Advanced Accounting Final Exam
Course Introduction
Advanced Accounting delves into complex concepts and techniques used in the preparation and analysis of financial statements for entities with intricate organizational structures, such as partnerships, consolidated groups, and multinational corporations. The course covers topics including business combinations, intercompany transactions, foreign currency transactions, translation of financial statements, and accounting for governmental and not-for-profit organizations. Through case studies and real-world scenarios, students learn to apply advanced accounting standards and regulatory requirements, strengthening their analytical skills for resolving challenging financial reporting issues.
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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Sample Questions
Q1) On January 1, 2011, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 2011 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 2011?
A) $2,040,500.
B) $2,212,500.
C) $2,260,500.
D) $2,171,500.
E) $2,071,500.
Answer: E
Q2) 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.
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Page 3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Peterman Co. owns 55% of Samson Co. Under what circumstances would Peterman not be required to prepare consolidated financial statements?
Answer: Peterman would not be required to prepare consolidated financial statements if control of Samson is temporary or if, despite majority ownership, Peterman does not have control over Samson. A lack of control might exist if Samson is in a country that imposes restrictions on Peterman's actions.
Q2) Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in
A) a worksheet.
B) Lisa's general journal.
C) Victoria's general journal.
D) Victoria's secret consolidation journal.
E) the general journals of both companies.
Answer: A
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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Sample Questions
Q1) Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000. On the consolidated financial statements for 2010, what amount should have been shown for consolidated dividends?
A) $900,000.
B) $1,020,000.
C) $876,000.
D) $996,000.
E) $948,000.
Answer: D
Q2) For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account? Answer: The balance of the investment account is increased for the subsidiary's net income. It is decreased for subsidiary dividends and losses. The amortization of excess fair value allocations does not affect the account balance.
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Page 5
Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) In a step acquisition, which of the following statements is false?
A) The acquisition method views a step acquisition essentially the same as a single step acquisition.
B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year.
C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
D) Obtaining control through a step acquisition is a significant remeasurement event.
E) Preacquisition earnings are not included in the consolidated income statement.
Q2) On January 1, 2010, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. There is no active trading market for Acron's stock. The fair value of Acron's net assets was $600,000 and Glenville accounts for its interest using the acquisition method. Determine the amount of goodwill to be recognized in this acquisition.
Q3) How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?
Q4) Where should a non-controlling interest appear on a consolidated balance sheet?
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Page 6
Chapter 5: Consolidated Financial StatementsIntercompany Asset Transactions
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Sample Questions
Q1) Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2010, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2010, Stateside had sold 75% of the goods to outside parties for $420,000 cash. Prepare journal entries for Virginia and Stateside to record the sales/purchases during 2010.
Q2) Stark Company, a 90% owned subsidiary of Parker, Inc., sold land to Parker on May 1, 2010, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2010, 2011, and 2012, respectively. Parker sold the land purchased from Stark in 2010 for $92,000 in 2012. Compute Stark's reported gain or loss relating to the land for 2012.
A) $5,000 loss.
B) $5,000 gain.
C) $7,000 loss.
D) $7,000 gain.
E) $0.
Q3) How is the gain on an intra-entity transfer of a depreciable asset realized?
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Chapter 6: Intercompany Debt, Consolidated Statement of
Cash Flows, and Other Issues
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Sample Questions
Q1) What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?
A) Parent's dividends would be subtracted as a financing activity.
B) Gain on sale of land would be deducted from net income.
C) Non-controlling interest in net income of subsidiary would be added to net income.
D) Proceeds from the sale of long-term investments would be added to investing activities.
E) Loss on sale of equipment would be added to net income.
Q2) Parent Corporation loaned money to its subsidiary with a five-year note at the market interest rate. How would the note be accounted for in the consolidation process?
Q3) 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?
Q4) Allen Co. held 80% of the common stock of Brewer Inc. and 40% of this subsidiary's convertible bonds. The following consolidated financial statements were for 2010 and 2011.
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Page 8
Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Sample Questions
Q1) Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an investment accounted for by the equity method. During 2011, Dice earned operating income (not including income from its investment in Spalding) of $370,000. For this same period, Spalding reported net income of $160,000 and paid cash dividends of $60,000. Dice has an effective income tax rate of 35% and anticipates holding its investment in Spalding for an indefinite period.
Required:
(A.) What income tax expense journal entry would Dice Inc. record at the end of 2011?
(B.) If Dice expects to sell its interest in Spalding in the near future, how does that decision change the 2011 income tax expense journal entry?
Q2) What method is used in consolidation to account for a subsidiary's ownership of shares of its parent corporation?
Q3) C Co. currently owns 80% of D Co. and several other subsidiaries. C Co. is interested in gaining control of H Co. Why might C Co. allow D Co. to acquire H Co., rather than purchasing H Co. directly?
