Advanced Financial Accounting
Chapter Exam Questions
Course Introduction
Advanced Financial Accounting delves into complex accounting principles and procedures beyond the introductory level. This course explores topics such as consolidations, mergers and acquisitions, foreign currency transactions, segment and interim reporting, partnership accounting, and issues related to non-profit and governmental entities. Students will develop an in-depth understanding of accounting standards, regulatory frameworks, and the preparation of advanced financial statements, equipping them with the analytical skills required to address specialized accounting scenarios in various organizational contexts.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Sample Questions
Q1) With respect to goodwill, an impairment
A) will be amortized over the remaining useful life.
B) is a two-step process which first compares book value to fair value at the business reporting unit level.
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
Q2) Historically, much of the controversy concerning accounting requirements for business combinations involved the ________ method.
A) purchase
B) pooling of interests
C) equity
D) acquisition
Answer: B
Q3) Under the current GAAP, Goodwill arising from a business combination is A) charged to Retained Earnings after the acquisition is completed.
B) amortized over 40 years or its useful life, whichever is longer.
C) amortized over 40 years or its useful life, whichever is shorter.
D) never amortized.
Answer: D
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Which one of the following items, originally recorded in the Investment in Falcon Co. account under the equity method, would not be systematically used to reduce investment income on a periodic basis?
A) Amortization expense of goodwill
B) Depreciation expense on the excess fair value attributed to machinery
C) Amortization expense on the excess fair value attributed to lease agreements
D) Depreciation expense on the excess fair value attributed to building
Answer: A
Q2) Jacana Corporation paid $200,000 for a 25% interest in Lilypad Corporation's common stock on January 1, 2013, but was not able to exercise significant influence over Lilypad. During 2014, Jacana reported income of $120,000, excluding its income from Lilypad, and paid dividends of $50,000. Lilypad reported net income of $40,000 during 2014 and paid dividends of $20,000. Jacana should report net income for 2014 in the amount of
A) $115,000.
B) $120,000.
C) $125,000.
D) $130,000.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) On July 1, 2014, Polliwog Incorporated paid cash for 21,000 shares of Salamander Company's $10 par value stock, when it was trading at $22 per share. At that time, Salamander's total stockholders' equity was $597,000, and they had 30,000 shares of stock outstanding, both before and after the purchase. The book value of Salamander's net assets is believed to approximate the fair values.
Requirement 1: Prepare the journal entry that Polliwog would record at the date of acquisition on their general ledger.
Requirement 2: Calculate the balance of the goodwill that would be recorded on Polliwog's general ledger, on Salamander's general ledger, and in the consolidated financial statements.
Answer: Requirement 1:
11ea8548_c358_8877_a343_870e44d0ea63_TB2661_00
Requirement 2:
There is no goodwill recorded on the general ledger of the Polliwog or Salamander. The goodwill is recorded in consolidation only, as calculated below: 11ea8548_c358_8878_a343_3f0cf2428f37_TB2661_00
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Page 5
Chapter 4: Consolidated Techniques and Procedures
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Q1) What amount of Goodwill will be reported?
A) $54,400
B) $68,000
C) $72,000
D) $90,000
Q2) What is the amount of consolidated Retained Earnings?
A) $224,000
B) $259,200
C) $304,000
D) $324,000
Q3) What is the reported amount for the noncontrolling interest?
A) $80,000
B) $84,400
C) $98,000
D) $122,500
Q4) What amount of Inventory will be reported?
A) $170,000
B) $169,000
C) $186,500
D) $192,000
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Chapter 5: Intercompany Profit Transactions Inventories
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Q1) Plateau Incorporated bought 60% of the common stock of Sachet Company several years ago. At the time of purchase, the fair value and book value of Sachet's net assets were equal. The cost of the 60% investment was equal to 60% of the book value of Sachet's net assets. Plateau sells merchandise to Sachet at 125% above Plateau's cost. Intercompany sales from Plateau to Sachet for 2014 were $60,000. Unrealized profits in Sachet's December 31, 2013 inventory and December 31, 2014 inventory were $6,000 and $4,500, respectively. Sachet reported net income of $120,000 for 2014.
