Advanced Accounting Test Questions
Course Introduction
Advanced Accounting delves into complex accounting concepts and practices beyond the foundational principles. The course covers topics such as business combinations, consolidated financial statements, partnership accounting, foreign currency transactions, segment and interim reporting, and accounting for governmental and non-profit organizations. Emphasis is placed on understanding the regulatory environment, applying judgment in the preparation and presentation of financial information, and analyzing the impact of accounting standards on business decision-making. Students gain practical skills through the examination of real-world cases and advanced problem-solving exercises to prepare for professional careers in accounting and finance.
Recommended Textbook
Advanced Accounting 12th Edition by
Paul M. Fischer
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Page 2
Chapter 1: Business Combinations: New Rules for a
Long-Standing Business Practice
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Q1) Some advantages of obtaining control by acquiring a controlling interest in stock include all but:
A)Negotiations are made directly with the acquiree's management.
B)The legal liability of each corporation is limited to its own assets.
C)The cost may be lower since only a controlling interest in the assets, not the total assets, is acquired.
D)Tax advantages may result from preservation of the legal entities.
Answer: A
Q2) A(n) ________________ occurs when the management of the target company purchases a controlling interest in that company and the company incurs a significant amount of debt as a result.
A)greenmail
B)statutory merger
C)poison pill
D)leveraged buyout
Answer: D
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Chapter 2: Consolidated Statements: Date of Acquisition
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Q1) Exercise
Assume that Organic Food, Inc.issued 10,000 shares of its $5 par value common stock for 100% of the outstanding shares of JMJ Meats Company.The fair value of a share of the Organic stock is $15.Organic Food, Inc.also paid $12,000 in accounting and legal fees to complete the purchase.Make the necessary entry that Organic Food, Inc.would make to record the purchase including the entry to record the costs of the acquisition.
Answer: Investment in JMJ Meats Company (10,000 shares issued x $15 fair value) ..150,000
Common Stock ($5 par value) (10,000 shares x $5 par)
Paid-In Capital in Excess of Par ($150,000 - $50,000)
Acquisition Expense (closed to Retained Earnings since only balance sheets are being examined)
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Chapter 3: Consolidated Statements: Subsequent to Acquisition
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Q1) Under IASB for small and medium entities, goodwill:
A)is subject to impairment procedures.
B)is never adjusted.
C)is amortized over ten years.
D)is not recorded in an acquisition.
Answer: C
Q2) Alpha purchased an 80% interest in Beta on June 30, 2016.Both Alpha's and Beta's reporting periods end December 31.Which of the following represents the controlling interest in consolidated net income for 2016?
A)100% of Alpha's July 1-December 31 income plus 80% of Beta's July 1-December 31 income
B)100% of Alpha's July 1-December 31 income plus 100% of Beta's July 1-December 31 income
C)100% of Alpha's January 1-December 31 income plus 80% of Beta's July 1-December 31 income
D)100% of Alpha's January 1-December 31 income plus 80% of Beta's January 1-December 31 income
Answer: C
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Chapter 4: Intercompany Transactions: Merchandise, Plant
Assets, and Notes
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Q1) Perry, Inc.owns a 90% interest in Brown Corp.During 2016, Brown sold $100,000 in merchandise to Perry at a 30% gross profit.Ten percent of the goods are unsold by Perry at year end.The non-controlling interest will receive what gross profit as a result of these sales?
A)$0
B)$2,700
C)$3,000
D)$27,000
Q2) Cattle Company sold inventory with a cost of $40,000 to its 90%-owned subsidiary, Range Corp., for $100,000 in 2016.Range resold $75,000 of this inventory for $100,000 in 2016.Based on this information, the amount of inventory reported on the consolidated financial statements at the end of 2016 is:
A)$10,000.
B)$18,000.
C)$21,000.
D)$30,000.
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Chapter 5: Intercompany Transactions: Bonds and Leases
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Q1) Company S is a 100%-owned subsidiary of Company P.Company S has outstanding 8%, 10-year bonds sold to yield 7%.On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate.How should this event be reflected in the current year's consolidated statements?