Q4) What ownership structure is referred to as a connecting affiliation? Describe briefly or illustrate with a diagram.
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Chapter 8: Segment and Interim Reporting
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Sample Questions
Q1) According to U.S. GAAP, which of the following would be an acceptable grouping by a U.S. company for presentation of information by geographic area?
A) France, Germany, All Other Countries.
B) United States, Europe, Canada.
C) United States, Africa, Europe, Asia.
D) United States, Canada, Mexico, Germany.
E) North America, Spain, All Other Countries.
Q2) 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.
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) Lawrence Company, a U.S. company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht. A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027. The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment. On August 7, when the parts are received, the spot rate is $.028. What is the amount of accounts payable that will be paid at this date?
A) $20,000.
B) $20,100.
C) $25,000.
D) $27,000.
E) $28,000.
Q2) What is meant by the spot rate?
Q3) A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true?
A) If the foreign currency appreciates, a foreign exchange gain will result.
B) If the foreign currency depreciates, a foreign exchange loss will result.
C) No foreign exchange gain or loss will result.
D) If the foreign currency appreciates, a foreign exchange loss will result.
E) Any gain or loss will be included in comprehensive income.
Page 11
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Chapter 10: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) In accounting, the term translation refers to
A) the calculation of gains or losses from hedging transactions.
B) the calculation of exchange rate gains or losses on individual transactions in foreign currencies.
C) the procedure required to identify a company's functional currency.
D) the calculation of gains or losses from all transactions for the year.
E) a procedure to prepare a foreign subsidiary's financial statements for consolidation.
Q2) The translation adjustment from translating a foreign subsidiary's financial statements should be shown as
A) an asset or liability (depending on the balance) in the consolidated balance sheet.
B) a revenue or expense (depending on the balance) in the consolidated income statement.
C) a component of stockholders' equity in the consolidated balance sheet.
D) a component of cash flows from financing activities in the consolidated statement of cash flows.
E) an element of the notes which accompany the consolidated financial statements.
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12
Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Sample Questions
Q1) Which of the following are not authoritative pronouncements of International Financial Reporting Standards (IFRSs)? 1) International Financial Reporting Standards issued by the IASB
2) International Accounting Standards issued by the IASC and adopted by the IASB
3) Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC)
4) U.S. Generally Accepted Accounting Principles
A) 4 only.
B) 3 and 4.
C) 1, 3, and 4.
D) 2, 3, and 4.
E) 1, 2, 3, and 4.
Q2) Which of the following is not a problem caused by diverse accounting practices across countries?
A) Preparation of consolidated financial statements.
B) Gaining access to foreign capital markets.
C) Lack of comparability of financial statements between companies in the same country.
D) Cost and expertise required of consolidations accounting staff.
E) Need for a company to maintain multiple sets of accounting records.
Page 13
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Sample Questions
Q1) What information needs to be included in Form 10-Q? 1. Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous year.
2) Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous two years.
3) A statement of cash flows is mandatory, but only for the year to date as well as for the corresponding period in the preceding year.
4) Two balance sheets: one for the end of the most recent quarter and one showing the company's financial position at the end of the previous fiscal year.
A) 1 and 3.
B) 2, 3, and 4.
C) 1 and 2.
D) 1, 3, and 4.
E) 2 and 4.
Q2) What is the primary focus of the Sarbanes-Oxley Act of 2002?
Q3) Why is the SEC's Rule 14c-3 important to the accounting profession?
Q4) When is the SEC's Registration Form S-4 used?
Q5) Who has the responsibility for the evaluation of the quality of an investment?
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Sample Questions
Q1) On its balance sheet, a company undergoing reorganization should
A) report its assets at fair value, so that financial statement users can estimate whether creditors' claims will be met.
B) report its assets at net realizable value because there is reason to doubt that the organization is a going concern.
C) report its assets as pledged or free.
D) report its assets at current replacement cost.
E) continue to report its assets at book value.
Q2) Who must accept and confirm the Reorganization plan?
Q3) What is meant by a "partially secured liability"?
Q4) What is the meaning of the phrase debtor in possession?
Q5) A Chapter 7 bankruptcy is a(n)
A) involuntary reorganization.
B) bankruptcy forced by a company's creditors.
C) liquidation.
D) bankruptcy in which all creditors receive payment in full.
E) voluntary reorganization.
Q6) What is the difference between a liquidation and a reorganization?
Page 15
Q7) What are duties of the creditors committee in Chapter 7 liquidation?
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Chapter 14: Partnerships: Formation and Operation
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Sample Questions
Q1) Why are the terms of the Articles of Partnership important to partners?
Q2) On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000 and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the partnership contract included the following provisions: Salary of $40,000 a year to Noris.
Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
During the fiscal year ended December 31, 2011, the partnership had income of $90,000 prior to recognition of salary to Noris.
