Advanced Accounting Review
Questions
Course Introduction
Advanced Accounting delves into complex topics beyond the principles of introductory financial accounting, focusing on the specialized accounting issues faced by corporations and other business entities. The course covers areas such as consolidated financial statements, intercompany transactions, foreign currency transactions, partnerships, segment and interim reporting, and accounting for nonprofit organizations and governmental entities. Students will develop skills in applying relevant accounting standards and frameworks, analyzing financial data for complex business structures, and preparing comprehensive financial reports. Through case studies and problem-solving exercises, the course enhances critical thinking and equips students for the challenges faced by accounting professionals in a dynamic business environment.
Recommended Textbook
Advanced Accounting 12th 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) After allocating cost in excess of book value, which asset or liability would not be amortized over a useful life?
A) Cost of goods sold.
B) Property, plant, & equipment.
C) Patents.
D) Goodwill.
E) Bonds payable.
Answer: D
Q2) On January 1, 2013, Bangle Company purchased 30% of the voting common stock of Sleat Corp. for $1,000,000. Any excess of cost over book value was assigned to goodwill. During 2013, Sleat paid dividends of $24,000 and reported a net loss of $140,000. What is the balance in the investment account on December 31, 2013?
A) $950,800.
B) $958,000.
C) $836,000.
D) $990,100.
E) $956,400.
Answer: A
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3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?
A) Stock issuance costs are a part of the acquisition costs, and the direct combination costs are expensed.
B) Direct combination costs are a part of the acquisition costs, and the stock issuance costs are a reduction to additional paid-in capital.
C) Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital.
D) Both are treated as part of the acquisition consideration transferred.
E) Both are treated as a reduction to additional paid-in capital.
Answer: C
Q2) How would you account for in-process research and development acquired in a business combination accounted for as an acquisition?
Answer: In-Process Research and Development is capitalized as an asset of the combination and reported as intangible assets with indefinite lives subject to impairment reviews.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Sample Questions
Q1) Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2012, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2012 and $50,000 in 2013 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2012 and $47,000 in 2013 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2013, if the equity method has been applied?
A) $286,000.
B) $295,000.
C) $276,000.
D) $344,000.
E) $324,000.
Answer: A
Q2) Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation. How would this loan be treated on a consolidated balance sheet?
Answer: The loan represents an intra-entity payable for Hans and receivable for Dutch, and each receivable and payable would be eliminated in preparing a consolidated balance sheet.
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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) Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2014. During 2014, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2014.
The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be A) $132,000.
B) $150,000.
C) $168,000.
D) $160,000.
E) $0.
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 Statements Intra-Entity
Asset Transactions
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Sample Questions
Q1) Stark Company, a 90% owned subsidiary of Parker, Inc. sold land to Parker on May 1, 2012, for $80,000. The land originally cost Stark $85,000. Stark reported net income of $200,000, $180,000, and $220,000 for 2012, 2013, and 2014, respectively. Parker sold the land purchased from Stark in 2012 for $92,000 in 2014.
Compute the gain or loss relating to the land that will be reported in consolidated net income for 2014.
A) $5,000 loss.
B) $7,000 gain.
C) $12,000 gain.
D) $7,000 loss.
E) $12,000 loss.
Q2) How do upstream and downstream inventory transfers differ in their effect in a year-end consolidation?
Q3) 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?
Q4) Why do intra-entity transfers between the component companies of a business combination occur so frequently?
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) Vontkins Inc. owned all of Quasimota Co. The subsidiary had bonds payable outstanding on January 1, 2012, with a book value of $265,000. The parent acquired the bonds on that date for $288,000. Subsequently, Vontkins reported interest income of $25,000 in 2012 while Quasimota reported interest expense of $29,000. Consolidated financial statements were prepared for 2013. What adjustment would have been required for the retained earnings balance as of January 1, 2013?
A) reduction of $27,000.
B) reduction of $4,000.
C) reduction of $19,000.
D) reduction of $30,000.
E) reduction of $20,000.
Q2) Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the current year, Donald made $75,000 in sales to Wolff. How does this transfer affect the consolidated statement of cash flows?
A) Included as a decrease in the investing section.
B) Included as an increase in the operating section.
C) Included as a decrease in the operating section.
D) Included as an increase in the investing section.
E) Not reported in the consolidated statement of cash flows.
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Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Sample Questions
Q1) White Company owns 60% of Cody Company. Separate tax returns are required. For 2012, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody paid a total of $25,000 in cash dividends; $15,000 (60%) to White and $10,000 to the non-controlling interest. White paid dividends of $180,000. The income tax rate for both companies is 30%.
Compute White's deferred income taxes for 2013.
A) $6,000.
B) $2,250.
C) $3,150.
D) $11,250.
E) $21,000.
Q2) What method is used in consolidation to account for a subsidiary's ownership of shares of its parent corporation?
