Advanced Accounting Test Bank
Course Introduction
Advanced Accounting delves into complex accounting principles and practices beyond the introductory level, focusing on consolidation of financial statements, partnership accounting, foreign currency transactions, and segment reporting. The course emphasizes the application of accounting standards to business combinations, mergers, and acquisitions, as well as the treatment of intercompany transactions. Students will explore topics such as consolidated balance sheets, equity method investments, multinational operations, and emerging accounting issues, preparing them to handle intricate accounting scenarios in various organizational contexts.
Recommended Textbook
Advanced Accounting International 11th edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Sample Questions
Q1) Picasso Co.issued 5,000 shares of its $1 par common stock,valued at $100,000,to acquire shares of Seurat Company in an all-stock transaction.Picasso paid the investment bankers $35,000 and will treat the investment banker fee as
A)an expense for the current year.
B)a prior period adjustment to Retained Earnings.
C)additional goodwill on the consolidated balance sheet.
D)a reduction to additional paid-in capital.
Answer: D
Q2) With respect to goodwill,an impairment
A)will be amortized over the remaining useful life.
B)is a two-step process which analyzes each business reporting unit of the entity.
C)is a one-step process considering the entire firm.
D)occurs when asset values are adjusted to fair value in a purchase.
Answer: B
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3
Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) Jabiru Corporation purchased a 20% interest in Fish Company common stock on January 1,2008 for $300,000.This investment was accounted for using the complete equity method and the correct balance in the Investment in Fish account on December 31,2010 was $440,000.The original excess purchase transaction included $60,000 for a patent amortized at a rate of $6,000 per year.In 2011,Fish Corporation had net income of $4,000 per month earned uniformly throughout the year and paid $20,000 of dividends in May.If Jabiru sold one-half of its investment in Fish on August 1,2011 for $500,000,how much gain was recognized on this transaction?
A)$278,950
B)$280,000
C)$280,950
D)$282,000
Answer: C
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4
Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The unamortized excess account is
A)a contra-equity account.
B)used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values.
C)used in allocating the amounts paid for each asset and liability that are above or below their book values,especially when numerous assets or liabilities are involved.
D)the excess purchase cost that is attributable to goodwill.
Answer: C
Q2) A subsidiary can be excluded from consolidation if A)control does not rest with the majority owner.
B)the subsidiary is in legal reorganization.
C)the subsidiary is operating under severe foreign-exchange restrictions.
D)All of the above are correct.
Answer: D
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5
Chapter 4: Consolidated Techniques and Procedures
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Sample Questions
Q1) What amount of Inventory will be reported?
A)$170,000
B)$169,000
C)$186,500
D)$192,000
Q2) A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary.The parent has control over the subsidiary.Which of the following statements is correct?
A)The parent corporation must prepare consolidated financial statements for the economic entity.
B)The parent corporation must use the fair value method.
C)The parent company may use the equity method but the subsidiary cannot be consolidated.
D)The parent company can use the equity method or the fair value/cost method.
Q3) What is the amount of total assets?
A)$1,380,000
B)$1,402,000
C)$1,470,000
D)$1,875,000
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Page 6
Chapter 5: Intercompany Profit Transactions - Inventories
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Sample Questions
Q1) If the sale referred to above was a downstream sale,the total sales revenue reported in the consolidated income statement for 2011 would be
A)$870,000.
B)$880,000.
C)$920,000.
D)$970,000.
Q2) The 2011 consolidated income statement showed cost of goods sold of
A)$500,000.
B)$516,000.
C)$532,000.
D)$660,000.
Q3) If the intercompany sale was an upstream sale,the total amount of consolidated cost of goods sold for 2012 will be A)$300,000.
B)$430,000.
C)$470,000.
D)$477,000.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Paula's Pizzas purchased 80% of their supplier,Sarah's Sauces.Sarah's book values equaled fair value at the time of the acquisition.Paula sold Sarah some packaging equipment on January 2,2011 for $100,000.The equipment had a carrying value of $90,000,and original cost of $120,000,and had a remaining life of 10 years.Both Paula and Sarah depreciate their assets on the straight-line method.The equipment has no salvage value.
Required: Prepare the following entries:
1.Journal entries Paula and Sarah will prepare on their separate books in 2011.