A)The bonds remain in the balance sheet and are accounted for at a 7% effective rate.
B)The bonds remain in the balance sheet and are accounted for at a 9% effective rate.
C)Retirement of the bonds at a gain as of the purchase date.
D)Retirement of the bonds at a loss as of the purchase date.
Q2) Which of the following statements is true?
A)No elimination entries are required on a worksheet as a result of operating, direct-financing, and sales-type leases.
B)No elimination entries are required on a worksheet as a result of direct-financing and sales-type leases.
C)No elimination entries are required on a worksheet as a result of operating leases.
D)All the preceding are false.
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Chapter 6: Cash Flow, Eps, and Taxation
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Q1) For ownership interest of less than 20%, the parent may exclude how much of the dividends received from its reported income when filing separately?
A)100%
B)80%
C)70%
D)20%
Q2) Dividends paid by a subsidiary have the following effect on the consolidated cash flow
A)all dividends to the parent and to non-controlling stockholders appear on the statement.
B)only dividends to the parent appear on the statement.
C)only dividends to NCI appear on the statement.
D)neither dividends to the parent or to non-controlling stockholders appear on the statement
Q3) Consolidated firms that meet the tax law requirements to be an affiliated group
A)must file a consolidated return.
B)must receive permission of the Internal Revenue Service to file separately.
C)may elect to file as a single entity or as a consolidated group.
D)cannot change the method of filing in the future.
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Page 8
Chapter 7: Special Issues in Accounting for an Investment
in a Subsidiary
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Q1) When you create an income distribution schedule for consolidated net income, the distributions:
A)are allocated equally between Company P and Company S.
B)should use the controlling/noncontrolling interest ownership with respect to both common and preferred shares.
C)for the parent Company P should convert its investment to its equity balance if it is not using the cost method.
D)none of the above
Q2) In the year a parent sells its entire subsidiary investment, the results of subsidiary operations prior to the sale date are
A)consolidated to the point of sale.
B)shown on the balance sheet in the stockholders' equity section as an adjustment to retained earnings.
C)not reflected on any of the parent's statements.
D)not consolidated.
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Chapter 8: Subsidiary Equity Transactions, Indirect
Subsidiary Ownership, and Subsidiary Ownership of Parent Shares
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Q1) When a subsidiary owns shares of the parent, the subsidiary's investment account
A)should be accounted for using the equity method.
B)is not eliminated so the subsidiary's investment in the parent is displayed on the balance sheet.
C)is maintained at its original cost since the shares have no claim on income.
D)may be accounted for using the cost, equity or sophisticated equity method.
Q2) Pepper Company owns 60,000 of Salt Company's 100,000 outstanding shares.This year, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000.Pepper's interest after the treasury stock purchase is: A)60%.
B)80%.
C)50%.
D)75%.
Q3) Which of the following situations is viewed as the parent having treasury stock?
A)A owns 80% of B, and B owns 70% of C.
B)A owns 80% of B and 20% of C; B owns 70% of C.
C)A owns 80% of B, and B owns 20% of A.
D)None of the above.
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Chapter 9: The International Accounting Environment
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Q1) Which of the following factors has not influenced the development of accounting practices in various nations?
A)the political environment
B)economic development
C)cultural background
D)all of these factors have influenced the development of accounting practices
Q2) Which of the following is true regarding the Securities and Exchange Commission requirements from foreign companies seeking to sell securities on U.S.stock markets?
A)The companies must reconcile their financial statements to U.S.GAAP.
B)The companies must reconcile their financial statements to U.S.tax regulations.
C)The companies must provide financial statements prepared according to U.S.GAAP.
D)The companies may file financial statements prepared in accordance with IFRS without reconciliations to U.S.GAAP.
Q3) Describe the concept of convergence as it pertains to the FASB and IASB and describe the ways in which this may be accomplished.