Q3) What are the benefits or advantages of filing a consolidated income tax return?
Q4) X Co. owned 80% of Y Corp., and Y Corp. owned 15% of X Co. Under the treasury stock approach, how would the dividends paid by X Co. to Y Corp. be handled on a consolidation worksheet?
Q5) Under what conditions must a deferred income tax asset be recorded?
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Chapter 8: Segment and Interim Reporting
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Sample Questions
Q1) Which one of the following items is not required to be disclosed for each operating segment?
A) Factors used to identify operating segments.
B) Products and services from which each segment derives its revenues.
C) Revenues from external customers.
D) Factors used to allocate company-wide expenses.
E) Revenues from transactions with other operating segments.
Q2) Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2013. Pretax income for the first quarter was $300,000. At the end of the second quarter of 2013, Provo expects the annual tax rate to be 32 percent because of anticipated tax credits. Pretax income for the second quarter was $350,000. Assume no items in either quarter requiring the net-of-tax presentation.
How much income tax expense is recognized in the second quarter of 2013?
A) $103,000.
B) $104,000.
C) $112,000.
D) $122,500.
E) $208,000.
Q3) What related items need to be disclosed in regard to total segment assets?
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Page 10
Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) What factors create a foreign exchange gain?
Q2) When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?
A) The transaction is denominated in U.S. dollars.
B) The option strike price to sell foreign currency is less than the spot rate of the currency.
C) The option strike price to buy foreign currency is less than the spot rate of the currency.
D) The foreign currency appreciated in value relative to the U.S. dollar.
E) The foreign currency depreciated in value relative to the U.S. dollar.
Q3) A company has a discount on a forward contract for a foreign currency denominated asset. How is the discount recognized over the life of the contract under fair value hedge accounting?
A) As a debit to discount expense.
B) As a debit to amortization expense.
C) As a debit to accumulated other comprehensive income.
D) As a debit impact on net income, as a result of the hedge.
E) As a decreases to sales.
Q4) What is meant by the spot rate?
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Chapter 10: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) Under the temporal method, how would cost of goods sold be remeasured?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) A single historical rate.
E) A combination of historical rates.
Q2) When preparing a consolidating statement of cash flows, which of the following statements is false?
A) All operating activity items are translated at an average exchange rate for the period.
B) A change in accounts receivable is translated using the current rate.
C) A change in long-term debt is translated using the historical rate at the date of the change.
D) Dividends paid are translated using the historical rate at the date of the payment.
E) All items follow translation rates used for the balance sheet and the income statement.
Q3) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
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Page 12
Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) The major providers of financing in some countries are stockholders, while other countries predominantly use banks as the main financing source. What difference does it make to accounting disclosures in comparing a company from one of each of those countries?
Q2) The types of differences that exist between IFRS and U.S. GAAP would not generally include:
A) Presentation differences.
B) Measurement differences.
C) Disclosure differences.
D) Comparability differences.
E) Recognition differences.
Q3) In countries where there is less pressure for public accountability and information disclosure:
A) information needs can be satisfied by requesting information from internal company sources.
B) public offerings of stock shares are the primary source of financing for companies.
C) accounting information is prepared to meet the needs of taxing authorities.
D) accounting standards emphasize accounting for high inflation situations.
E) the accounting focus is on recent market economy reforms.
Page 13
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Sample Questions
Q1) Which one of the following forms is used when companies have filed with the SEC for less than 36 months but are not large enough to file form S-3?
A) S-1.
B) S-4.
C) S-11.
D) S-8.
E) S-3.
Q2) What was the purpose of the Securities Exchange Act of 1934?
Q3) What is a proxy? Briefly explain the importance of a proxy solicitation.
Q4) Filings with the SEC are divided generally into two broad categories:
A) Registration statements and perpetual filings.
B) Reconciliation statements and periodic filings.
C) Registration statements and periodic filings.
D) Registration filings and reconciliation statements.
E) Reconciliation filings and perpetual filings.
Q5) What are some of the reasons for the corporate scandals of 2001 and 2002?
Q6) How has the Sarbanes-Oxley Act of 2002 changed the role of the audit committee?
Q7) What is a private placement of securities?
Q8) What is required by the Trust Indenture Act of 1939? Page 14
Q9) What information is required in proxy statements?
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Page 15
Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Sample Questions
Q1) 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.
Q2) Which one of the following unsecured liabilities has the highest priority when an insolvent company is about to be liquidated?
A) federal income taxes payable.
B) claims for expenses of administering the bankruptcy.
C) loans made to the company by its stockholders.
D) employees' claims for salaries.
E) bank loans.
Q3) To what does the term Chapter 7 bankruptcy refer?
Q4) To what does the term Chapter 11 bankruptcy refer?
Q5) What is the meaning of the phrase debtor in possession?
