of these sales is eliminated?
Q3) Throughout 2013, Cleveland Co. sold inventory to Leeward Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer be earned?
Q4) How is the gain on an intra-entity transfer of a depreciable asset realized?
Q5) When is the gain on an intra-entity transfer of land realized?
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Sample Questions
Q1) The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2) Non-controlling interest in Stage's net income was $30,000.
(3) Graham paid dividends of $15,000.
(4) Stage paid dividends of $10,000.
(5) Excess acquisition-date fair value over book value was expensed by $6,000.
(6) Consolidated accounts receivable decreased by $8,000.
(7) Consolidated accounts payable decreased by $7,000.
Using the indirect method, where does the decrease in accounts receivable appear in a consolidated statement of cash flows?
A)$8,000 increase to net income as an operating activity.
B)$8,000 decrease to net income as an operating activity.
C)$6,400 increase to net income as an operating activity.
D)$6,400 decrease to net income as an operating activity.
E)$8,000 increase as an investing activity.
Q2) During 2013, Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows?
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2013, with payment of 10 million Korean won to be received on January 15, 2014. The following exchange rates applied: \(\begin{array}{lrr}&&\text { Forward }\\ &\text { Spot}&\text { Rate }\\
\text { Date }&\text { Rate}&\text { to Jan. } 15\\
\hline\text { December 16, 2013 } & \$ .00092 & \text { \$. } 00098 \\
\text { December 31, 2013 } & .00090 & .00093 \\
\text { January 15, 2014 } & .00095 & .00095
\end{array}\) Assuming a forward contract was entered into, the foreign currency was originally sold in the foreign currency market on December 16, 2013 at a
A)forward contract discount $600.
B)forward contract premium $600.
C)forward contract discount $980.
D)forward discount premium $980.
E)There is no premium or discount because the fair value of the contract is zero.
Q2) What is the major assumption underlying the one-transaction perspective?
Q3) What is meant by the spot rate?
Q4) What is the purpose of a hedge of foreign exchange risk?
Page 9
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Chapter 8: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?
A)the exchange rate in effect when each asset or liability was acquired.
B)the average exchange rate for the current year.
C)a calculated exchange rate based on market value.
D)the exchange rate in effect as of the balance sheet date.
E)the exchange rate in effect at the start of the current year.
Q2) If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?
A)Historical rate.
B)Working capital rate.
C)Translation.
D)Remeasurement.
E)Current rate.
Q3) In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses?
Q4) Contrast the purpose of remeasurement with the purpose of translation.
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's total share of net income for 2013?
A)$34,420.
B)$75,540.
C)$65,540.
D)$70,040.
E)$61,420.
Q2) Which of the following is not a characteristic of a partnership?
A)The partnership itself pays no income taxes.
B)It is easy to form a partnership.
C)Any partner can be held personally liable for all debts of the business.
D)A partnership requires written Articles of Partnership.
E)Each partner has the power to obligate the partnership for liabilities.
Q3) For what events or conditions should the Articles of Partnership make provision?
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Page 11
Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) A schedule should be produced periodically by the accountant to disclose losses and gains that have been incurred, remaining assets and liabilities, and current capital balances.
A)Safe capital balances
B)Deficit capital balances
C)Predistribution plan
D)The schedule of liquidation
Q2) What is a safe cash payment?
Q3) The Amos, Billings, and Cleaver partnership had two assets: (1) cash of $40,000 and (2) an investment with a book value of $110,000. The ratio for sharing profits and losses is 2:1:1. The balances in the capital accounts were:
Amos, capital: $45,000
Billings, capital: $75,000
Cleaver, capital: $30,000
Required:
If the investment was sold for $80,000, how much cash would each partner have received?
Q4) What events or circumstances might force the termination of a partnership and liquidation of its assets?
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Chapter 11: Accounting for State and Local Governments,
Part I
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Sample Questions
Q1) Generally, annual budgets are recorded within the following funds:
A)General fund and special revenue funds.
B)Capital projects funds and debt service fund.
C)Enterprise funds and internal service funds.
D)General Fund and Pension Trust Fund.
E)Agency Funds and General Fund.
Q2) Which of the following statements is true regarding fund financial statements?
A)Fund financial statements report a government's activities and financial position as a whole.
B)Fund financial statements should tell the amount spent this year on such services as public safety, education, health and sanitation, and the construction of a new road.
C)Fund financial statements utilize the accrual basis of accounting much like any for-profit entity.
D)Fund financial statements help to determine whether the government's overall financial position improved or deteriorated.
E)Fund financial statements report all assets and liabilities in a way comparable to business-type accounting.
Q3) What is the definition of the term fund?
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Chapter 12: Accounting for State and Local Governments,
Part II
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Sample Questions
Q1) The parking garage and parking lots owned by the City of Danton reported the following balances for 2013: \(\begin{array}{lr}
\text { Receipts from public users of the parking facilities } & \$ 190,000 \\
\text { Receipts from the city for parking of city-owned vehicles } & 8,000 \\
\text { Salaries paid to employees } & 75,000 \\
\text { Printing - paid to an internal service fund } & 6,000 \\
\text { Interest on bonded indebtedness } & 10,000 \\
\text { Sculpture for entrance to parking lot (donated during 2013) } & 12,500 \\
\text { Depreciation on parking garage } & 30,000 \\
\text { Truck (purchased during 2013) } & 35,000 \\
\text { Maintenance - paid to an internal service fund } & 17,000 \end{array}\) Required:
What amount of net revenue (or expense) should be reported by the fund that was used to account for parking operations assuming the preparation of government-wide financial statements?
Q2) What three criteria must be met to identify a governmental unit as a primary government?
Q3) What is meant by the term legally independent?
Page 14
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