Advanced Financial Reporting
Test Preparation
Course Introduction
Advanced Financial Reporting delves into the complex standards and practices involved in the preparation and interpretation of corporate financial statements beyond the introductory level. The course covers topics such as consolidation of group accounts, foreign currency transactions, segment reporting, fair value measurement, financial instruments, and the impact of emerging financial reporting issues in a global context. Emphasis is placed on the application of International Financial Reporting Standards (IFRS) and relevant national standards, critical analysis of financial statements, and the ethical dimensions of financial reporting. Through case studies and problem-based learning, students develop the skills necessary for handling advanced reporting issues faced by accountants and financial professionals in contemporary business environments.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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23 Chapters
894 Verified Questions
894 Flashcards
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Page 2
Chapter 1: Business Combinations
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36 Verified Questions
36 Flashcards
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Sample Questions
Q1) In reference to the FASB disclosure requirements about a business combination in the period in which the combination occurs, which of the following is correct?
A) Firms are not required to disclose the name of the acquired company.
B) Firms are not required to disclose the business purpose for a combination.
C) Firms are required to disclose the nature, terms and fair value of consideration transferred in a business combination.
D) All of the above are correct.
Answer: C
Q2) Following the accounting concept of a business combination, a business combination occurs when a company acquires an equity interest in another entity and has
A) at least 20% ownership in the entity.
B) more than 50% ownership in the entity.
C) 100% ownership in the entity.
D) control over the entity, irrespective of the percentage owned.
Answer: D
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3
Chapter 2: Stock Investments - Investor Accounting and Reporting
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Sample Questions
Q1) Shoreline Corporation had $3,000,000 of $10 par value common stock outstanding on January 1, 2012, and retained earnings of $1,000,000 on the same date. During 2012, 2013, and 2014, Shoreline earned net incomes of $400,000, $700,000, and $300,000, respectively, and paid dividends of $300,000, $550,000, and $100,000, respectively. On January 1, 2012, Pebble purchased 21% of Shoreline's outstanding common stock for $1,240,000. On January 1, 2013, Pebble purchased 9% of Shoreline's outstanding stock for $510,000, and on January 1, 2014, Pebble purchased another 5% of Shoreline's outstanding stock for $320,000. All payments made by Pebble that are in excess of the appropriate book values were attributed to equipment, with each block depreciable over 20 years under the straight-line method.
Required:
1. What is the adjustment to Investment Income for depreciation expense for Pebble's investment in Shoreline in 2012, 2013, and 2014?
2. What will be the December 31, 2014 balance in the Investment in Shoreline account after all adjustments have been made?
Answer: 11ea8548_c360_c52a_a343_a927f91fcbcd_TB2661_00 Requirement 1: 11ea8548_c361_3a5b_a343_7bef8935ef96_TB2661_00
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4
Chapter 3: An Introduction to Consolidated Financial Statements
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Sample Questions
Q1) In the consolidated income statement of Wattlebird Corporation and its 85% owned Forest subsidiary, the noncontrolling interest share was reported at $45,000. Assume the book value and fair value of Forest's net assets were equal at the acquisition date. What amount of net income did Forest have for the year?
A) $52,941
B) $38,250
C) $235,000
D) $300,000
Answer: D
Q2) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock. On the consolidated financial statements of Panini Corporation and Strathmore, Malone is
A) an affiliate.
B) a noncontrolling interest.
C) an equity investee.
D) a related party.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Sample Questions
Q1) Which of the following will be debited to the Investment account when the equity method is used?
A) Investee net losses
B) Investee net profits
C) Investee declaration of dividends
D) Depreciation of excess purchase cost attributable to investee equipment
Q2) Which of the following statements is not true with respect to the statement of cash flows for a consolidated entity?
A) The statement may be prepared using either the direct or the indirect method.
B) Noncontrolling interest share will be added back to cash flows from operating activities under the indirect method.
C) Payment of dividends from the subsidiary to the parent will appear on the statement of cash flows as a financing activity.
D) If the subsidiary does not use the same method (direct or indirect) as the parent, it must convert their separate statement of cash flows first to the same method that the parent uses, and then the two statements are consolidated.