Record the journal entry to allocate the salary of Noris.
Q3) How is accounting for a partnership different from accounting for a corporation?
Q4) For what events or conditions should the Articles of Partnership make provision?
Q5) Partnerships have alternative legal forms including all of the following except:
A) General Partnership.
B) Limited Partnership.
C) Subchapter S Partnership.
D) Limited Liability Partnership.
E) Limited Liability Company.
Q6) By what methods can a person gain admittance to a partnership?
Page 16
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Chapter 15: Partnerships: Termination and Liquidation
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Q1) Gonda, Herron, and Morse is considering possible liquidation because partner Morse is personally insolvent. The partners have the following capital balances: $60,000, $70,000, and $40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The partnership has $200,000 in noncash assets that can be sold for $150,000. The partnership has $10,000 cash on hand, and $40,000 in liabilities. What is the minimum that partner Morse's creditors would receive if they have filed a claim for $50,000?
A) $0.
B) $27,500.
C) $45,000.
D) $47,500.
E) $50,000.
Q2) Why is a Schedule of Liquidation prepared?
Q3) Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner has a deficit balance in their respective capital account. All assets from the partnership have been liquidated and all of the liabilities had been paid. How should any additional cash coming into the partnership be distributed to the partners?
Q4) 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) What are the two groups of financial statements mandated by GASB Statement No. 34? For each group, what are the names of the individual statements that must be produced?
Q2) The town council adopted an annual budget estimating general revenues of $2,000,000, approved expenditures of $1,700,000 and other financing for other funds of $130,000.
Required:
Record the journal entry to record the budget and identify the fund in which it is recorded.
Q3) When a city received a federal grant for books to be purchased for a library, the money should have been recorded in
A) the Permanent Fund.
B) an Expendable Trust Fund.
C) a Capital Projects Fund.
D) an Agency Fund.
E) a Special Revenue Fund.
Q4) Under modified accrual accounting, when are expenditures recorded?
Q5) What organization is responsible for establishing accounting principles for governmental entities? By whom was this organization established?
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Chapter 17: Accounting for State and Local Governments
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Sample Questions
Q1) What three criteria must be met before a governmental unit can elect to not capitalize and therefore report a work of art or historical treasure as an asset?
Q2) A city starts a solid waste landfill during 2010. When the landfill was opened the city estimated that it would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which will not be paid until the facility is closed. At the end of 2010, the facility was 20% full, and at the end of 2011 the facility was 45% full. On government-wide financial statements, which of the following are the appropriate amounts to present in the financial statements for 2011?
A) Both expense and liability will be zero
B) Expense will be $300,000 and liability will be $600,000.
C) Expense will be $600,000 and liability will be $600,000.
D) Expense will be $675,000 and liability will be $600,000.
E) Expense will be $375,000 and liability will be $675,000.
Q3) What information is required in the introductory section of a state or local government's CAFR?
Q4) What are the three broad sections of a state or local government's CAFR?
Q5) What three criteria must be met to identify a governmental unit as a primary government?
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Chapter 18: Accounting for Not-For-Profit Organizations
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Q1) How does a recipient not-for-profit organization record the receipt of a gift that will be transferred without restriction to another charitable organization? What if the donor retains the right to revoke or redirect the gift?
Q2) How does a voluntary health and welfare organization account for donated goods and cash contributed for operating purposes? What types of revenues are recognized by voluntary health and welfare organizations?
Q3) In not-for-profit accounting, an acquisition occurs when one not-for-profit organization obtains:
A) Significant influence over another not-for-profit organization.
B) The direct ability to determine the direction of management of another not-for-profit organization.
C) The indirect ability to direct the policies of management of another not-for-profit organization.
D) Control over another not-for-profit organization.
E) None of the above. An acquisition can only occur for profit-oriented organizations.
Q4) What term is used by voluntary health and welfare organizations for contributions?
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Page 20
Chapter 19: Accounting for Estates and Trusts
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Q1) The executor of Danny Mack's estate has listed the following properties at fair value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds
$50,000, Rental Property $100,000, and Personal Property $80,000. Additionally, the executor found $100,000 of various debts incurred before the decedent's death. The cost of Danny Mack's funeral was $20,000. Prepare the journal entry to record payment of $20,000 in funeral expenses.
Q2) What is meant by "an individual dies intestate"?
Q3) What is the process of abatement?
A) an attempt to determine the deceased's intentions when the terms of the will are unclear.
B) a reduction of various bequests when the estate is not adequate to satisfy them completely.
C) selling of assets included in an estate to be able to pay creditors. D) payment of the claims of creditors.
E) the establishment of how the creditors will be paid.
Q4) What choices does an executor of an estate have in determining the values of assets included in the estate for tax purposes?
Q5) What is the difference between an executor and an administrator?
Q6) In settling an estate, what is the meaning of the term legacy?
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