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Chapter 10: Foreign Currency Transactions
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Q1) Given the following information for a 90 day contract: ?
\[\begin{array}{l}
\begin{array} { l c c }
& \text { US Dollars } & \text { FC } \\
\text { Value Today } & 3,750 & 5,000 \\
\text { Interest Rate } & 4 \% & 7 \% \\
3 \text { months interest } & 37.50 & 87.50 \\
\text { Value in 3 months } & ? ? & ? ?
\end{array}\\
\text { The spot rate today is } 1 \mathrm { FC } = .75 \end{array}\] What will be the forward rate?
A)1FC = .75 US Dollars
B)1FC = .57 US Dollars
C)1FC = .745 US Dollars
D)1FC = .70 US Dollars
Q2) Discuss the differences in using an option to hedge a foreign currency risk rather than a forward contract.
Q3) Differentiate between the following monetary systems: floating system, controlled float system and tiered system.
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Chapter 11: Translation of Foreign Financial Statements
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Q1) As part of the consolidation process for a partially-held foreign subsidiary, the elimination entry to distribute the excess of cost over book value will include a credit to Cumulative Translation Adjustment-Parent
A)for the amount of excess attributable to identifiable net assets multiplied by the difference between historical and current exchange rates
B)for the amount of excess attributable to identifiable net assets multiplied by the difference between average and current exchange rates
C)for the Parent's portion of the excess attributable to identifiable net assets multiplied by the difference between historical and current exchange rates
D)for the Parent's portion of the excess attributable to identifiable net assets multiplied by the difference between average and current exchange rates
Q2) Discuss the factors that may be considered in determining if a Mexican subsidiary of a U.S.firm has the peso or the dollar as its functional currency.The subsidiary only manufactures component parts that are shipped to the U.S.firm's final production plant in Detroit.
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13
Chapter 12: Interim Reporting and Disclosures About
Segments of an Enterprise
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Q1) Harrison Company paid the annual fee of $30,000 for an equipment maintenance contract on July 1, the first day of its second quarter and incurred research costs in the same quarter of $12,000.The research did not prove to be fruitful.Harrison should recognize the following expense amount in the second quarter:
A)$10,500
B)$11,500
C)$19,500
D)$42,000
Q2) Which of the following best describes the proper accounting for interim financial reports?
A)The interim period is viewed as an integral part of the annual accounting period.
B)The interim period is viewed as a distinct, independent accounting period.
C)Interim reports should include the same level of disclosure as annual reports.
D)Net income should be computed on the cash basis except for sales, cost of goods sold, and depreciation.
Q3) In addition to disclosures about reportable segments, companies are required to provide enterprise-wide disclosures.Describe the information included in enterprise-wide disclosures.
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Chapter 13: Partnerships: Characteristics, Formation, and Accounting for Activities
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Q1) Partners active in a partnership business should have their share of partnership profits based on the following
A)A combination of salaries plus interest based on average capital balances.
B)a combination of salaries and percentage of net income after salaries and any other allocation basis.
C)salaries only.
D)percentage of net income after salaries is paid to inactive partners.
Q2) Abbott and Costello are partners.Abbott draws a salary of $90,000 per year and Costello draws a salary of $150,000 per year.Each partners Drawing account however shows they have withdrawn $50,000 and $60,000 respectively.What is the total amount of salary they would show on their income distribution?
A)$240,000
B)$350,000
C)$110,000
D)None of the above
Q3) Record the entry for the partnership of E & R assuming a net loss of $15,000.The agreement calls for profit and loss to be distributed equally.
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Page 15
Chapter 14: Partnerships: Ownership Changes and Liquidations
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Q1) This type of liquidation requires that all assets be realized before a distribution is made to partners, thus avoiding the possibility of a premature distribution.