Required: In General Journal format, prepare consolidation working paper entries at December 31, 2014 to eliminate the effects of the intercompany inventory sales.
Q2) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A) $512,000.
B) $526,000.
C) $522,500.
D) $528,000.
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Chapter 6: Intercompany Profit Transactions Plant Assets
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Q1) Which of the following is correct?
A) No consolidation working paper entry is required for this transaction in 2014.
B) A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2014.
C) A consolidation working paper entry is required each year that Sidd has the land.
D) A consolidated working paper entry was required only if the land was held for resale in 2014.
Q2) In the eliminating/adjusting entries on consolidation working papers for 2014, the Truck account was
A) debited for $3,000.
B) credited for $3,000.
C) debited for $15,000.
D) credited for $15,000.
Q3) The noncontrolling interest share for 2014 was
A) $18,000.
B) $22,000.
C) $23,000.
D) $27,000.
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Chapter 7: Intercompany Profit Transactions Bonds
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Q1) Bonds Payable appeared in the December 31, 2013 consolidated balance sheet of Pfadt Corporation and Subsidiary in the amount of
A) $398,925.
B) $441,000.
C) $443,250.
D) $450,000.
Q2) The gain from the bond purchase that appeared on the December 31, 2013 consolidated income statement was
A) $4,320.
B) $4,800.
C) $5,400.
D) $6,000.
Q3) Using the original information, the elimination entries on the consolidation working papers prepared on December 31, 2014 included at least
A) debit to Bond Interest Expense for $360,000.
B) credit to Bond Interest Expense for $180,000 and a debit to Bond Interest Payable for $90,000.
C) credit to Bond Interest Receivable for $180,000.
D) debit to Bond Interest Revenue for $360,000.
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Page 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) At December 31, 2015 year-end, Lapwing Corporation's investment in Ground Inc. was $200,000 consisting of 80% of Ground's $250,000 stockholders' equity on that date. On April 1, 2016, Lapwing sold 20% interest (one-fourth of its holdings) in Ground for $65,000. During 2016, Ground had net income of $75,000(earned uniformly) and on July 1, 2016, Ground paid dividends of $40,000. Lapwing uses the equity method to account for the investment.
Required:
1. What is the gain or loss on sale of the 20% interest?
2. Record the journal entries for Lapwing for the year ending December 31, 2016. Use the actual-sale-date assumption.
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Page 10
Chapter 9: Indirect and Mutual Holdings
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Q1) Raymond Company owns 90% of Rachel Company. Rachel Company owns 10% of Raymond Company. The treasury stock method is used. On the books of Rachel Company, we maintain the Investment in Raymond using the ________ method. The ending balance in Investment in Raymond is ________ stockholders' equity in the consolidated balance sheet.
A) equity; deducted from B) cost; deducted from C) treasury stock; deducted from D) conventional; added to
Q2) Noncontrolling interest share for Badrack is
A) $9,000.
B) $10,000.
C) $20,000.
D) $40,000.
Q3) The amount of income for the current year assigned to the noncontrolling shareholders of Abussi Corporation is A) $48,000.
B) $53,200.
C) $74,000.
D) $79,200.
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Chapter 10: Subsidiary Preferred Stock, Consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Pan Corporation has total stockholders' equity of $5,000,000 consisting of $1,000,000 of $10 par value Common Stock, $1,000,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings. Pan owns 80% of Sailor Corporation's common stock purchased at book value, which equals fair value. Sailor has $900,000 of 10% cumulative preferred stock outstanding, with no preferred dividends in arrears. The preferred stock has no call price, redemption price or liquidation price. Pan acquired 60% of the preferred stock of Sailor for $500,000. After this transaction the balances in Pan's Retained Earnings and Additional Paid-in Capital accounts, respectively, are
A) $2,960,000 and $1,000,000.
B) $3,000,000 and $960,000.
C) $3,000,000 and $1,040,000.
D) $3,040,000 and $1,000,000.
Q2) What should be the noncontrolling interest share, preferred in the consolidated financial statements of Parminter for the year ending December 31, 2014?