2.Eliminating/adjusting entries on the consolidation worksheet at the end of 2011.
3.Eliminating/adjusting entries on the consolidation worksheet at the end of 2012.
Q2) An elimination entry at December 31,2011 for the intercompany sale will include a
A)credit of $6,000 to Depreciation Expense.
B)credit of $6,000 to Accumulated Depreciation.
C)credit of $6,000 to Equipment.
D)credit of $6,000 to Gain on Sale of Equipment.
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8
Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Pachelor Corporation owns 70% of the outstanding stock of Stabb Company.On January 1,2010,Stabb issued $1,000,000 in 7% bonds that matured on January 1,2015.At the time of issuance,the bonds were sold at a discount of $125,000.At January 2,2012,Pachelor purchased the bonds for $1,400,000,and constructively retired the debt.Interest is paid annually on January 1.Straight-line amortization is used by both companies.
Required:
1.Calculate the gain or loss that the consolidated entity incurred to retire the debt. 2.Prepare eliminating/adjusting entries for the consolidating work papers for the year ended December 31,2012.
Q2) Noncontrolling interest share for 2011 was
A)$23,000.
B)$23,600.
C)$24,000.
D)$24,400.
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9
Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) If SOS sold the additional shares directly to Great,Great's Investment in SOS account after the sale would be
A)$1,350,000.
B)$1,395,000.
C)$1,425,000.
D)$1,500,000.
Q2) Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2011.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is
A)66-2/3%.
B)80%.
C)83-1/3%.
D)86-2/3%
Q3) Preacquisition income for 2010 is
A)$50,000.
B)$35,000.
C)$44,000.
D)$36,000.
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Chapter 9: Indirect and Mutual Holdings
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Sample Questions
Q1) Noncontrolling interest share for Achille is
A)$18,000.
B)$25,200.
C)$36,200.
D)$72,000.
Q2) Pallet Corporation owns 80% of Adelt Corporation and Adelt owns 60% of Bajo Inc.Which of the following is correct?
A)Bajo should not be consolidated because noncontrolling interests hold 52%.
B)Bajo should be consolidated because the 60% of Bajo stock is held in the affiliate structure.
C)Pallet has 8% indirect ownership of Bajo.
D)Pallet has 80% indirect ownership of Bajo.
Q3) The equation,in a set of simultaneous equations,that computes Paiva Corporation income on a consolidated basis is
A)P = $50,000 + 0.8B.
B)P = $30,000 + 0.2A.
C)P = $100,000 + 0.2A.
D)P = $100,000 + 0.8A.
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11
Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Sample Questions
Q1) Peyton Corporation owns an 80% interest in Sampe Corporation's common stock.Throughout 2011,Sampe had 10,000 shares of common stock outstanding and Peyton had 100,000 shares of common stock outstanding.Sampe's only dilutive security consists of $100,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sampe stock.Peyton and Sampe's separate net incomes for the year are $200,000 and $150,000,respectively.Assume a 34% flat income tax rate. Required:
Compute the amount of basic and diluted earnings per share for Peyton (consolidated)and Sampe Corporations.
Q2) Palmquist Corporation and its 80%-owned subsidiary,Sadler Corporation,are members of an affiliated group.They do not file consolidated tax returns.Sadler had $3,000,000 of income and paid $1,000,000 dividends in 2010.Palmquist and Sadler had 35% income tax rates.What amount of Sadler's dividends is taxable to Palmquist in 2010?
A)$0
B)$ 70,000
C)$160,000
D)$200,000
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Page 12
Chapter
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Q1) Entities other than the primary beneficiary account for their investment in a variable interest entity using the
A)cost method.
B)equity method.
C)cost or equity methods.
D)consolidated method.
Q2) Under parent company theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.Under entity theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.
A)fair value;present value
B)present value;fair value
C)book value;fair value
D)fair value;book value
Q3) Noncontrolling interest share was reported in the 2011 consolidated income statement at
A)$5,000.
B)$6,000.
C)$8,000.
D)$10,000.
Page 13
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) When the billing for a U.S.company's sale to a company in a foreign country is denominated in U.S.dollars,________ is required when preparing journal entries for the sale.