A)Installment
B)Lump Sum
C)Distributive
D)Dissolutive
Q2) If a new partner were to purchase 99% of an existing partner's share of a business which account would be debited:
A)Existing Partners Drawing
B)New Partners Drawing
C)Existing Partners Capital
D)New Partners Capital
Q3) If a partnership does not have adequate assets to fully dismiss creditors, the unsatis ed creditors must look to the personal assets of:
A)The deficit partner
B)The partner with the most capital
C)The individual partners
D)The two partners with the largest capital balances
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Chapter 15: Government and Not for Profit Accounting
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Q1) Assume the facts for Central City Government. ?
\[\begin{array} { | l | l | }
\hline \begin{array} { l }
\text { Central City approves vouchers for general } \\
\text { expense }
\end{array} & \$ 450,000 \\
\hline & \\
\hline \text { Central City approves purchase of equipment } & \$ 455,000 \\
\hline \begin{array} { l }
\text { Purchase of supplies assuming a perpetual } \\
\text { inventory system is used }
\end{array} & \$ 350,000 \\
\hline \text { Of this amount } \$ 1,200,000 \text { is encumbered } & \\
\hline \end{array}\] ?
Instructions:
Record the above transactions in a general journal ?
Q2) Identify the three fund types used in government accounting and their relevance:
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Chapter 16: Governmental Accounting: Other
Governmental Funds, Proprietary Funds, and Fiduciary Funds
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Q1) Which of the following is not a typical year-end statement for an Enterprise Fund?
A)Balance Sheet
B)Statement of Revenue, Expenses and Changes in Net Assets
C)Statement of Cash Flows
D)All of these financial statements would be used at year end by an Enterprise Fund.
Q2) In a Capital Projects Fund, when a contract is signed with a contractor to construct a fixed asset, the amount of the contract is:
A)debited to Expenditures.
B)credited to Contracts Payable.
C)debited to Encumbrances.
D)credited to Other Financing Sources.
Q3) The Pension Trust Fund is a Fiduciary Fund, which will be accounted for using the accrual basis of accounting.
A)True
B)False
Q4) What reporting is required for the accounting for employee Pension Trust Funds.
Q5) What is escheat property and how do we account for it?
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Chapter 17: Financial Reporting Issues
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Q1) General purpose financial statements are part of the financial section of a comprehensive annual financial report
A)True
B)False
Q2) When operations of component units of government are blended with the primary government unit, they are reported by
A)a separate column on the General Purpose Financial Statements of the primary governmental unit
B)a disclosure in a footnote to the primary government unit General Purpose Financial Statements
C)Not reported or disclosed separately from the primary governmental unit
D)a separate set of general purpose financial statements
Q3) The GASB Statement No.34 reporting model includes, but is not limited to which of the following reports?
A)Government-wide financial statements
B)a management discussion and analysis section
C)funds based financial statements
D)all of the above
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Chapter 18: Accounting for Private Not-For-Profit Organizations
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Q1) Currently, which of the following has jurisdiction over accounting and financial reporting standards for voluntary health and welfare organizations?
A)The Governmental Accounting Standards Board
B)The Financial Accounting Standards Board
C)American Institute of Certified Public Accountants
D)The Not-for-Profit Accounting Board
Q2) A voluntary welfare organization is permitted to use building facilities rent free.This should be recorded as:
A)a footnote in the financial statements disclosing the rent-free arrangement.
B)a contribution.
C)rent expense at the fair market value.
D)both b and c are correct.
Q3) Investment revenue includes interest and dividends, and realized and unrealized gains and losses on investments.
A)True
B)False
Q4) A not-for-profit organization issues a Statement of Financial Position.
A)True
B)False
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Chapter 19: Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations
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Q1) Under the Medicare DRG system, hospitals:
A)receive payments to reimburse them for costs incurred in treating patients.
B)receive fees based upon diagnoses.
C)receive a monthly premium based upon the number of participants in an HMO.
D)agree to take a percentage of the usual charge.
Q2) What is the basis of accounting used in accounting for not-for-profit health care organizations?
A)fund accounting
B)accrual basis
C)modified accrual basis
D)cash basis
Q3) In a health care organization, Other Operating Revenue includes:
A)revenues from outpatient surgery.
B)revenues from educational programs.
C)revenue from nursing services for post-operative care.
D)revenue from radiology services.
