Advanced Accounting Theory Exam Practice Tests
Course Introduction
Advanced Accounting Theory delves into the conceptual and methodological frameworks that underpin contemporary accounting practices. The course examines the development, validation, and application of various theories that inform financial reporting, standard-setting, and disclosure. Students will critically analyze key topics such as positive accounting theory, normative theories, agency theory, stakeholder perspectives, and the impact of regulation on accounting choices. Emphasis is placed on the interplay between theory and practice, ethical considerations, and the evolving role of accounting in society. Through case studies and research-based assignments, students will develop a comprehensive understanding of how accounting theory shapes the profession and influences decision-making in complex business environments.
Recommended Textbook
Advanced Financial Accounting 8th Edition by Richard Baker
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Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Which of the following situations best describes a business combination to be accounted for as a statutory merger?
A)Both companies in a combination continue to operate as separate,but related,legal entities.
B)Only one of the combining companies survives and the other loses its separate identity.
C)Two companies combine to form a new third company,and the original two companies are dissolved.
D)One company transfers assets to another company it has created.
Answer: B
Q2) Based on the information provided,what amount of goodwill will be reported immediately following the business combination in the combined company's balance sheet?
A)$0
B)$50,000
C)$40,000
D)$105,000
Answer: C
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Chapter 2: Reporting Intercorporate Interests
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Q1) A change from the cost method to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires:
A)only a footnote disclosure.
B)that the cumulative amount of the change be shown as a line item on the income statement,net of tax.
C)that the change be accounted for as an unrealized gain included in other comprehensive income.
D)retroactive restatement as if the investor always had used the equity method.
Answer: D
Q2) Based on the information provided,what amount of income will be reported by Wheeley from its investment in Twain for the year 2007?
A)$22,400
B)$11,800
C)$4,800
D)$12,400
Answer: B
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Chapter 3: The Reporting Entity and Consolidated Financial Statements
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Q1) Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,2006.Goodwill (attributable to Quid's acquisition of Pro shares)of $300,000 was reported in the consolidated financial statements at December 31,2006.Parent company approach was used in determining this amount.What is the amount of goodwill to be reported under proprietary theory approach?
A)$300,000
B)$400,000
C)$150,000
D)$100,000
Answer: A
Q2) Based on the preceding information,what is the amount of net income to be reported in the consolidated income statement for the year under the parent company theory approach?
A)$220,000
B)$202,000
C)$160,000
D)$200,000
Answer: B
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
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Q1) Based on the preceding information,what amount of retained earnings will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$300,000
B)$409,000
C)$259,000
D)$191,000
Q2) Based on the preceding information,what amount will be reported as total assets in the consolidated balance sheet for 2008?
A)$666,000
B)$747,000
C)$651,000
D)$946,000
Q3) Required:
Prepare the eliminating entries needed as of December 31, 2009, to complete a consolidation workpaper.
Prepare a three-part consolidation workpaper as of December 31, 2009.
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Chapter 5: Consolidation of Less-Than-Wholly Owned Subsidiaries
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Q1) Based on the preceding information,the increase in the fair value of patents held by Wisden is:
A)$20,000
B)$25,000
C)$15,000
D)$5,000
Q2) Based on the preceding information,what is the amount of comprehensive income attributable to the controlling interest for 2009?
A)$138,750
B)$131,000
C)$128,750
D)$135,000
Q3) Based on the preceding information,what amount will be reported as noncontrolling interest in the consolidated balance sheet prepared immediately after the business combination?
A)$0
B)$15,000
C)$40,000
D)$46,000
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Chapter 6: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,the amount to be reported as consolidated net income for 2009 will be:
A)$207,000.
B)$202,000.
C)$212,000.
D)$190,000.
Q2) Based on the preceding information,the gain on sale of equipment recorded by Mortar for 2008 is:
A)$70,000.
B)$65,000.
C)$50,000.
D)$40,000.
Q3) Peter Architectural Services owns 100 percent of Smith Manufacturing.During the course of 2008 Peter provides $100,000 of architectural services associated with Smith's new manufacturing facility,which will open January 4,2009,and has a 5 year useful life.Explain the impact providing this service has on Peter Architectural Services' 2008 and 2009 consolidated financial statements.