A)translation to a foreign currency
B)conversion to a foreign currency
C)translation to U.S.dollars
D)no translation
Q2) On October 15,2011,Napole Corporation,a French company,ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation,a U.S.corporation.The euro rate was $1.20 (U.S.dollars)on October 15.On November 15,2011 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30.Napole paid the bill on December 10,2011,and Adams immediately exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28 on December 10,2011.
Required:
Compute the foreign currency gain or loss on the December 31,2011 financial statements of Adams and show the related journal entries.
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Page 14
Chapter 13: Accounting for Derivatives and Hedging Activities
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Sample Questions
Q1) Assuming a present value factor of 1 for simplicity,what is the fair value of this forward contract on January 31?
A)$-0-
B)$ 60 asset
C)$160 liability
D)$200 liability
Q2) International accounting standards differ from U.S.Generally Accepted Accounting Principles in that International standards
A)require that firm sale or purchase commitments are accounted for as fair value hedges.
B)require that firm sale or purchase commitments are accounted for as cash flow hedges.
C)state that firm sale or purchase commitments may not be treated as a hedged transaction.
D)permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges.
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Chapter 14: Foreign Currency Financial Statements
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Q1) Paskin Corporation's wholly-owned Canadian subsidiary has a Canadian dollar functional currency.In translating the subsidiary's account balances into U.S.dollars for reporting purposes,which one of the following accounts would be translated at historical exchange rates?
A)Accounts Receivable
B)Notes Payable
C)Capital Stock
D)Retained Earnings
Q2) All of the following factors would be used to define a foreign entity's functional currency,except
A)high volume of intercompany transactions.
B)expenses for foreign entity primarily driven by local factors.
C)financing for foreign entity denominated in local currency.
D)foreign entity's status as a local tax haven for transfer pricing purposes.
Q3) Accounts representing an allowance for uncollectible accounts are converted into U.S.dollars at
A)historical rates when the U.S.dollar is the functional currency.
B)current rates only when the U.S.dollar is the functional currency.
C)historical rates regardless of the functional currency.
D)current rates regardless of the functional currency.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) GAAP requires disclosures for each reportable operating segment for each of the following,except for A)Revenues.
B)Depreciation expense.
C)R&D expenditures.
D)Extraordinary items.
Q2) In general,GAAP encourages the identification of reportable segments based on the following:
A)Reported segments must account for at least 75% of all external and inter-segment sales.
B)Reported segments must ideally account for at least 75% of all sales,unless there are many smaller divisions and separate reporting would create less clarity in reporting.
C)If there are more than 10 reportable segments,the company should consider additional aggregation of their segments.
D)Reported segments must account for 100% of the external sales,but only 75% of external and inter-segment sales.
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) What is the weighted-average capital for Bertram and Ernest in 2011?
A)$224,000 and $245,000
B)$203,333 and $221,167
C)$221,333 and $239,167
D)$256,000 and $220,000
Q2) On February 1,2011,George,Hamm,and Ishmael began a partnership in which George and Ishmael each contributed cash of $25,000;and Hamm contributed property with a fair value of $50,000 and a tax basis $40,000.Hamm receives a 5% bonus of partnership income.George and Ishmael receive salaries of $10,000 each.The partnership agreement of George,Hamm,and Ishmael provides that all partners receive 5% interest on capital,and that profits and losses of the remaining income be distributed to George,Hamm,and Ishmael by a 1:3:1 ratio.
Required:
Prepare a schedule to distribute $25,000 of partnership net income to the partners.
Q3) What goodwill will be recorded?
A)$ 80,000
B)$240,000
C)$320,000
D)$400,000
Page 18
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Chapter 17: Partnership Liquidation
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Q1) Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation,if the partner with a negative capital balance is personally insolvent?
A)The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.
B)The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.
C)The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.
D)The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to the same level of the other partners' capital accounts.
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Oceana Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.35 on the dollar.Loans-R-Us holds a $1,000,000 mortgage note receivable from Oceana that is secured by building and equipment with a $1,200,000 book value and a $900,000 fair value.
Required: How much of the mortgage receivable will Loans-R-Us recover?
Q2) In a liquidation under Chapter 7,the trustee
A)may not be appointed,but may only be elected.
