Advanced Financial Accounting
Pre-Test Questions
Course Introduction
Advanced Financial Accounting builds upon foundational accounting principles, focusing on complex concepts such as consolidated financial statements, foreign currency transactions, partnerships, and accounting for business combinations. The course explores regulatory standards, international accounting frameworks, and ethical considerations. Students develop analytical skills for interpreting and preparing financial reports for multi-entity organizations and are introduced to challenges such as intercompany transactions, goodwill impairment, and the accounting for non-controlling interests. Through case studies and real-world scenarios, participants gain expertise in the application of advanced accounting methods necessary for high-level professional practice and decision-making in a global business environment.
Recommended Textbook
Advanced Financial Accounting 11th Edition by Theodore Christensen
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Assuming no impairment in value prior to transfer,assets transferred by a parent company to another entity it has created should be recorded by the newly created entity at the assets':
A) cost to the parent company.
B) book value on the parent company's books at the date of transfer.
C) fair value at the date of transfer.
D) fair value of consideration exchanged by the newly created entity.
Answer: B
Q2) Based on the information provided,what amount would be reported by Devon Company as investment in Regan Company common stock?
A) $312,000
B) $180,000
C) $330,000
D) $150,000
Answer: A
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Page 3
Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) Based on the preceding information,what amount will be reported by Yang as balance in investment in Spiel on December 31,20X8,if it used the fair value option to account for its investment in Spiel?
A) $105,000
B) $118,750
C) $100,000
D) $122,500
Answer: A
Q2) Based on the information provided,what amount of total assets will be reported in the consolidated balance sheet prepared on December 31,20X4?
A) $425,000
B) $525,000
C) $650,000
D) $630,000
Answer: B
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4
Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differentials
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Q1) Based on the preceding information,what amount will Joseph Company report as common stock outstanding in its consolidated balance sheet at December 31,20X6?
A) $214,000
B) $150,000
C) $184,000
D) $230,000
Answer: B
Q2) Based on the preceding information,what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9?
A) $168,000
B) $138,000
C) $164,000
D) $150,000
Answer: C
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5
Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Based on the preceding information,what amount of total retained earnings will be reported in the consolidated balance sheet for the year 20X8?
A) $330,000
B) $450,000
C) $430,000
D) $370,000
Q2) Based on the preceding information,what amount should be allocated to goodwill in the consolidated balance sheet prepared immediately after the combination?
A) $110,000
B) $65,000
C) $45,000
D) $0
Q3) Based on the preceding information,what amount of liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $300,000
B) $320,000
C) $417,000
D) $745,000
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Chapter 5: Consolidation
of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Q1) Based on the information given,what percentage of Y Company's shares were acquired by X Company?
A) 100 percent
B) 60 percent
C) 80 percent
D) 75 percent
Q2) Stockholders' equity on the January 2,20X6,consolidated balance sheet should be:
A) $85,000
B) $80,000
C) $90,000
D) $130,000
Q3) Current assets on the January 2,20X6,consolidated balance sheet should be:
A) $79,000
B) $120,000
C) $90,000
D) $96,000
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7
Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what amount of cost of goods sold will be reported in the 20X8 consolidated income statement?
A) $62,000
B) $120,000
C) $90,000
D) $58,000
Q2) The consolidation treatment of profits on inventory transfers that occurred before the business combination depends on whether:
I.the companies were independent at that time.
II.the sale transaction was the result of arm's-length bargaining.
A) I
B) II
C) Both I and II
D) Neither I nor II
Q3) What was the amount of intercompany sales from Pare to Shel during 20X5?
A) $12,000
B) $6,000
C) $64,000
D) $58,000
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Page 8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Pie Company acquired 75 percent of Strawberry Company's stock at the underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Strawberry Company.Strawberry Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Strawberry Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Strawberry Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Pie Company and Strawberry Company in 20X8 and 20X9:
Strawberry Co.sold equipment to Pie Co.for a $42,000 gain on December 31,20X8.Strawberry Co.had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,20X8.At the time of the purchase,Pie Co.estimated that the equipment still had a seven-year remaining useful life. Pie Co.sold land costing $90,000 to Strawberry Co.on June 28,20X9,for $110,000.
Required:
Give all consolidating entries needed to prepare a consolidation worksheet for 20X9 assuming that Pie Co.uses the fully adjusted equity method to account for its investment in Strawberry Company. Problem 55 (continued):
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9
Chapter 8: Intercompany Indebtedness
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Q1) A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the individual accounting records of the parent and its subsidiary: I.at the date of constructive retirement.
II.over the remaining term of the bonds.
A) I
B) II
C) Both I and II
D) Neither I nor II
Q2) Based on the information given above,in the preparation of the 20X8 consolidated financial statements,premium on bonds payable will be:
A) debited for $46,767 in the consolidating entries.
