Advanced Financial Accounting
Test Questions
Course Introduction
Advanced Financial Accounting delves into the complex financial reporting issues faced by modern businesses, focusing on areas such as consolidations, partnerships, foreign currency transactions, and accounting for governmental and nonprofit entities. The course emphasizes the application of International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), equipping students with the analytical skills to interpret and prepare consolidated financial statements. Through case studies and real-world examples, students develop a deep understanding of advanced accounting practices necessary for environments with diverse financial relationships and cross-border operations.
Recommended Textbook Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle
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12 Chapters
1192 Verified Questions
1192 Flashcards
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) An investee company incurs an extraordinary loss during the period. The investor appropriately applies the equity method. Which of the following statements is true?
A) Under the equity method, the investor only recognizes its share of investee's income from continuing operations.
B) The extraordinary loss would reduce the value of the investment.
C) The extraordinary loss should increase equity in investee income.
D) The extraordinary loss would not appear on the income statement but would be a component of comprehensive income.
E) The loss would be ignored but shown in the investor's notes to the financial statements.
Answer: B
Q2) How would a change be made from the fair value method to the equity method of accounting for investments?
Answer: According to GAAP, the investment account and retained earnings of the investor should be adjusted to retrospectively restate results of operations of prior periods.
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3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) How would you account for in-process research and development acquired in a business combination accounted for as an acquisition?
Answer: In-Process Research and Development is capitalized as an asset of the combination and reported as intangible assets with indefinite lives subject to impairment reviews.
Q2) Peterman Co. owns 55% of Samson Co. Under what circumstances would Peterman not be required to prepare consolidated financial statements?
Answer: Peterman would not be required to prepare consolidated financial statements if control of Samson is temporary or if, despite majority ownership, Peterman does not have control over Samson. A lack of control might exist if Samson is in a country that imposes restrictions on Peterman's actions.
Q3) Acquired in-process research and development is considered as
A) a definite-lived asset subject to amortization.
B) a definite-lived asset subject to testing for impairment.
C) an indefinite-lived asset subject to amortization.
D) an indefinite-lived asset subject to testing for impairment.
E) a research and development expense at the date of acquisition.
Answer: D
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Chapter 3: Consolidationssubsequent to the Date of Acquisition
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Sample Questions
Q1) Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2011, Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.
If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2011?
A) $1,080,000.
B) $1,104,000.
C) $1,100,000.
D) $1,468,000.
E) $1,475,000.
Answer: B
Q2) What accounting method requires a subsidiary to record acquisition fair value allocations and the amortization of allocations in its internal accounting records?
Answer: The appropriate method is termed push-down accounting.
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) Alonzo Co. acquired 60% of Beazley Corp. by paying $240,000 cash. There is no active trading market for Beazley Corp. At the time of the acquisition, the book value of Beazley's net assets was $300,000.
Required:
What amount should have been assigned to the non-controlling interest immediately after the combination?
Q2) Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000.
What is the effect of including Kailey in consolidated net income for 2010? A) $31,000. B) $33,000. C) $55,000. D) $60,000. E) $39,000.
Q3) Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under what conditions will Beta be required to prepare consolidated financial statements?
Page 6
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Chapter 5: Consolidated Financial Statementsintra-Entity
Asset Transactions
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Sample Questions
Q1) Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010.
In the consolidation worksheet for 2010, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.
Q2) King Corp. owns 85% of James Co. King uses the equity method to account for this investment. During 2011, King sells inventory to James for $500,000. The inventory originally cost King $420,000. At 12/31/11, 25% of the goods were still in James' inventory.
Required:
Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet.
Q3) How does a gain on an intra-entity sale of equipment affect the calculation of a non-controlling interest?
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Sample Questions
Q1) Keenan Company has had bonds payable of $20,000 outstanding for several years. On January 1, 2011, there was an unamortized premium of $2,000 with a remaining life of 10 years, Keenan's parent, Ross, Inc., purchased the bonds in the open market for $19,000. Keenan is a 90% owned subsidiary of Ross. The bonds pay 8% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2011.
A) $3,000 gain.
B) $3,000 loss.
C) $1,000 gain.
D) $1,000 loss.
E) $2,000 gain.
Q2) A variable interest entity can take all of the following forms except a(n)
A) Trust.
B) Partnership.
C) Joint venture.
D) Corporation.
E) Estate.
Q3) What documents or other sources of information would be used to prepare a consolidated statement of cash flows?
