Advanced Accounting
Midterm Exam
Course Introduction
Advanced Accounting delves into complex financial reporting concepts and practices used by corporations, partnerships, and other entities. The course covers topics such as consolidated financial statements, mergers and acquisitions, foreign currency transactions, translation of financial statements, partnerships accounting, and segment and interim reporting. Students will analyze the application of accounting principles to unique business structures and transactions, learning to interpret regulatory requirements and accounting standards. Emphasis is also placed on critical thinking and problem-solving skills needed for resolving the challenges inherent in advanced accounting environments.
Recommended Textbook
Modern Advanced Accounting in Canada9th Edition by Darrell Herauf
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12 Chapters
713 Verified Questions
713 Flashcards
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Page 2
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting
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18 Verified Questions
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Sample Questions
Q1) The CPA Canada Handbook - Accounting is the handbook of Canadian accounting standards. Why do companies in Canada ensure that their financial reporting is consistent with Canadian GAAP?
A) Their bank requires them to do so.
B) Their auditors require them to do so.
C) Reporting under the CPA Canada Handbook - Accounting is required by public companies' boards of directors.
D) Compliance with the CPA Canada Handbook - Accounting pronouncements is usually required by many legal statutes.
Answer: D
Q2) The debt-to-equity ratio measures:
A) liquidity.
B) solvency.
C) profitability of assets.
D) profitability of owners' investment.
Answer: B
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Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) When analyzing and interpreting financial statements, although the reporting methods show different values for liquidity, solvency, and profitability, the real economic situation is ________ for the four different methods.
A) completely different
B) identical
C) almost similar except for the equity method
D) almost similar except for the fair value methods
Answer: B
Q2) Which of the following statements is CORRECT?
A) Significant influence is only possible if the investor owns more than 50% of the voting shares of the associate.
B) An ownership interest between 20% and 50% always implies significant influence.
C) An ownership interest between 0 and 10% can never imply significant influence.
D) Significant influence is possible even if the investor owns less than 20% of the voting shares of the associate.
Answer: D
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Chapter 3: Business Combinations
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Sample Questions
Q1) IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $800,000. On the date of acquisition, UNI's assets included $2,000,000 of inventory, and land with a book value of $120,000. UNI also had $1,400,000 in liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's land, which was estimated to have a fair market value which was $50,000 higher than its book value. How much goodwill would be created by IOU's acquisition of UNI?
A) $30,000
B) $50,000
C) $80,000
D) Nil
Answer: A
Q2) Which of the following is considered to be part of the acquisition cost of a subsidiary?
A) Due diligence fees paid to lawyers.
B) The fair value of assets transferred by the acquirer.
C) The costs of issuing debt or shares.
D) Amounts paid to accountants for advice.
Answer: B
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Page 5
Chapter 4: Consolidation of Non-Wholly Owned
Subsidiaries
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Sample Questions
Q1) Which consolidation method should be used in preparing consolidated financial statements in accordance with IFRS?
A) Proportionate consolidation method.
B) Parent company method.
C) New entity method.
D) Either identifiable net assets or fair value enterprise method.
Q2) If the non-controlling interest at acquisition is based on the fair value of the subsidiary's identifiable net assets, which consolidation method is being applied?
A) Proportionate consolidation method
B) Parent company method
C) Fair value enterprise method
D) Identifiable net assets method.
Q3) Any negative goodwill arising on the date of acquisition:
A) is prorated among the parent company's identifiable net assets.
B) is recognized as a gain on the date of acquisition.
C) should be amortized over a predetermined period.
D) is recognized as a gain on date of acquisition by both the parent and the non-controlling interest.
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Q1) GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method if GNR received $9,000 in dividends from NMX?
A) An increase of $23,000
B) An increase of $1,000
C) No effect
D) A decrease of $1,000
Q2) Which of the following adjustments (if any) to Retained Earnings is necessary for the preparation of the consolidated balance sheet?
A) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income.
B) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income less any dividends received from the subsidiary.
C) No adjustment is required under either the Cost or the Equity methods.
D) No adjustment is required if the parent has been using the Equity Method.
Q3) Prepare a consolidated balance sheet for Par Inc. as at June 30, 2021.
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Chapter 6: Intercompany Inventory and Land Profits
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Q1) Under which of the following consolidation methods would the elimination of only the parent's share of any intercompany profits be required for the preparation of consolidated financial statements?
