Advanced Accounting
Textbook Exam Questions
Course Introduction
Advanced Accounting delves into complex financial accounting topics beyond the introductory level, focusing on the application and analysis of accounting standards in specialized business contexts. The course covers areas such as mergers and acquisitions, consolidated financial statements, foreign currency transactions and translation, partnership accounting, and accounting for governmental and not-for-profit entities. Students learn to navigate regulatory frameworks, address ethical considerations, and apply professional judgment in advanced financial reporting scenarios, preparing them for roles in public accounting, corporate accounting, and financial analysis.
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
18 Flashcards
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Sample Questions
Q1) The formula for the current ratio is:
A) current assets - current liabilities
B) current assets/current liabilities
C) total debt/shareholders' equity
D) net income/shareholders' equity
Answer: B
Q2) What approach did Canada first decide to take with respect to convergence with IFRS?
A) Harmonization of CPA Canada Handbook with IFRS.
B) Substituting IFRS for Canadian GAAP when approved by the IASB.
C) Adopting some but not necessarily all IFRSs by reviewing them on a case by case basis.
D) Reviewing them with all publically accountable entities to see which ones would be acceptable.
Answer: A
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Chapter 2: Investments in Equity Securities
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64 Verified Questions
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Sample Questions
Q1) Posthorn Corporation acquired 20,000 of the 100,000 outstanding common shares of Stamp Company on January 1, 2019, for a cash consideration of $200,000. During 2019, Stamp Company had net income of $120,000 and paid dividends of $80,000. At the end of 2019, shares of Stamp Company were trading for $11 each. If Posthorn Corporation accounts for its investment in Stamp Company at fair value through other comprehensive income (FVTOCI), what will the balance in the Investment in Stamp Company be at December 31, 2019
A) $200,000
B) $208,000
C) $220,000
D) $240,000
Answer: C
Q2) If the investor sells part of its stake in an associate, accounted for using the equity method, which of the following is used to calculate the gain or loss on the sale of these shares?
A) The average carrying amount of the investment
B) The FIFO method
C) The LIFO method
D) The specific identification method
Answer: A
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Page 4
Chapter 3: Business Combinations
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Sample Questions
Q1) Company A has made an offer to purchase all of the outstanding shares of Company B for $10 per share (the current market value of the shares). In response to Company A's offer, the shareholders of Company B were given rights to purchase additional shares at $8 per share. Which of the following tactics were employed by Company B to prevent Company A from acquiring control of Company B?
A) Pac-man defence.
B) Selling the crown jewels.
C) Poison Pill.
D) Reverse-takeover.
Answer: C
Q2) Company A makes an offer to purchase all of the shares of Company B from Company B's shareholders. The board of directors of Company B does not feel that the offer is adequate and seeks out another purchaser who might offer more for the shares. This defence to the takeover is referred as:
A) White knight.
B) Pac-man defence.
C) Poison pill.
D) Selling the crown jewels.
Answer: A
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Page 5
Chapter 4: Consolidation of Non-Wholly Owned
Subsidiaries
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Sample Questions
Q1) Under the proportionate consolidation method the non-controlling interest (NCI) is:
A) presented as a liability in the consolidated balance sheet.
B) presented as a separate component of shareholders' equity on the consolidated balance sheet.
C) not acknowledged at all.
D) presented as a component of retained earnings on the consolidated balance sheet.
Q2) When a contingent consideration arising from a business combination is classified as a liability, how is any difference between the original estimate of the amount to be paid and the actual amount paid accounted for if the difference arises due to a change in circumstances?
A) As an adjustment to the consideration paid for the subsidiary.
B) As an adjustment to an estimate included in the determination of net income.
C) As a direct adjustment to consolidated retained earnings.
D) As an adjustment to consolidated contributed surplus.
Q3) Various methods have been proposed as solutions to preparing consolidated financial statements for non-wholly owned subsidiaries. Provide the methods and include your reasoning to support the method(s) that is/are being adopted under IFRS.
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Page 6
Chapter 5: Consolidation Subsequent to Acquisition Date
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Sample Questions
Q1) Consolidated Net Income would be:
A) higher if the parent chooses to use Equity Method rather than the Cost Method.
B) higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit.
C) lower if the parent chooses to use Equity Method rather than the Cost Method.
D) the same under both the Cost and Equity Methods.
Q2) Prepare a consolidated balance sheet for Par Inc. as at June 30, 2021.
Q3) If the parent company uses the equity method to record its investment in a subsidiary in its internal accounting records, which of the following statements is FALSE?
A) The parent's net income equals consolidated net income.
B) The parent's retained earnings will be equal to consolidated retained earnings.
