Advanced Financial Accounting Exam Bank
Course Introduction
Advanced Financial Accounting delves into complex financial reporting issues facing modern businesses, including consolidated financial statements, accounting for mergers and acquisitions, foreign currency transactions, partnerships, segment reporting, and non-profit organizations. The course emphasizes the interpretation and application of accounting standards (such as IFRS and GAAP) in practical contexts, exploring ethical considerations, regulatory requirements, and the impact of accounting choices on stakeholder decision-making. Students will develop analytical skills in evaluating financial information and gain proficiency in preparing and understanding advanced accounting records essential for careers in accounting, finance, and corporate management.
Recommended Textbook
Advanced Accounting 9th Edition by
Joe Ben Hoyle
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19 Chapters
1679 Verified Questions
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) What is the Equity in Howell Income that should be reported by Acker in 2008?
A)$10,000.
B)$24,000.
C)$36,000.
D)$38,400.
E)$40,000.
Answer: D
Q2) A company should always use the equity method to account for an investment if
A)it has the ability to exercise significant influence over the operating policies of the investee.
B)it owns 30% of another company's stock.
C)it has a controlling interest (more than 50%)of another company's stock.
D)the investment was made primarily to earn a return on excess cash.
E)it does not have the ability to exercise significant influence over the operating policies of the investee.
Answer: A
Q3) What amount of unrealized intercompany profit should be deferred by Steven at December 31,2009?
Answer: [($75,000 - $54,000)x .10 x .40] = $840
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Page 3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Which of the following statements is true regarding a statutory merger?
A)The original companies dissolve while remaining as separate divisions of a newly created company.
B)Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.
C)The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.
D)The acquiring company acquires the stock of the acquired company as an investment.
E)A statutory merger is no longer a legal option.
Answer: C
Q2) Dutch Co.has loaned $90,000 to its subsidiary,Hans Corp. ,which retains separate incorporation.How would this loan be treated on a consolidated balance sheet?
Answer: The loan represents an intercompany payable and receivable,and it would be eliminated in preparing a consolidated balance sheet.
Q3) Determine consolidated Paid-in Capital at December 31,2009.
Answer: SHAPE \* MERGEFORMAT 11ea88ab_df3e_c7cf_bb89_a16bc2b084ce_TB4174_00
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Page 4
Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) All of the following are acceptable methods to account for a majority owned investment in subsidiary except
A)The equity method.
B)The initial value method.
C)The partial equity method.
D)The fair-value method.
E)Book value method.
Answer: D
Q2) If this combination is viewed as an acquisition,what balance would Jaynes' Investment in Aaron Co.account have shown on December 31,2010,when the equity method was applied?
Answer: An allocation of the acquisition value (based on the fair value of the shares issued)must first be made.
11ea88ab_df38_37ef_bb89_5531f2f957e8_TB4174_00
Q3) For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?
Answer: The equity method gives the most accurate portrayal of the results for the combined entity.
Page 5
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) In consolidation at December 31,2009,what adjustment is necessary for Hogan's Land account?
A)$0
B)$7,000 increase
C)$6,300 increase
D)$6,300 decrease
E)$8,000 decrease
Q2) Kordel Inc.holds 75% of the outstanding common stock of Raxston Corp.Raxston currently owes Kordel $500,000 for inventory acquired over the past few months.In preparing consolidated financial statements,what amount of this debt should be eliminated?
A)$375,000
B)$125,000
C)$300,000
D)$500,000
E)$0
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Chapter 5: Consolidated Financial StatementsIntercompany Asset Transactions
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Q1) Which of the following will be included in a consolidation entry for 2009?
A)Debit loss for $5,000.
B)Credit loss for $5,000.
C)Credit land for $5,000.
D)Debit gain for $5,000.
E)Credit gain for $5,000.
Q2) Compute Simon's share of income from Wilson for consolidation for 2010.
A)$108,000
B)$110,000.
C)$106,000.
D)$109,825.
E)$109,800.
Q3) Throughout 2009,Cleveland Co.sold inventory to Leeward Co. ,its subsidiary.From a consolidated point of view,when will the gain on this transfer be earned?