A) $1,000
B) $2,000
C) $4,000
D) $5,000
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Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) A parent company acquired 100% of the outstanding common stock of another corporation. The parent is going to use push-down accounting. The fair market value of each of the acquired corporation's assets is lower than its respective book value. The fair market value of each of the acquired corporation's liabilities is higher than its respective book value. The acquired corporation has a deficit in the Retained Earnings account. Which one of the following statements is correct?
A) The push-down capital account will have a credit balance after this transaction is posted.
B) The push-down capital account will have a debit balance after this transaction is posted.
C) The push-down capital account will have either a debit or a credit balance depending upon whether the asset adjustments exceed the liability adjustments, or vice versa.
D) Subsidiary Retained Earnings will have a deficit balance after this transaction is posted.
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) On April 1, 2014, Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton. Button agrees to purchase (and Bows agrees to sell) 100,000 pounds of cotton at $1.19 per pound, six months from the date of agreement. On October 1, 2014, the price of cotton is $1.17 per pound. The contract allows for net settlement. Required:
Determine the net settlement on the forward contract.
Q2) 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
Q3) What exchange gain or loss appeared on Sooty's 2014 income statement?
A) a loss of $10,000
B) a loss of $15,000
C) a gain of $10,000
D) a gain of $15,000
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) What is the fair value of the forward contract at December 31, 2014?
A) $400.00 liability
B) $400.00 asset
C) $396.04 liability
D) $396.04 asset
Q2) On November 1, 2013, Athom Corporation purchased 5,000 television sets for its merchandise inventory from Sockk, a South Korean firm, at a total quoted cost of 600,000,000 won (W). On this date, the spot rate for the won was $1 = 1,080W. On the same day, Athom invested $500,000 cash in a non-interest bearing account with a Japanese bank, to hedge its exposed liability position. The account payable to Sockk is due on January 30, 2014. The exchange rates on December 31, 2013 and January 30, 2014 were $1 = 1,060W, and $1 = 1,030W, respectively. Athom agreed to pay Sockk in won. The bank deposit made by Athom will be held in won, but will be withdrawn in dollars by Athom on January 30th. Assume that Athom has a December 31 year-end. Assume this is a fair value hedge.
Required:
Prepare all the journal entries for Athom Corporation's General Journal on November 1, 2013, December 31, 2013, and January 30, 2014. Round entries to the nearest whole dollar. If no entry is required on a particular date, indicate "No entry" in the General Journal.
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Chapter 14: Foreign Currency Financial Statements
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Q1) Which of the following foreign subsidiary accounts will have the same value on consolidated financial statements, regardless of whether the statements are remeasured or translated?
A) Trademark
B) Deferred Income
C) Accounts Receivable
D) Goodwill
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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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) Similar operating segments may be combined if the segments have similar economic characteristics. Which one of the following is a similar economic characteristic under GAAP?
A) The segments' management teams
B) The tax reporting law sections
C) The distribution method for products or services
D) The expected rates of return and risk for the segments' productive assets
Q2) GAAP requires that segment information be reported
A) by geographics, without regard to size of the segment.
B) by geographics, without regard to industry or product-line.
C) however management organizes the enterprise into units for internal decision-making and performance-evaluation purposes.
D) by industry or product-line, without regard to geographics.
Q3) What is the threshold for reporting a major customer?
A) 5 percent of revenues
B) 5 percent of profits
C) 10 percent of revenues
D) 10 percent of profits
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Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) On July 1, 2014, Joe, Kline, and Lama began a partnership in which Joe and Kline each contributed cash of $200,000; and Lama contributed property with a fair value of $100,000 and a tax basis $150,000. Joe receives a 10% bonus of partnership income. Kline and Lama receive salaries of $40,000 each. The partnership agreement of Joe, Kline, and Lama provides that all partners receive 5% interest on capital and that profits and losses of the remaining income be distributed to Joe, Kline, and Lama by a 1:1:3 ratio.
Required:
Prepare a schedule to distribute $225,000 of partnership net income to the partners.
Q2) If the partnership experiences a net loss of $60,000 for the year, what will be the final net amount of profit or (loss) closed to each partner's capital account?
A) ($90,000) to Alfred and $30,000 to Barne
B) ($30,000) to Alfred and ($30,000) to Barne
C) ($24,000) to Alfred and ($36,000) to Barne
D) $30,000 to Alfred and ($90,000) to Barne
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18
Chapter 17: Partnership Liquidation
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Q1) The book value of the partnership equity (i.e., total equity of the partners) on June 30, 2014 is
A) $ 58,000.
