Advanced Accounting Exam Solutions
Course Introduction
Advanced Accounting delves into complex financial transactions and reporting issues encountered by entities such as partnerships, multinational corporations, and governmental or not-for-profit organizations. The course examines topics including business combinations, consolidated financial statements, foreign currency transactions, segment and interim reporting, and accounting for partnerships. Students will develop a thorough understanding of the financial accounting and reporting principles that underpin these advanced topics, gaining skills to analyze intricate financial situations and communicate results in accordance with generally accepted accounting principles (GAAP) and international standards.
Recommended Textbook
Advanced Accounting 11th Edition by Joe
Ben Hoyle
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19 Chapters
1785 Verified Questions
1785 Flashcards
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) How would a change be made from the fair value method to the equity method of accounting for investments?
Answer: According to GAAP, the investment account and retained earnings of the investor should be adjusted to retrospectively restate results of operations of prior periods.
Q2) On January 1, 2010, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2010, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The equity in income of Sacco for 2011, is A) $22,500. B) $21,000. C) $12,000. D) $13,500. E) $75,000.
Answer: B
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Page 3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) For acquisition accounting, why are assets and liabilities of the subsidiary consolidated at fair value?
Answer: The acquisition transaction is assumed to occur through an orderly transaction between market participants at the measurement date of the acquisition. Thus identified assets and liabilities acquired have been assigned fair value for the transfer to the acquirer and this is a relevant and faithful representation for consolidation.
Q2) Goodwill is often acquired as part of a business combination. Why, when separate incorporation is maintained, does Goodwill not appear on the Parent company's trial balance as a separate account?
Answer: While the Goodwill does not appear on the Parent company's books, it is implied as part of the account called Investment in Subsidiary. During the consolidation process, the Investment account is broken down into its component parts. Goodwill, along with other items such as subsidiary fair value adjustments, is then shown separately as part of the consolidated financial statement balances.
Q3) What term is used to refer to a business combination in which only one of the original companies continues to exist?
Answer: The appropriate term is statutory merger.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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121 Verified Questions
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Sample Questions
Q1) Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100. Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
A) $400 increase.
B) $300 increase.
C) $380 increase.
D) $280 increase.
E) $480 increase.
Answer: C
Q2) When consolidating a subsidiary under the equity method, which of the following statements is true?
A) Goodwill is never recognized.
B) Goodwill required is amortized over 20 years.
C) Goodwill may be recorded on the parent company's books.
D) The value of any goodwill should be tested annually for impairment in value.
E) Goodwill should be expensed in the year of acquisition.
Answer: D
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2010. For 2010, 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 net income to the controlling interest for 2010?
A) $31,000.
B) $33,000.
C) $55,000.
D) $60,000.
E) $39,000.
Q2) How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?
Q3) Where may a non-controlling interest be presented in a consolidated balance sheet?
Q4) One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?
Q5) How is a non-controlling interest in the net income of an entity reported in the income statement?
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Chapter 5: Consolidated Financial StatementsIntercompany Asset Transactions
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Sample Questions
Q1) Pepe, Incorporated acquired 60% of Devin Company on January 1, 2010. On that date Devin sold equipment to Pepe for $45,000. The equipment had a cost of $120,000 and accumulated depreciation of $66,000 with a remaining life of 9 years. Devin reported net income of $300,000 and $325,000 for 2010 and 2011, respectively. Pepe uses the equity method to account for its investment in Devin. Compute the non-controlling interest in the net income of Devin for 2010.
A) $116,400.
B) $120,400.
C) $120,000.
D) $123,200.
E) $112,000.
Q2) Throughout 2011, Cleveland Co. sold inventory to Leeward Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer be earned?
Q3) What is meant by unrealized inventory gains, and how are they treated on a consolidation worksheet?
Q4) What is the impact on the non-controlling interest of a subsidiary when there are downstream transfers of inventory between the parent and subsidiary companies?
Q5) When is the gain on an intra-entity transfer of land realized?
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Chapter 6: Intercompany Debt, Consolidated Statement of
Cash Flows, and Other Issues
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Sample Questions
Q1) A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true?
A) Since the sale was made at the end of the year, the parent's investment account is not affected.
B) Since the shares were sold for less than book value, the parent's investment account must be increased.
C) Since the shares were sold for less than book value, the parent's investment account must be decreased.
D) Since the shares were sold for less than book value but the parent did not buy any of the shares, the parent's investment account is not affected.
E) None of the above.
Q2) Danbers Co. owned seventy-five percent of the common stock of Renz Corp. How does the issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process?
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Page 8
Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Sample Questions
Q1) Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate operating incomes for 2011 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also retains a $20,000 unrealized gain in their current income figures. Annual amortization expense of $15,000 is assigned to Chase's investment in Lawrence and another $15,000 is assigned to Lawrence's investment in Ross. Compute Chase's accrual-based income for 2011.