Q4) Compute income from Stark reported on Parker's books for 2011.
A)$204,300.
B)$202,500.
C)$193,500.
D)$191,700.
E)$225,000.
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Q1) Danbers Co.owned seventy-five percent of the common stock of Renz Corp.How does the issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process?
Q2) A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock.The preferred stock has a cumulative dividend.No dividends are in arrears.How is the noncontrolling interest in the subsidiary's net income assigned?
A)Income is assigned as 40 percent of the value of the preferred stock,based on an allocation between common stock and preferred stock.
B)There is no allocation to the noncontrolling interest because the parent owns 100% of the common stock and net income belongs to the residual owners.
C)Income is assigned as 40 percent of the preferred stock dividends.
D)Income is assigned as 40 percent of the subsidiary's income before preferred stock dividends.
E)Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.
Q3) What is the amount of goodwill resulting from this acquisition?
Q4) Describe how this transaction would affect Panton's books.
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Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Q1) How much will the consolidated group save if it decides to file a consolidated income tax return?
Q2) What is Pi's accrual-based income for 2009?
A)$152,000.
B)$16,000.
C)$192,000.
D)$200,000.
E)$208,000.
Q3) The accrual-based income of Eckston Inc.is calculated to be
A)$234,000.
B)$211,000.
C)$221,000.
D)$224,000.
E)$246,000.
Q4) What is this pattern of ownership called?
A)pyramid ownership.
B)a connecting affiliation.
C)mutual ownership.
D)an indirect affiliation.
E)an affiliated group.
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Chapter 8: Segment and Interim Reporting
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Q1) According to the revenue test,which segments would require disaggregation?
A)A,B,D,and E.
B)A and B.
C)B and C.
D)A,B,and D.
E)C,D,and E.
Q2) Assuming Baker makes the change in the first quarter of 2008,how much is reported as net income for the first quarter of 2008?
A)$492,000.
B)$494,800.
C)$500,000.
D)$505,200.
E)$527,950.
Q3) How should revenues be recognized in interim periods?
A)In the same way as they are recognized on an annual basis.
B)On the cash basis.
C)On an annualized basis.
D)On a seasonal basis.
E)There are no revenues recognized in interim periods.
Q4) Compute cost of goods sold and gross profit for the quarter ending June 30,2009.
Page 10
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) How much foreign exchange gain or loss should be included in Shannon's 2008 income statement?
A)$1,000 gain.
B)$1,000 loss.
C)$2,000 gain.
D)$2,000 loss.
E)$8,000 loss.
Q2) Which of the following approaches is used in the United States in accounting for foreign currency transactions?
A)One-transaction perspective;defer foreign exchange gains and losses.
B)Two-transaction perspective;accrue foreign exchange gains and losses.
C)Three-transaction perspective;defer foreign exchange gains and losses.
D)One-transaction perspective;accrue foreign exchange gains and losses.
E)Two-transaction perspective;defer foreign exchange gains and losses.
Q3) What amount will Coyote Corp.report on its 2009 financial statements for Sales?
Q4) What happens when a U.S.company purchases goods denominated in a foreign currency and the foreign currency appreciates?
Q5) What amount will Coyote Corp.report on its 2009 financial statements for Accounts Payable?
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Chapter 10: Translation of Foreign Currency Financial Statements
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Q1) What was the amount of the translation adjustment for 2009?
A)$293,479 increase in relative value of net assets.
B)$302,137 increase in relative value of net assets.
C)$300,160 increase in relative value of net assets.
D)$187,418 increase in relative value of net assets.
E)$270,800 increase in relative value of net assets.
Q2) Contrast the purpose of remeasurement with the purpose of translation.
Q3) Required:
Assume that Boerkian was a foreign subsidiary of a U.S.multinational company.On the December 31,2008 balance sheet,what was the translated value of the Land account?
Q4) Prepare a statement of cash flows for this subsidiary in stickles and then translate these amounts into U.S.dollars.
Q5) What exchange rate would be used to translate the asset and liability account balances of a foreign subsidiary? What justification can be given for using this exchange rate?