B) $ 60,000.
C) $ 84,000.
D) $120,000.
Q2) A simple partnership liquidation requires
A) periodic payments to creditors and partners determined by a safe payments schedule.
B) partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners.
C) only creditors to be paid in an orderly manner.
D) periodic payments to partners as cash becomes available.
Q3) The cash available for distribution to the partners on July 31, 2014 is
A) $ 4,000.
B) $ 8,000.
C) $14,000.
D) $22,000.
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Which of the following statements is correct concerning companies emerging from reorganization under Chapter 11 when they do not qualify for fresh start accounting? The forgiveness of debt is reported as
A) an operating gain.
B) a non-operating gain.
C) an extraordinary item.
D) an increase in contributed capital.
Q2) When a corporation's total liabilities are greater than the fair value of total assets, the firm is
A) a distressed corporation.
B) a bankrupt corporation.
C) insolvent in the equity sense.
D) insolvent in the bankruptcy sense.
Q3) A petition commencing a case against a corporate debtor
A) can be filed only under Chapter 7 of the bankruptcy act.
B) can be filed only under Chapter 11 of the bankruptcy act.
C) can be filed under either Chapter 7 or Chapter 11 of the bankruptcy act.
D) will be determined by the trustee whether it shall be Chapter 7 or Chapter 11 of the bankruptcy act.
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Page 20
Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) For each of the following events or transactions, identify the fund or funds that will be affected.
1. A city government charges a fee for the use of the municipal golf course.
2. Interest is paid on state government revenue bonds.
3. A motor pool was established to handle the vehicle needs of a county government.
4. Paid salaries for general governmental employees.
5. Accrued salaries for general governmental employees.
Q2) Which type of fund is used to account for a government activity that sells goods or services either solely or almost solely to external customers?
A) A temporary fund
B) A general fund
C) An agency fund
D) An enterprise fund
Q3) The key focus of government fund accounting concerns
A) capital expenditures.
B) intergovernmental transfers from the general fund.
C) income measurement.
D) the current ability to provide and fund services and goods.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Middlefield County incurred the following transactions during 2014:
1. The county authorized a new general obligation bond issue of $5 million par to construct an office building with a contract price of $4,975,000. The bonds were issued for $4,980,000.
2. The county levied real property taxes of $10,000,000. Eighty-five percent of the net taxes were collected immediately. Two percent of the total levy was estimated to be uncollectible.
3. The office building was completed and the county paid the contract price to the contractor.
4. The General Fund transferred $500,000 to the Debt Service Fund.
5. The county paid $200,000 for interest on the bonds from the Debt Service Fund.
Required:
Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by Middlefield County.
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) The financial statements of a proprietary fund are similar to those of a business enterprise except for
A) proprietary funds do not report income taxes on the operating statement.
B) proprietary funds do not have paid-in capital or capital stock.
C) proprietary funds use modified accrual accounting.
D) both A and B
Q2) The fixed assets and long-term liabilities associated with Proprietary Funds are reported on the
A) financial statements of governmental funds.
B) financial statements of fiduciary funds.
C) financial statements of proprietary funds.
D) financial statements of trust funds.
Q3) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) A gift-in-kind, for which the not-for-profit entity has no discretion on disposition, should be accounted for by the not-for-profit, nongovernmental entity as
A) a special purpose contribution.
B) an exchange transaction.
C) an agency transaction.
D) a conditional promise to give.
Q2) A private, not-for-profit university received donations of $1,000,000 cash in 2014 that were restricted to certain research projects on sustainability, with an emphasis on reducing the campus waste. The university incurred and paid $450,000 of expenses on this research in 2014.
In 2014, an alumnus contributed a $700,000 endowment for energy research with all endowment income restricted for that purpose. Income totaled $35,000 for the year. Energy research expenses incurred and paid were $22,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
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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) Under the Uniform Probate Code, the personal representative must inform the heirs and devisees of his or her appointment and provide other selected information within how many days of the appointment?
A) 10 days
B) 20 days
C) 30 days
D) 60 days
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