A) $746,000.
B) $719,000.
C) $779,600.
D) $774,200.
E) $758,100.
Q2) What term is used to describe a parent and subsidiaries that are eligible to file a consolidated income tax return?
Q3) What configuration of corporate ownership is described as a father-son-grandson relationship?
Q4) How is the amortization of goodwill treated for income tax purposes? How does the amortization of goodwill affect deferred income taxes?
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Q5) What are the benefits or advantages of filing a consolidated income tax return?
Chapter 8: Segment and Interim Reporting
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Sample Questions
Q1) Which of the following is not true for an operating segment according to U.S. GAAP?
A) Discrete financial information generated by the internal accounting system is available.
B) The segment earns revenues and incurs expenses.
C) The segment is regularly reviewed by a chief decision maker to assess performance decisions.
D) The segment is regularly reviewed by a chief decision maker to make resource allocations.
E) An organizational unit cannot be an operating segment if all of its operating transactions are only with other segments of the organization.
Q2) Which of the following must be disclosed by a geographic segment according to U.S. GAAP?
A) Operating profit or loss.
B) Gross profit.
C) Total assets.
D) Revenues from external customers.
E) Revenues from internal customers.
Q3) What is meant by the term: disaggregated financial information?
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10
Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2011. Pigskin received payment of 35,000 British pounds on May 8, 2011. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)
A) $10,500 loss
B) $10,500 gain
C) $1,750 loss
D) $3,850 loss
E) No gain or loss should be recognized.
Q2) A forward contract may be used for which of the following? 1) A fair value hedge of an asset.
2) A cash flow hedge of an asset.
3) A fair value hedge of a liability.
4) A cash flow hedge of a liability.
A) 1 and 3
B) 2 and 4
C) 1 and 2
D) 1, 3, and 4
E) 1, 2, 3, and 4
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Chapter 10: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) A net liability balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true?
A) There is no translation adjustment.
B) There is a transaction loss.
C) There is a transaction gain.
D) There is a negative translation adjustment.
E) There is a positive translation adjustment.
Q2) Where is the disposition of a remeasurement gain or loss reported in the parent company's financial statements?
A) Net income/loss in the income statement.
B) Cumulative translation adjustment as a deferred asset.
C) Cumulative translation adjustment as a deferred liability.
D) Other comprehensive income.
E) Retained earnings.
Q3) Contrast the purpose of remeasurement with the purpose of translation.
Q4) What is the justification for the remeasurement of foreign currency transactions?
Q5) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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60 Flashcards
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Sample Questions
Q1) In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must:
A) present financial statements that comply with international GAAP.
B) conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
C) have a demonstrated need for capital to be used for operations in the U.S.
D) use the U.S. dollar as their reporting currency.
E) use IFRS, or use foreign GAAP and provide a reconciliation to U.S. GAAP.
Q2) Which of the following is not an IFRS pronouncement originally issued by the IASB?
A) Business Combinations.
B) First-Time Adoption of IFRS.
C) Financial Instruments: Disclosures.
D) Agriculture.
E) Operating Segments.
Q3) What are measurement differences in international reporting and what would be an example of a difference?
Q4) Why does each country have its own unique set of financial reporting practices?
Q5) What are the three authoritative pronouncements that make up the International Financial Reporting Standards (IFRS)?
Page 13
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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76 Flashcards
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Sample Questions
Q1) What is the primary focus of the Sarbanes-Oxley Act?
A) Accounting standards and the registration of securities.
B) Regulation of the continuous reporting by publicly owned companies.
C) Accounting standards and registration of investment companies that engage in investing and trading in securities.
D) Accounting standards and penalties against persons who profit from illegal use of inside information.
E) Regulation of independent audit firms and audit standards.
Q2) Which one of the following forms is used in connection with employee stock plans?
A) S-8.
B) S-3.
C) S-4.
D) S-1.
E) S-11.
Q3) Name the two broad categories of filings with the SEC.
Q4) What are some of the reasons for the corporate scandals of 2001 and 2002?
Q5) Briefly describe Regulation S-K. What is its purpose?
Page 14
Q6) What was the purpose of the Securities Act of 1933?
Q7) Name five securities offerings exempt from registration with the SEC.
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Sample Questions
Q1) To what does the term Chapter 7 bankruptcy refer?
Q2) Which statement is false regarding a plan for reorganization?
A) The plan is the heart of every Chapter 7 bankruptcy.
B) The provisions of the plan specify the treatment of all creditors and equity holders upon approval by the Court.
C) The plan shapes the financial structure of the entity that emerges.
D) The plan may contain numerous provisions as solutions to financial difficulties.
E) The plan may contain provisions for changes in the management of the company.
Q3) How should liabilities (except for deferred income taxes) be reported by a company using fresh start accounting?