Q6) Assume that Boerkian was a foreign subsidiary of a U.S.multinational company.On the December 31,2008 balance sheet,what was the remeasured value of the Land account?
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) As a result of the sale and leaseback transaction in 2008,what is the difference between income between reporting using US GAAP and IFRSs in 2008?
A)US GAAP income is $80,000 higher.
B)US GAAP income is $100,000 higher.
C)IFRSs income is $50,000 lower.
D)IFRSs income is $100,000 lower.
E)IFRSs income is $80,000 higher.
Q2) As a result of inventory loss,what is the difference in income between reporting using US GAAP and IFRSs?
A)US GAAP income is $1000 higher.
B)US GAAP income is $2000 lower.
C)IFRSs income is $1000 higher.
D)IFRSs income is $1000 lower.
E)IFRSs income is $2000 higher.
Q3) What are the arguments in favor of accounting harmonization?
Q4) Why does each country have its own unique set of financial reporting practices?
Q5) What are the two major types of legal systems used around the world?
Q6) What is meant by harmonization of accounting standards?
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Q7) How did the early IASs obtain support from a sufficient number of board members?
Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Q1) Which one of the following forms is used by small business issuers to register securities to be sold for cash?
A)SB-2.
B)SB-3.
C)SB-5.
D)SB-4.
E)SB-1.
Q2) What information is required in proxy statements?
Q3) According to the text,which of the following is not exempt from registration?
A)offerings of more than $5 million.
B)securities issued by governments.
C)securities issued by banks.
D)securities issued by savings and loan associations.
E)offerings of no more than $1 million made to any number of investors within a 12-month period.
Q4) How are the operations of the SEC funded?
Q5) Describe the two parts of the SEC registration statement.
Q6) What is a private placement of securities?
Q7) Briefly describe Regulation S-K.What is its purpose?
Q8) Why was the Public Utility Holding Company Act of 1935 created? Page 14
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Page 15
Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Sample Questions
Q1) Prepare a Statement of Financial Affairs.
Q2) What is meant by a "fully secured liability"?
Q3) Lawyer's fees incurred during a reorganization are accounted for with a debit to
A)an expense.
B)an intangible asset,Reorganization Cost,which would normally be amortized over a five-year period.
C)additional paid-in capital.
D)retained earnings.
E)a liability.
Q4) Which of the following is not a responsibility of the bankruptcy trustee?
A)Recover all property belonging to the insolvent company.
B)Liquidate common stock of the company.
C)Preserve the estate from any further deterioration.
D)Make distributions to the proper claimants.
E)Void preferences made by the debtor within 90 days prior to the filing of the bankruptcy petition if the company was already insolvent.
Q5) Free assets after payment of liabilities with priority are calculated to be what amount?
Q6) Compute the amount of total liabilities with priority.
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Chapter 14: Partnerships: Formation and Operation
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Q1) Determine the amount of income allocated to each partner for 2008 to the nearest dollar.
Q2) Eden contributes $49,000 into the partnership for a 25% interest.The four original partners share profits and losses equally.Using the bonus method,determine the balances for each of the five partners after Eden joins the partnership.
Q3) Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership.Goodwill was to be recorded.The four original partners shared all profits and losses equally.After Eden made his investment,what were the individual capital balances?
Q4) Brown and Green are forming a business as partners.If they do not create a formal written partnership agreement,what risks are they exposing themselves to?
Q5) Under what circumstances does a partner's balance in his or her capital account have practical consequences for the partner?
Q6) What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of a partnership?
Q7) Record the journal entry for the admission of Noris.Goodwill is not to be recorded.
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Page 17
Chapter 15: Partnerships: Termination and Liquidation
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Q1) Compute safe cash payments after the noncash assets have been sold and the liquidation expenses have been paid.
Q2) Record the journal entry for payment of outstanding liabilities to the creditors.
Q3) A partnership had the following account balances: Cash,$91,000;Other Assets,$702,000;Liabilities,$338,000;Polk,Capital (50% of profits and losses),$221,000;Garfield,Capital (30%),$143,000;Arthur,Capital (20%),$91,000.The company liquidated and $10,400 became available to the partners. Required: Who would have received the $10,400?