C) Only the parent's share of the subsidiary's income, dividends and amortization of acquisition differential are recorded in the investor's records.
D) The parent's net income equals consolidated net income attributable to the shareholders of the parent.
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Chapter 6: Intercompany Inventory and Land Profits
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Sample Questions
Q1) X Inc. owns 80% of Y Inc. During 2020, X Inc. sold inventory to Y for $10,000. Half of this inventory remained in Y's warehouse at year end. Y Inc. sold inventory to X Inc. for $5,000. 40% of this inventory remained in X's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 20% for both companies. Unless otherwise stated, assume X Inc. uses the cost method to account for its investment in Y Inc.
What is the after-tax dollar value of X's unrealized profits during the year on its sales to Y?
A) $2,000
B) $1,000
C) $600
D) $400
Q2) When are profits from intercompany land sales realized?
A) They are realized only when sold to outsiders.
B) They are realized once legal ownership of the land has been transferred.
C) They are realized when consideration has been received for the land.
D) They are realized when an agreement is signed with respect to ownership of the land.
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Page 8
Chapter 7: A Intercompany Profits in Depreciable Assets B
Intercompany
Bondholdings
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Sample Questions
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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Sample Questions
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 is the amount of goodwill arising from this business combination?
A) ($5,000)
B) Nil
C) $5,000
D) $150,000
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.
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Chapter 9: Other Consolidation Reporting Issues
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Sample Questions
Q1) JNG Corp has 4 segments, the details of which are shown below. All figures are in thousands of dollars. \(\begin{array}{|l|r|r|r|}
\hline \text { Segment } & \text { Revenues } & \text { Profits } & \text { Assets } \\
\hline \mathrm{A} & \$ 12 & \$ 6 & \$ 40 \\
\hline \mathrm{B} & \$ 60 & \$ 2 & \$ 80 \\
\hline \mathrm{C} & \$ 35 & \$ 10 & \$ 80 \\
\hline \mathrm{D} & \$ 200 & \$ 80 & \$ 20\\\hline \end{array}\) Using only the Profit test, which of the following segment(s) would be reportable?
A) A and B
B) B and D
C) C and A
D) C and D
Q2) How are intercompany transactions handled in a joint venture?
A) They are ignored.
B) They are completely eliminated.
C) Only the venturer's share of any after tax profit is eliminated.
D) Intercompany profits are treated as an adjustment to the acquisition differential.
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Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) On July 1, 2019, Great White North (GWN) Inc. purchased merchandise from a supplier in the U.S. for US$800,000 with terms requiring full payment by October 31, 2019. On July 2, 2019, GWN entered into a forward contract to purchase US$800,000 on October 31, 2019 at a rate of CDN$1.2275. The forward contract was designated as a hedge of the fair value of the amount due to the supplier.
On October 31, 2019, GWN paid its supplier in full. Selected dates and spot rates are shown below:
\(\begin{array}{|l|r|}
\hline \text { July } 1,2019 & \text { CDN } \$ 1.2150 \\
\hline \text { July 31,2019 } & \text { CDN } \$ 1.2175 \\
\hline \text { October } 31,2019 & \text { CDN } \$ 1.22 \\
\hline
\end{array}\) GWN has a July 31<sup>st</sup> year end. On that date the forward rate for US dollars for three months was CDN $1.2225.
Prepare any and all journal entries you deem necessary to record the above transaction assuming the forward contract is segregated between the spot element and the forward element. GWN uses the net method to record the forward contract.
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Chapter 11: Translation and Consolidation of Foreign Operations
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Sample Questions
Q1) Which of the following statements is FALSE?
A) If a foreign operation has a functional currency that is not the Canadian dollar, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
B) If a foreign operation has a functional currency that is the Canadian dollar, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
C) If a foreign operation has a functional currency that is the Canadian dollar, a write-down to market may be required in the translated financial statements.
D) If a foreign operation has a functional currency that is the Canadian dollar, no write-down is required in the foreign currency financial statements.
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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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Net assets could be broken down into any of the following categories EXCEPT:
A) internally restricted and other externally restricted net assets.
B) net assets maintained permanently in endowments.
C) unrestricted net assets.
D) net assets invested in operations.
Q2) Do-Good Inc. is a not-for-profit organization that was formed on January 1, 2020. Do-Good has a December 31 year end. It has an accounting policy of capitalizing and amortizing its capital assets. On April 1, 2020, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from an unrestricted contribution of $8,000. What would be the balance in the Capital Fund on December 31, 2020?
A) $8,000
B) $6,000
C) $6,500
D) $8,400
Q3) Describe what fund accounting is and why is it used for not-for-profit organizations.
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Page 14