B) credited for $43,060 in the consolidating entries.
C) debited for $43,060 in the consolidating entries.
D) credited for $46,767 in the consolidating entries.
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Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?
A) $240,500
B) $200,000
C) $245,000
D) $211,500
Q2) Based on the information given above,what amount of gain or loss on bond retirement was recorded?
A) No gain or loss
B) $85,000 gain
C) $85,000 loss
D) $35,000 loss
Q3) Based on the information given above,what was the effect of DEF's purchase of XYZ's bond on the noncontrolling interest amount reported in XYZ's June 30,20X8,consolidated balance sheet?
A) No effect
B) $35,000 increase
C) $8,500 decrease
D) $8,500 increase
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Page 11
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the consolidating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares will include:
A) a credit to NCI in NA of Movie Corp. for $19,375.
B) a credit to Additional Paid-In Capital for $75,000.
C) a debit to Treasury Shares for $30,000.
D) a credit to Investment in Movie stock for $6,125.
Q2) Based on the preceding information,what will be the equity method income reported by Company A from its investment in Company B during 20X9?
A) $32,000
B) $30,000
C) $72,000
D) $48,000
Q3) Based on the preceding information,what was the balance in Perfect's Investment in Trevor Company Stock account on December 31,2009?
A) $164,500
B) $157,500
C) $165,000
D) $168,000
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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 20X9?
A) $40,000
B) $55,000
C) $90,000
D) $10,000
Q2) Based on the information provided,what is the amount of consolidated retained earnings as of December 31,20X4?
A) $500,000
B) $710,000
C) $725,000
D) $760,000
Q3) Based on the information provided,what amount of consolidated net income will be reported for the year 20X9?
A) $168,000
B) $280,000
C) $165,000
D) $250,000
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13
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) If 1 British pound can be exchanged for 180 cents of U.S.currency,what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?
A) 1/180
B) 1/.56
C) 1.8/1
D) 1/1.8
Q2) Mint Corporation has several transactions with foreign entities.Each transaction is denominated in the local currency unit of the country in which the foreign entity is located.On November 2,20X8,Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08.The account has not been settled as of December 31,20X8,when the exchange rate has increased to 1 LCU = $1.10.The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A) $460 loss
B) $387 loss
C) $387 gain
D) $460 gain
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Which of the following describes a situation when a parent company would not consolidate a foreign subsidiary?
A) Restrictions on foreign exchange in the foreign country.
B) Restrictions on transfers of property in the foreign country.
C) Other governmentally imposed uncertainties.
D) All of the above
Q2) Based on the preceding information,the receipt of the dividend will result in a credit to the investment account for:
A) $16,800
B) $17,680
C) $18,000
D) $17,600
Q3) When the local currency of the foreign subsidiary is the functional currency,a foreign subsidiary's inventory carried at cost would be converted to U.S.dollars by:
A) translation using historical exchange rates.
B) remeasurement using historical exchange rates.
C) remeasurement using the current exchange rate.
D) translation using the current exchange rate.
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Chapter 13: Segment and Interim Reporting
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Q1) On March 15,20X7,Barrel Company paid property taxes of $120,000 on its factory building for calendar year 20X7.On July 1,20X7,Barrel made $20,000 in unanticipated repairs to its machinery.The repairs will benefit operations for the remainder of the calendar year.What total amount of these expenses should be included in Barrel's quarterly income statement for the three months ended September 30,20X7?
A) $30,000
B) $35,000
C) $40,000
D) $50,000
Q2) The key to reporting accounting information by segments is determining what constitutes a segment.Of the following,which is not a method of determining a reportable segment?
A) Operating profit
B) Revenues
C) Number of employees
D) Combined identifiable assets
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16
Chapter 14: Sec Reporting
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Q1) Which of the following divisions of the SEC regulates national securities exchanges,brokers,and dealers of securities?
A) Division of Investment Management
B) Division of Corporation Finance
C) Division of Corporation Regulation
D) Division of Market Regulation
Q2) What does an underwriter typically require from an accountant which indicates that the company has fulfilled all the accounting requirements in the registration process?
A) A comment letter
B) An audit opinion
C) A "red herring" prospectus
D) A comfort letter
Q3) The purpose of a "tombstone ad" is:
A) to inform investors an upcoming offering has been canceled.
B) to inform investors of an upcoming offering.
C) to inform investors an upcoming offering will be delayed for 30 days.
D) to inform investors securities will be offered for sale after the company has responded to the SEC's comment letter.
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Chapter 15: Partnerships: Formation,operation,and
Changes
in Membership
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Q1) Transferable interest of a partner includes all of the following except:
A) the partner's share of the profits and losses of the partnership.