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Chapter 7: Intercompany Inventory Transactions
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Q1) When a parent and its subsidiary use a periodic inventory system rather than a perpetual system,the income and asset balances reported in the consolidated financial statements are: I.affected only if there are upstream intercompany sales of inventory. II)affected only if there are downstream intercompany sales of inventory.
A)I
B)II
C)Both I and II
D)Neither I nor II
Q2) Based on the information given above,what will be the income to controlling interest for 2008?
A)$615,375
B)$686,250
C)$690,000
D)$694,000
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of interest income will be eliminated in the preparation of the 2009 consolidated financial statements?
A)$17,000
B)$13,300
C)$18,500
D)$22,200
Q2) Based on the information given above,what amount of gain or loss on bond retirement is included in the 2007 consolidated income statement?
A)$6,600
B)$4,800
C)$6,000
D)$5,400
Q3) Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 2009 consolidated financial statements?
A)$3,500
B)$2,800
C)$5,000
D)$2,500
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,in the eliminating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares,Investment in Movie stock will be credited for:
A)$165,625.
B)$135,625.
C)$185,000.
D)$155,000.
Q2) Based on the preceding information,what is the portion of First's retained earnings assignable to its preferred shareholders on January 1,2009?
A)$40,000
B)$50,000
C)$60,000
D)$70,000
Q3) Based on the information provided,the equity-method income recorded by A Company is:
A)$125,000
B)$200,000
C)$170,000
D)$181,250
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash used in financing activities for 2009?
A)$40,000
B)$55,000
C)$90,000
D)$10,000
Q2) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash used in financing activities for 2009?
A)$32,000
B)$38,000
C)$42,000
D)$70,000
Q3) Based on the preceding information,what is the amount of earnings available to common shareholders reported in the consolidated financial statements for the year?
A)$89,200
B)$87,000
C)$91,000
D)$82,800
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Chicago based Corporation X has a number of exporting transactions with companies based in Sweden.Exporting activities result in receivables.If the settlement currency is the Swedish Krona,which of the following will happen by changes in the direct or indirect exchange rates?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Based on the preceding information,which of the following is true of the intrinsic and time values associated with this option.
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Which of the following observations is true of futures contracts?
A)Contracted through a dealer,usually a bank.
B)Customized to meet contracting company's terms and needs.
C)Typically no margin deposit required.
D)Traded on an exchange and acquired through an exchange broker
Page 13
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Based on the preceding information,what amount of translation adjustment is required for increase in differential?
A)$3,000
B)$5,500
C)$4,500
D)$5,000
Q2) If the restatement method for a foreign subsidiary involves remeasuring from the local currency into the functional currency,then translating from functional currency to U.S.dollars,the functional currency of the subsidiary is: I.U.S.dollar.
II)Local currency unit.
III)A third country's currency.
A)I
B)III
C)II
D)Either I or II
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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Chapter 13: Segment and Interim Reporting
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Q1) Trevor Company discloses supplementary operating segment information for its three reportable segments.Data for 2008 are available as follows: Additional 2008 expenses include indirect operating expenses of $200,000.Appropriately selected common indirect operating expenses are allocated to segments based on the ratio of each segment's sales to total sales.The 2008 operating profit for Segment B was:
A)$180,000
B)$120,000
C)$150,000
D)$250,000
Q2) Frahm Company incurred a first quarter operating loss before income tax effect of $4,000,000.This is a normal occurrence for Frahm because of seasonal fluctuations.Experience has demonstrated the income earned during the remaining quarters far exceeds the first quarter losses each year.Frahm estimates its annual income tax rate will be 30 percent.What net loss should Frahm report for the first quarter?
A)$4,000,000
B)$2,800,000
C)$700,000
D)$0
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Chapter 14: Sec Reporting
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Q1) Which of the following choices best describes correct use of the forms indicated?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Which of the following presents the results of actions taken against accountants,brokers,and other participants for filing false or misleading statements?
A)Financial Reporting Releases
B)Financial Reporting Interpretations
C)Accounting and Auditing Enforcement Releases
D)Staff Accounting Bulletins
Q3) Form 8-K
Q4) Which regulation created the Securities and Exchange Commission?