A) Parent company method
B) Fair value enterprise method
C) Proportionate consolidation method
D) Identifiable net asset method
Q2) On June 30, 2018, Parent Company sold some land to its subsidiary for $240,000. The land had cost Parent Company $120,000 when it was acquired three years previously. The transaction was subject to income tax at a rate of 20%. On June 30, 2020, the subsidiary sold the land to an outside party for $275,000. This transaction was also subject to income tax at a 20% rate. Parent Company owns 75% of the outstanding shares of its subsidiary and accounts for its investment using the cost method. What amount will appear on the "Gain on sale of land" line in Parent Company's consolidated income statement for the year ended December 31, 2020?
A) $0
B) $93,000
C) $124,000
D) $155,000
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Page 8
Chapter 7: A Intercompany Profits in Depreciable Assets B
Intercompany
Bondholdings
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Q1) Duff Inc. owns 75% of Paddy Corp. and uses the Equity Method to account for its investment. Paddy purchased $120,000 face value of Duff's 12% par value bonds on January 1, 2020 for $100,000, when Duff's bond liability consisted of $240,000 par of 12% bonds maturing on January 1, 2030.
There was an unamortized bond discount of $20,000 attached to the bonds on that date. Interest payment dates are June 30 and December 31 each year. Straight line amortization is used.
Both companies have a December 31 year end. Intercompany bond gains and losses are to be allocated to each company.
During 2020, Paddy earned a net income of $80,000 and paid dividends of $20,000. What amount of interest expense, excluding amortization of the bond discount, (if any) would have to be eliminated in 2020 as a result of the intercompany sale of the bonds?
A) None
B) $12,000
C) $12,200
D) $14,400
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Page 9
Chapter 8: Consolidated Cash Flows and Changes in Ownership
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Q1) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc. What would be the amount of the gain or loss on the sale of the 7,000 shares?
A) A loss of $12,250.
B) A loss of $70,000.
C) A gain of $12,250.
D) A gain of $57,750.
Q2) X owns 70% of Y, which in turn owns 25% of Z. X, also owns 20% of Z. Which of the following statements is correct?
A) X has direct control over Z.
B) X has indirect control over Z.
C) X has no control over Z.
D) X has contingent control over Z.
Page 10
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Chapter 9: Other Consolidation Reporting Issues
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Sample Questions
Q1) John Inc and Victor Inc. formed a joint venture on January 1, 2020. John invested plant and equipment with a book value of $500,000 and a fair value of $800,000 for a 30% interest in the venture which was to be called Jinxtor Ltd. Victor contributed assets with a fair value of $2,000,000 (including $200,000 in cash) for its 70% stake in Jinxtor. Jinxtor reported a net income of $3,000,000 for 2020. John's plant and equipment were estimated to provide an additional 5 years of utility to Jinxtor. The transactions set out above were considered to have commercial substance.
At what amount would John record its initial investment in Jinxtor?
A) $240,000
B) $500,000
C) $740,000
D) $800,000
Q2) When sales to a single customer amount to 10% or more of total revenues, disclosure of which of the following is not required under IFRS 8?
A) The fact that sales to a single customer exceed 10% of total revenues.
B) The operating segment reporting the revenues.
C) The name of the customer.
D) The total amount of revenue from each such customer.
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Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) The rate charged by commercial banks for the purchase of any foreign currency (in Canadian dollars) on any given day would be based on which of the following?
A) The average rate.
B) The closing rate.
C) The spot rate.
D) The forward rate.
Q2) Some gains and losses arising on a revaluation of property plant and equipment are to be included in other comprehensive income. When the asset is measured in a foreign currency, how would exchange differences be treated?
A) As an item to be included in income or loss for the year.
B) As a reduction or increase in the carry cost of the asset.
C) As a contra account to be fully disclosed and to show the impact of foreign exchange differences.
D) The differences should be included in the calculation of other comprehensive income.
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12
Chapter 11: Translation and Consolidation of Foreign Operations
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Q1) Which of the following statements is correct?
A) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the contributed capital must be translated using average rates.
Q2) Under the functional currency translation (FCT) method, which of the following statements is correct?
A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D) Historic rates are used to translate most non-monetary items.
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Page 13
Chapter 12: Accounting for Not-For-Profit and Public Sector Organizations
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Sample Questions
Q1) A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the deferral method of reporting?
A) $6,000
B) $14,000
C) $20,000
D) $34,000
Q2) Which of the following financial statements are NOT required by not-for-profit organizations for external reporting purposes?
A) A Statement of Financial Position.
B) A Statement of Changes in Members' Equity.
C) A Statement of Cash Flows.
D) A Statement of Operations.
Q3) Describe what fund accounting is and why is it used for not-for-profit organizations.
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