Page 16
Q6) What information is included on the statement of realization and liquidation?
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Chapter 14: 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 the amount of interest attributed to Wasser for 2013?
A) $17,600
B) $18,800
C) $20,100
D) $17,800
E) $30,100
Q2) The dissolution of a partnership occurs
A) only when the partnership sells its assets and permanently closes its books.
B) only when a partner leaves the partnership.
C) at the end of each year, when income is allocated to the partners.
D) only when a new partner is admitted to the partnership.
E) when there is any change in the individuals who make up the partnership.
Q3) By what methods can a person gain admittance to a partnership?
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Chapter 15: Partnerships: Termination and Liquidation
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Sample Questions
Q1) Deficit capital balances
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.
Q2) What accounting transactions are not recorded by an accountant during partnership liquidation?
A) The conversion of partnership assets into cash.
B) The allocation of gains and losses from sales of assets.
C) The payment of liabilities and expenses.
D) The initiation of legal action by creditors of the partnership.
E) Write-off of remaining unpaid debts.
Q3) Why is a Schedule of Liquidation prepared?
Q4) Safe capital balances
At the start of a liquidation, this document provides guidance for all payments made to the partners throughout the liquidation.
Q5) The schedule of liquidation
A provision for an equitable distribution of assets during liquidation.
Q6) For a partnership, how should liquidation gains and losses be accounted for?
Q7) What is the role of the accountant during the liquidation process?
Page 18
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Chapter 16: Accounting for State and Local Governments
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Sample Questions
Q1) The term "current financial resources" refers to
A) Those assets that can quickly be converted into cash.
B) Monetary assets available to meet the government's needs.
C) The government's current assets and current liabilities.
D) The current value of all net assets owned by the governmental unit.
E) Financial resources used to provide electricity to local citizens.
Q2) What organization is responsible for establishing accounting principles for governmental entities? By whom was this organization established?
Q3) The Town of Anthrop receives a $10,000 grant to make the Town Hall handicapped-accessible.
Required:
Prepare the journal entry, and identify the fund in which it is recorded, to record the receipt of the grant.
Q4) For governmental entities, the accrual basis of accounting is used for:
A) Special revenue funds.
B) Internal service funds.
C) Debt service funds.
D) General Fund.
E) Capital Projects Fund.
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Chapter 17: Accounting for State and Local Governments
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Sample Questions
Q1) Which statement is false regarding the Statement of Revenues, Expenditures, and Changes in Fund Balance when it is included with government-wide financial statements?
A) The Statement of Revenues, Expenditures, and Changes in Fund Balance uses the modified accrual method for timing purposes.
B) The Statement of Revenues, Expenditures, and Changes in Fund Balance presents revenues as either program revenues or general revenues.
C) A presentation reconciles the change in governmental fund balance to the change in net assets for governmental activities.
D) Other financing sources are presented on the Statement of Revenues, Expenditures, and Changes in Fund Balance.
E) All non-major funds are combined and reported together.
Q2) What are the three broad sections of a state or local government's CAFR?
A) Introductory, financial, and statistical.
B) Financial statements, notes to the financial statements, and component units.
C) Introductory, statistical, and component units.
D) Component units, financial, and statistical.
E) Financial statements, notes to the financial statements, and statistical.
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Page 20
Chapter 18: Accounting and Reporting for Private
Not-For-Profit Organizations
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Sample Questions
Q1) A not-for-profit organization (Charity A) raises money for other charitable organizations. Charity A receives $10,000 to distribute to Charity B.
Assume there are no donor rights to revoke or redirect the gift.
Q2) A not-for-profit organization receives a computer as a donation (valued at $2,000). Prepare the journal entry for the transaction.
Q3) Which statement below is not correct?
A) The accounting period in which pledged revenues are recognized is dependent on donor specifications.
B) The permanently restricted section of a nonprofit organization's net assets is set aside by donor restrictions.
C) A contributed asset is recognized as revenue by a nonprofit organization.
D) Depreciation expense is not recognized by nonprofit organizations.
E) Nonprofit organizations issue a statement of activities.
Q4) For not-for-profit organizations, what is the difference in identification of "control" between a merger and an acquisition?
Q5) What financial statements would normally be prepared by a voluntary health and welfare organization?
Page 21
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Chapter 19: Accounting for Estates and Trusts
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Sample Questions
Q1) A gift that is specified in a will as "I leave my collection of baseball cards to my son" 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 1,400 shares of Wal-Mart stock and $25,000 cash in the savings account.
What is the remaining principal to be divided equally between the son and the daughter?
A) $10,000 cash
B) $15,000 cash
C) 400 shares of Wal-Mart stock and $10,000 cash
D) 400 shares of Wal-Mart stock and $15,000 cash
E) 1,000 shares of Wal-Mart stock and $5,000 cash
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