B)may not be elected,but may only be appointed.
C)is responsible for converting assets to cash and distributing payments to claimants.
D)is responsible for appointing a creditors' committee.
Q3) Which of the following must approve a Chapter 11 plan?
A)The organization's management and the assigned trustee
B)The assigned trustee and creditors
C)The assigned trustee and entity's stockholders
D)The bankruptcy court and the creditors
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Governmental accounting differs from corporate financial accounting primarily because
A)the size of the government and the various levels would make it unreasonable to use corporate GAAP.
B)governments lack a profit motive and must focus on accountability to the public they serve.
C)the government has no stakeholders who require financial reporting.
D)the government has too many types of organizations to use one type of corporate GAAP.
Q2) Governmental fund financial statements are prepared on the ________ basis of accounting.Proprietary fund financial statements are prepared on the ________ basis of accounting.
A)modified accrual;modified accrual
B)accrual;fund
C)modified accrual;accrual
D)blended;discrete
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Page 21
Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Which statement below is incorrect with respect to the Government-wide financial statements?
A)All governmental fund categories must convert to the modified accrual basis of accounting.
B)It is necessary to eliminate interfund balances within the governmental funds.
C)Capital lease liabilities associated with governmental funds must be included on the Government-wide financial statements.
D)All fixed assets and long-term debt for governmental funds must be included on the Government-wide financial statements.
Q2) A Capital Projects Fund awards the construction of a building to a construction contractor at a contract cost of $1,000,000.What entry is prepared by the Capital Projects Fund?
A)Debit Expenditures $1,000,000,Credit Liability $1,000,000
B)Debit Building $1,000,000,Credit Expenditures $1,000,000
C)Debit Other Financing Uses $1,000,000,Credit Expenditures $1,000,000
D)Debit Encumbrances $1,000,000,Credit Reserve for Encumbrances $1,000,000
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Page 22
Chapter 21: Accounting for State and Local Governmental
Units - Proprietary and Fiduciary Funds
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Q1) On the Statement of Net Assets,in place of stockholders' equity,proprietary funds report
A)Retained Earnings only.
B)Restricted Cash only.
C)Unrestricted Cash only.
D)Net Assets.
Q2) Prepare journal entries to record the following grant-related transactions of an Enterprise Fund.
1.Received an operating grant in cash from the state,$2,500,000.
2.Incurred and paid qualifying operating expenses on the state grant program,$1,600,000.
3.Received a federal grant to finance construction of a plant,$4,500,000 (cash received in advance).
4.Incurred and paid construction costs on the plant,$3,000,000.The plant is not completed.
Q3) What basis of accounting is used by proprietary funds?
A)Modified accrual accounting
B)Accrual accounting
C)Cash basis accounting
D)Fair value accounting
Page 23
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) The following information is available about the operations for a private,not-for-profit university.
1.The university sold $20,000,000 of 5% bonds to finance the construction of a new building for the business school.The bonds were sold on January 1 and pay interest on December 31 of each year.The bonds were sold at par and mature in 20 years.
2.The university received $7,500,000 cash in alumni and corporate donations for the new business school building.
3.The building was constructed at a total cost of $22,000,000 and the contractor was paid in full.
4.Interest was paid on the bonds.
5.Depreciation on the new building the first year was $275,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
Q2) Voluntary health and welfare organizations
A)may not have paid executives or staff.
B)are governed by separate GASB statements.
C)use fund accounting,following the rules for proprietary fund reporting.
D)are supported by,and provide voluntary services to,the public.
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Chapter 23: Estates and Trusts
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Q1) What is the document prepared by the executor or administrator to show accountability for estate property received and maintained or disbursed in accordance with the will?
A)The Administrator/Executor's Fiduciary Report
B)The charge-discharge statement
C)The Administrator/Executor's Testamentary Report
D)The Administrator/Executor's Principal/Income Report
Q2) Which of the following phrases is frequently used to refer to estate or trust accounting?
A)Non-profit accounting
B)Testamentary accounting
C)Fiduciary accounting
D)All of the above phrases are used to refer to estate or trust accounting.
Q3) Which type of trust is created pursuant to a will?
A)A testamentary trust
B)A Crummey trust
C)A generation-skipping trust
D)A life estate trust
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