A)Securities Act of 1933
B)Securities Exchange Act of 1934
C)Investment Company Act of 1940
D)Garn-St.Germain Depository Institutions Act of 1982
Q5) Customary Review
Q6) Financial Reporting Releases
Page 16
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Refer to the information provided above.David invests $40,000 for a one-fifth interest in the total capital of $220,000.What are the capital balances of Allen and Daniel after David is admitted into the partnership?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Refer to the above information.Which statement below is correct if a new partner purchases an interest in capital directly from the old partners?
A)C < D
B)C = D
C)C = D and B = A
D)C < D and B = A
Q3) A partnership is a(n): I.accounting entity.
II)taxable entity.
A)I only
B)II only
C)Neither I nor II
D)Both I and II
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Chapter 16: Partnerships: Liquidation
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Q1) Which of the following items are important in the determination of safe installment payments to partners? I.Deficits created in capital accounts are distributed to the remaining partners.
II)All unsold noncash assets are assumed to be worthless.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q2) In the calculation of the loss absorption power for a partner,a partner's loan balance (an amount that is owed by the partnership)should be: I.Added to the partner's capital balance.
II)Paid to the partner as a creditor of the partnership.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q3) Listen and Hear are thinking of dissolving their partnership.Listen has a friend who told him to complete a "lump-sum" liquidation.Hear wants to complete an "installment" liquidation.They have come to you for advice.What do you recommend and Why?
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) What amount should be reported as expenditures for the current fiscal year when accounting for inventories of supplies under the purchase method and under the consumption method?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Which of the following funds are classified as fiduciary funds?
A)Agency and Special revenue funds.
B)Internal service and Enterprise funds.
C)Private-purpose trust and Agency funds.
D)Capital projects and Debt service funds.
Q3) The general fund of Caldwell had the following operating budget for the fiscal year beginning July 1,2009: When the general fund records its operating budget on July 1,2009,Budgetary Fund Balance-Unreserved should be
A)credited for $600,000.
B)debited for $900,000.
C)debited for $600,000.
D)credited for $900,000.
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Q4) Briefly discuss the various types of governmental funds and proprietary funds.
Chapter 18: Governmental Entities: Special Funds and Government-Wide Financial Statements
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Q1) When a capital projects fund transfers a premium from the issuance of general obligation bonds to another fund,the transfer should be accounted for as which type of interfund transaction or transfer?
A)As a loan.
B)As an interfund transfer.
C)As revenue.
D)As a reimbursement.
Q2) Based on the preceding information,on the statement of net assets prepared at June 30,2009,what amount should be reported for net assets invested in capital assets,net of related debt?
A)$4,200,000
B)$2,900,000
C)$2,825,000
D)$3,300,000
Q3) Government-wide financial statements prepared for a municipality include the following:
A)Option A
B)Option B
C)Option C
D)Option D
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Chapter 19: Not-For-Profit Entities
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Q1) The CFO of a "Not-for-Profit" hospital is making a presentation at your college.The presentation is for Business and Health-Science majors.During the presentation the CFO mentions assets being reported "above the line." On the way out your roommate a health-science major asks,you an accounting major,to explain what the CFO was referring to.What do you respond?
Q2) During the fiscal year ended June 30,2009,a private,not-for-profit hospital acquired equipment costing $75,000,with cash contributed by donors who restricted their contributions for this purpose.On the hospital's statement of cash flows for the year ended June 30,2009,the equipment acquisition should be reported in which of the following sections? I.Operating activities
II)Financing activities
III)Investing activities
A)I
B)II
C)III
D)I,II,III
Q3) "Basis for measuring contributions" describes which term listed above?
Q4) The governing board designated assets for plant expansion.
Q5) "Classification of an endowment contribution" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) The payment to general unsecured creditors is often termed:
A)a "preference payment."
B)a "dividend."
C)a "write-off."
D)a "bonus."
Q2) Which of the following could be true of the proceedings under Chapter 11 of the Bankruptcy Code?
A)Always administered by the bankruptcy courts.
B)The debtor's assets are sold and its liabilities extinguished.
C)The company does not operate during this period.
D)The debtor continues as a business after the reorganization.
Q3) In a statement of realization and liquidation,unusual revenue items are reported under:
A)assets.
B)extraordinary items.
C)supplementary items.
D)These are never reported.
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
Q5) What are the conditions necessary for using fresh start reporting in reorganization?
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