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) Winston Corp., a U.S. company, had the following foreign currency transactions during 2011:
(1)) Purchased merchandise from a foreign supplier on July 16, 2011 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2011 at the U.S. dollar equivalent of $54,000.
(2)) On October 15, 2011 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2011. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2011, and $299,000 on October 15, 2012.
What amount should be included as a foreign exchange gain or loss from the two transactions for 2012?
A) $1,000 loss.
B) $1,000 gain.
C) $2,000 loss.
D) $4,000 gain.
E) $4,000 loss.
Q2) What happens when a U.S. company sells goods denominated in a foreign currency and the foreign currency depreciates?
Q3) What factors create a foreign exchange gain?
Page 9
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Chapter 8: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) Which accounts are remeasured using current exchange rates?
A) all revenues and expenses.
B) all assets and liabilities.
C) cash, receivables, and most liabilities.
D) all current assets and liabilities.
E) all noncurrent assets and liabilities.
Q2) Under the temporal method, inventory at market would be remeasured at what rate?
A) Beginning of the year rate.
B) Average rate.
C) Current rate.
D) Historical rate.
E) Composite amount.
Q3) Which accounts are translated using current exchange rates?
A) all revenues and expenses.
B) all assets and liabilities.
C) cash, receivables, and most liabilities.
D) all current assets and liabilities.
E) all noncurrent assets and liabilities.
10
Q4) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission of Quincy to the partnership?
A) the bonus method.
B) the equity method.
C) the goodwill method.
D) the proportionate method.
E) the cost method.
Q2) The disadvantages of the partnership form of business organization, compared to corporations, include
A) the legal requirements for formation.
B) unlimited liability for the partners.
C) the requirement for the partnership to pay income taxes.
D) the extent of governmental regulation.
E) the complexity of operations.
Q3) How is accounting for a partnership different from accounting for a corporation?
Q4) For what events or conditions should the Articles of Partnership make provision?
Q5) By what methods can a person gain admittance to a partnership?
Page 11
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Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) Which of the following statements is false concerning the partnership Schedule of Liquidation?
A) Liquidations may take a considerable length of time to complete.
B) Frequent reporting by the accountant is rarely necessary.
C) The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances.
D) The Schedule of Liquidation provides a listing of property still held by the partnership as well as liabilities remaining unpaid.
E) The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution.
Q2) The Arnold, Bates, Carlton, and Delbert partnership was liquidating. It had paid all its liabilities and had some assets yet to be sold. The partners had capital account balances of ($50,000), $90,000, $110,000, and $130,000. There was $40,000 cash available for distribution to the partners. What procedures would be followed to determine the amount of cash that could safely be distributed to each partner?
Q3) What is the purpose of a predistribution plan?
Q4) What is a safe cash payment?
Q5) What is the role of the accountant during the liquidation process?
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Chapter 11: Accounting for State and Local Governments
Part 1
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Sample Questions
Q1) In governmental accounting, what term is used for a decrease in financial resources?
Q2) A $5,000,000 bond is issued by Northern City to build a new hospital.
Required:
Prepare the journal entry and identify the fund in which it is recorded to reflect the bond issue.
Q3) Under modified accrual accounting, revenues should be recognized when they are
A) collected.
B) realizable.
C) reasonably estimable.
D) measurable and available.
E) earned.
Q4) What is the primary difference between monies accounted for in the general fund and monies accounted for in the special revenue fund?
Q5) On January 1, 2011, Wakefield City purchased $40,000 office supplies. During the year $35,000 of these supplies were used.
Required:
Record the journal entries for these transactions using the consumption method. (Disregard the encumbrance entries.)
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Chapter 12: Accounting for State and Local Governments
Part 2
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Sample Questions
Q1) A city starts a solid waste landfill during 2010. When the landfill was opened the city estimated that it would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which will not be paid until the facility is closed. At the end of 2010, the facility was 20% full, and at the end of 2011 the facility was 45% full. If the landfill is judged to be a governmental fund, what liability is reported on the fund financial statements at the end of 2011?
A) $0.
B) $300,000.
C) $375,000.
D) $600,000.
E) $675,000.
Q2) For fund financial statements, what account is credited when a piece of equipment is leased on a capital lease?
A) Equipment - Capital Lease.
B) Encumbrances - Long Term.
C) Encumbrances - Lease Obligations.
D) Capital Lease Obligation.
E) Other Financing Sources - Capital Lease.
Q3) What is meant by the term fiscally independent?
Page 14
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