Q4) Unrestricted contributions are recognized at fair value with a credit to financial securities.
A)True
B)False
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Chapter 20: Estates and Trusts: Their Nature and the
Accountants Role
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Q1) A trust created through a will is called a testamentary trust. A)True
B)False
Q2) The unified tax base used to compute federal estate tax is calculated as follows:
A)Gross estate - deductions allowed - tax credits
B)Gross estate - deductions allowed + post-1976 taxable gifts
C)Probate estate - deductions allowed + post-1976 taxable gifts
D)Gross estate - deductions allowed - post-1976 taxable gifts
Q3) A trust created through a will is called a testamentary trust.
A)True B)False
Q4) The beneficiary is taxed on a portion of taxable income that he or she received, and the estate, as a separate entity, is taxed on a pro rata income share that it accumulates. A)True B)False
Q5) Define what makes up the corpus or principal of an estate and list several examples.Also, list the potential claims or deductions from the principal.
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Chapter 21: Debt Restructuring, Corporate Reorganizations, and Liquidations
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Q1) In a quasi-reorganization, which of the following may occur?
A)Excess plant capacity may be sold
B)Assets may be revalued to reflect impaired values
C)Retained Earnings deficits are eliminated by changes made to the capital structure
D)All of the above may occur
Q2) On January 1, 2012, Duke Company negotiated an agreement to modify the terms of a $500,000 note with $38,000 of accrued interest.Payments of $25,000 cash will be made each quarter end up to and including June 30, 2016.Which of the following is true about this troubled debt restructuring?
A)The $25,000 payments will include principal and interest.
B)A gain of $88,000 will be recognized.
C)The present value of the payments must be calculated to determine if there is a gain or loss.
D)None of the above is true.
Q3) A voluntary bankruptcy petition can be filed under
A)Chapter 7.
B)Chapter 11.
C)Chapter 13.
D)All of the above chapters.
Page 23
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Chapter 22: Derivatives and Related Accounting Issues
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Q1) An option
A)is not traded on an organized exchange and is customized to meet the needs of the parties.
B)is not traded on an organized exchange and is subject to formal regulations which results in standardized contracts
C)is traded on an organized exchange or may be negotiated on a case-by-case basis between counterparties.
D)is traded on an organized exchange and is customized to meet the needs of the parties.
Q2) The gains and losses from cash flow hedges are recorded in OCI until the impact of the hedged item in included in earnings.
A)True
B)False
Q3) All of the following are examples of cash flow hedges except:
A)a hedge against a price increase in a raw material expected to be purchased in 60 days.
B)a hedge against a fixed interest note payable using an interest rate swap.
C)a hedge against a variable interest note payable using an interest rate swap.
D)All of the above are examples of cash flow hedges.
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Chapter 23: Equity Method for Unconsolidated Investments
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Q1) If the market value of an equity method investment falls below its book value, it is written down if the decline is considered permanent with no subsequent increase in value other than regular equity method adjustments.
A)True
B)False
Q2) Under the fair value option, the investor's share of dividends received from the investee and fair value adjustments are recorded as income.
A)True
B)False
Q3) All but the following are required disclosures for equity method investors:
A)Percentage of ownership in the investment.
B)Underlying book value of the investment.
C)The market value of the investment, if available.
D)All of these items are required disclosures.
Q4) Under the equity method, investee dividends are recorded as a reduction of the investment account.
A)True
B)False
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Chapter 24: Variable Interest Entities
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Q1) The entity having control of a VIE is referred to as the parent company.
A)True
B)False
Q2) The consolidation process for VIE's includes the elimination of all inter-entity transactions as would be the case for control based on stock ownership
A)True
B)False
Q3) The primary beneficiary does not consolidate its interest in a VIE into their consolidated financial statements.
A)True
B)False
Q4) Consolidation procedures are applied to controlling ownership interests in Variable Interest Entities.
A)True
B)False
Q5) The accounts of the VIE are adjusted to fair value on the date control is achieved.
A)True
B)False
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