A) at the undiscounted sum of future cash payments.
B) at book value prior to the reorganization.
C) as partially secured liabilities.
D) at the present value of future cash payments.
E) as unsecured liabilities.
Q4) Who must accept and confirm the Reorganization plan?
Q5) What is the meaning of the phrase debtor in possession?
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Q6) What are some of the common elements that can be included in a reorganization proposal?
Chapter 14: Partnerships: Formation and Operation
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Sample Questions
Q1) Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, 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 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. What was Wasser's capital balance at the end of 2010?
A) $150,000.
B) $160,000.
C) $165,000.
D) $213,000.
E) $201,000.
Q2) Determine the balance in both capital accounts at the end of 2011 to the nearest dollar.
Q3) What events cause the dissolution of a partnership?
Q4) Under what circumstances does a partner's balance in his or her capital account have practical consequences for the partner?
Q5) For what events or conditions should the Articles of Partnership make provision?
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Chapter 15: Partnerships: Termination and Liquidation
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Sample Questions
Q1) The Arnold, Bates, Carlton, and Delbert partnership was liquidating. It had paid all its liabilities and had some assets yet to be sold. The partners had capital account balances of ($50,000), $90,000, $110,000, and $130,000. There was $40,000 cash available for distribution to the partners. What procedures would be followed to determine the amount of cash that could safely be distributed to each partner?
Q2) What is a safe cash payment?
Q3) A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Harry receive in the final settlement?
A) $5,000.
B) $9,000.
C) $18,000.
D) $28,000.
E) $55,000.
Q4) What should occur when a solvent partner has a deficit balance?
Q5) What events or circumstances might force the termination of a partnership and liquidation of its assets?
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Chapter 16: Accounting for State and Local Governments
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Sample Questions
Q1) Which classifications may be not used for the Fund Balance of governmental funds?
A) Spendable
B) Non-Spendable
C) Assigned
D) Unassigned
E) Restricted
Q2) Which group of financial statements is prepared using the "modified accrual accounting" approach?
A) GAAP-Based Financial Statements.
B) Fund Financial Statements.
C) Cost-Based Financial Statements.
D) Government-Wide Financial Statements.
E) General Purpose Financial Statements.
Q3) The City of Kamen collected $17,000 from parking meters that must be transferred to the county government.
Required:
For fund financial statements, prepare the journal entry for this transaction including the fund type in which the entry would have been recorded.
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18
Chapter 17: Accounting for State and Local Governments
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Sample Questions
Q1) Jones College, a public institution of higher education, must prepare financial statements
A) As if the college was an enterprise fund.
B) Following the same rules as state and local governments.
C) According to GAAP.
D) As if the college was a fiduciary fund.
E) In the same manner as private colleges and universities.
Q2) For government-wide financial statements, what account is credited when a piece of equipment is leased on a capital lease?
A) Equipment - Capital Lease
B) Encumbrances - Long Term
C) Encumbrances - Lease Obligations
D) Capital Lease Obligation
E) The lease is not recorded.
Q3) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Q4) What information is required in the financial section of a state or local government's CAFR?
Q5) What are the three broad sections of a state or local government's CAFR?
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Chapter 18: Accounting for Not-For-Profit Organizations
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Sample Questions
Q1) Historically, what was the pattern of reporting of not-for-profit organizations? (1) Patterned after for-profit accounting
(2) Emphasis on separate fund types
(3) Disregard for the entire entity
A) 1 only.
B) 2 only.
C) 1 and 2 only.
D) 1, 2 and 3.
E) 2 and 3 only.
Q2) Give several examples of voluntary health and welfare organizations.
Q3) A not-for-profit organization (Charity A) raises money for other charitable organizations. Charity A receives $10,000 to distribute to Charity B. B.
Assume that the donor retains the right to revoke or redirect the gift.
Prepare the journal entries for Charity A and Charity
B. The entries should be for the gift when received by Charity A, and when the gift is distributed for Charity
Q4) What are the objectives of accounting for a not-for-profit organization?
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Chapter 19: Accounting for Estates and Trusts
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Sample Questions
Q1) A gift of any remaining estate property is a
A) general legacy.
B) specific legacy.
C) demonstrative legacy.
D) residual legacy.
E) devise.
Q2) The provisions of a will currently undergoing probate are: "One thousand shares of Wal-Mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash to my daughter; and any remaining property divided equally between my son and daughter." At the time of death, the estate included 1,000 shares of Wal-Mart stock and $6,000 cash in the savings account. What would the brother have received from the settlement of the estate?
A) $0.
B) $5,000.
C) $6,000.
D) $10,000.
E) $11,000.
Q3) In settling an estate, what is the meaning of the term devise?
Q4) In settling an estate, what is the meaning of the term legacy?
Q5) What are the three goals of probate laws?
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