Q4) Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of January.
Q5) What is the role of the accountant during the liquidation process?
Q6) For a partnership,how should liquidation gains and losses be accounted for?
Q7) Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of February.
Q8) What is the purpose of a predistribution plan?
Q9) Why is a Schedule of Liquidation prepared?
Q10) What should occur when a solvent partner has a deficit balance?
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Chapter 16: Accounting for State and Local Governments,
Part I
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Q1) A city enacted a special tax levy to provide medical services at the municipal hospital.What kind of fund should have been used to record the revenues generated by the tax?
Q2) Shell City transfers $100,000 from the General Fund to the Debt Service fund.
Required:
Prepare the required journal entries and identify the funds in which they are recorded.
Q3) Which group of governmental financial statements reports all revenues and all costs of providing services each year?
A)GAAP-Based Financial Statements
B)Fund-Based Financial Statements.
C)Cost-Based Financial Statements.
D)Government-Wide Financial Statements.
E)General Fund Financial Statements.
Q4) What is the primary difference between monies accounted for in the general fund and monies accounted for in the special revenue fund?
Q5) What are the two proprietary fund types?
Q6) What are the five types of governmental funds?
Q7) What is the purpose of government-wide financial statements?
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Chapter 17: Accounting for State and Local
Governments,part II
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Q1) What are the three broad sections of a state or local government's CAFR?
Q2) The town of Wakefield opened a solid waste landfill in 2007 that was at 20% capacity on December 31,2007 and at 50% capacity on December 31,2008.The city initially anticipated closure costs of $2.3 million but in 2008 estimated the closure costs would be $2.7 million.None of these costs will be incurred until the landfill is scheduled to be closed.
What is the journal entry that should be recorded on December 31,2008 for Government-wide Financial Statements?
Q3) Jones College,a public institution of higher education,must prepare financial statements
A)As if the college was an enterprise fund.
B)Following the same rules as state and local governments.
C)According to GAAP.
D)As if the college was a fiduciary fund.
E)In the same manner as private colleges and universities.
Q4) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Q5) Prepare a Statement of Activities
Q6) What is meant by the term fiscally independent?
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Chapter 18: Accounting for Not-For-Profit Organizations
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Q1) A not-for-profit organization receives a computer as a donation (valued at $2,000).Prepare the journal entry for the transaction.
Q2) The hospital estimated that contractual adjustments would reduce the amount collected from third-party payors to $1,710,000.
Required:
Prepare the necessary journal entry to record the contractual adjustments.
Q3) Which statement below is not correct?
A)The accounting period in which pledged revenues are recognized is dependent on donor specifications.
B)The permanently restricted section of a nonprofit organization's net assets is set aside by donor restrictions.
C)A contributed asset is recognized as revenue by a nonprofit organization.
D)Depreciation expense is not recognized by nonprofit organizations.
E)Nonprofit organizations issue a statement of activities.
Q4) Record the journal entries that reflect all of this information.
Q5) What criteria must be met before a voluntary health and welfare organization can recognize donated services as a means of support?
Q6) Give several examples of voluntary health and welfare organizations.
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Chapter 19: Accounting for Estates and Trusts
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Q1) What are the three goals of probate laws?
Q2) Administrative expenses of $13,000 were paid. Prepare the journal entry to record the transaction.
Q3) Debts of $52,000 were discovered. Prepare the journal entry to record the transaction.
Q4) In settling an estate,what is the meaning of the term devise?
Q5) What amount of federal income tax must be paid?
Q6) What is meant by estate accounting?
Q7) What guidelines must be followed to classify a transaction as associated with the principal of an estate or as an income transaction?
A)generally accepted accounting principles.
B)federal estate laws.
C)state estate laws.
D)the Internal Revenue Code.
E)the decedent's intentions or state laws.
Q8) Prepare the journal entry for claims of $100,000 made against the estate for various debts incurred before the decedent's death,and $20,000 for funeral expense bills.
Page 22
Q9) How may real property be treated in identifying estate property subject to probate?
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