B) the right to receive distributions.
C) the right to receive any liquidating distribution.
D) the authority to transact any of the partnership's business operations.
Q2) The ABC partnership had net income of $100,000 for 20X9.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/20X9 books they discovered that $30,000 was spent on a piece of land in December 20X9 and was expensed.What should happen?
Q3) Refer to the above information.Which statement below is correct if a new partner's goodwill is recognized upon contributing assets into the partnership?
A) B = A and D > C + A
B) B < A and D < C + A
C) B > A and D = C + A
D) B > A and D > C + A
Q4) Apple and Betty are planning on beginning a new business.They plan on forming a partnership.Apple will contribute $300,000 and will not be working.Betty will be working full time.They plan on splitting profits equally.They approach you,as an accounting major,to confirm their thoughts.What do you recommend?
Page 18
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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 order to avoid inequalities in the liquidation process the legal doctrine of setoff effectively treats loans from partners to the partnership as:
A) outside debt that can offset a deficit capital account balance
B) inside debt that can offset a deficit capital account balance.
C) additional capital investments that can offset a deficit capital account balance.
D) additional capital investments that can offset a partnership loss.
Q3) A partnership may be involved in "Dissociation" or "Dissolution."
Required:
Describe "Dissociation" and "Dissolution."
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) The City of Ames uses the consumption method to report its inventory of supplies on its general fund balance sheet.What account is debited in the general fund when Ames acquires supplies?
A) Expenditures
B) Inventory of Supplies
C) Supplies Expense
D) Fund Balance-Nonspendable
Q2) Revenues from parking meters and parking fines should be reported in the general fund when:
A) received.
B) measurable and available.
C) measurable and earned.
D) available.
Q3) In a town's general fund operating budget for the year,the amount of its estimated revenues exceeded the amount of its appropriations.This excess should be:
A) credited to Budgetary Fund Balance-Unassigned.
B) debited to Budgetary Fund Balance-Unassigned.
C) credited to Fund Balance-Unassigned.
D) debited to Fund Balance-Unassigned.
Page 20
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide
Financial Statements
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Q1) In government-wide statement of activities,special items are transactions or other events that are:
A) unusual in nature or infrequent in occurrence and within management's control.
B) unusual in nature or infrequent in occurrence and not within management's control.
C) unusual in nature and infrequent in occurrence and within management's control.
D) unusual in nature and infrequent in occurrence.
Q2) A citizen of Minersville purchased a truck in 20X1 for $120,000.On September 18,20X6,she donated the truck to Minersville.The fair value of the truck on the date of donation was $70,000.How should Minersville report the truck in its government-wide Statement of Net Assets?
A) No asset should be reported because no expenditures were made to acquire the truck.
B) Machinery and equipment should be increased $50,000.
C) Machinery and equipment should be increased $70,000.
D) Machinery and equipment should be decreased $120,000.
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Page 21
Chapter 19: Not-For-Profit Entities
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Q1) Received pledges from donors who placed no time or use restrictions on how the pledges were to be spent.
A)Increases unestricted net assets.
B)Decreases unrestricted net assets.
C)Increases temporarily restricted net assets.
D)Decreases temporarily restricted net assets.
E)Increases permanently restricted net assets.
F)Decreases permanently restricted net assets.
G)Transaction is not reported on the statement of activities.
Q2) "Financial statement of a private NFP entity" describes which term listed above?
Q3) Bridger Hospital,which is operated by a religious organization,provides charity care for the indigent living in the region served by the hospital.How should Bridger report the amount of its charity care on its financial statements?
A) In the notes to the financial statements only.
B) As unrestricted revenues on the statement of operations.
C) As net patient service revenue and as an expense, equal to the net patient service revenue, on the statement of operations.
D) As temporarily restricted revenue on the statement of operations.
Q4) The governing board designated assets for plant expansion.
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Chapter 20: Corporations in Financial Difficulty
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Q1) A trustee has been appointed for Smith Company,which is being liquidated under Chapter 7 of the Bankruptcy Code.The following transactions occurred after the assets were transferred to the trustee:
1.Credit sales by the trustee were $100,000.Cost of goods sold were $72,000,consisting of all the inventory transferred from Smith.
2.The trustee sold all $20,000 worth of marketable securities for $15,000.
3.Receivables collected by the trustee:
Old: $28,000 of the $50,000 transferred New: $65,000
4.Disbursements by the trustee: Old current payables: $31,000 of the $65,000 transferred Trustee's expenses: $6,000
5.Recorded $24,000 depreciation on the plant assets of $120,000 transferred from Smith. Required:
Prepare a statement of realization and liquidation according to the traditional approach illustrated in the chapter. Problem 45 (continued):
Q2) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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Page 23