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Chapter 5: Intercompany Profit Transactions Inventories
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Sample Questions
Q1) The 2014 consolidated income statement showed cost of goods sold of
A) $500,000.
B) $516,000.
C) $532,000.
D) $660,000.
Q2) If the sale referred to above was a downstream sale, by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2014?
A) $3,000
B) $10,000
C) $14,000
D) $20,000
Q3) What is Pew's income from Sordid for 2014?
A) $32,000
B) $48,000
C) $60,000
D) $75,000
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Chapter 6: Intercompany Profit Transactions Plant Assets
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39 Verified Questions
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Sample Questions
Q1) Controlling interest share in consolidated net income for 2014 was
A) $121,000.
B) $125,000.
C) $131,000.
D) $143,000.
Q2) Pied Imperial Corporation acquired a 90% interest in Somest Corporation in 2012 when Somest's book values were equivalent to fair values. Somest sold equipment with a book value of $80,000 to Pied for $130,000 on January 1, 2014. Pied is fully depreciating the equipment over a 4-year period by using the straight-line method. Somest reported net income for 2014 was $320,000. Pied's 2014 income from Somest was A) $249,250.
B) $250,500.
C) $254,250.
D) $288,000.
Q3) The noncontrolling interest share for 2014 was A) $18,000.
B) $22,000.
C) $23,000.
D) $27,000.
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Page 8
Chapter 7: Intercompany Profit Transactions Bonds
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Sample Questions
Q1) Peter Corporation owns a 70% interest in Sundown Corporation acquired several years ago at a price equal to book value and fair value. On December 31, 2013, Sundown had $300,000 par of 6% bonds outstanding with an unamortized premium of $30,000. The bonds mature in five years and pay interest on January 1 and July 1. On January 2, 2014, Peter acquired one-third of Sundown's bonds for $117,000. Peter and Sundown use straight-line amortization. Sundown reports net income of $250,000 for 2014. Peter uses the equity method to account for the investment.
Required:
1. Calculate Peter's income from Sundown for 2014.
2. Calculate the noncontrolling interest share for 2014.
Q2) Using the original information, the balances for the Bonds Payable and Bond Interest Payable accounts, respectively, on the consolidated balance sheet for December 31, 2015 were
A) $3,000,000 and $ 90,000.
B) $3,000,000 and $180,000.
C) $6,000,000 and $ 90,000.
D) $6,000,000 and $180,000.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Sample Questions
Q1) A subsidiary split its stock 2 for 1. Which of the following statements is false?
A) A stock split does not affect the amount of net assets of the subsidiary.
B) A stock split does not affect parent and noncontrolling interest ownership percentages.
C) A stock split does not affect consolidation procedures.
D) A 2 for 1 stock split decreases the number of shares outstanding.
Q2) On January 1, 2014, assume the fair values of Savannah's identifiable assets and liabilities equal book values. What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places.)
A) Increase goodwill $38,176.
B) Decrease goodwill $38,176.
C) Increase goodwill $384,000.
D) Decrease goodwill $384,000.
Q3) A 15% stock dividend by a subsidiary causes
A) the parent company investment account to decrease.
B) the parent company investment account to remain the same.
C) the parent company investment account to increase.
D) the noncontrolling interest equity to increase.
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Chapter 9: Indirect and Mutual Holdings
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Sample Questions
Q1) Page Corporation acquired a 60% interest in Ace Corporation at a price $40,000 in excess of book value and fair value on January 1, 2013. On the same date, Ace acquired a 70% interest in Bader Corporation at a price $30,000 in excess of book value and fair value. The excess purchase cost paid by Page and Ace was attributed to goodwill. Separate net incomes (excluding investment income) for the three affiliates for 2013 are as follows: Page, $500,000, Ace, $300,000, and Bader, $400,000. Page's controlling interest share of consolidated net income for 2013 is
A) $808,000.
B) $848,000.
C) $920,000.
D) $960,000.
Q2) The amount of noncontrolling interest share for the current year is
A) $69,000.
B) $85,000.
C) $95,000.
D) $99,000.
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Chapter 10: Subsidiary Preferred Stock,
Share,
36 Flashcards
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Sample Questions
Q1) Salter has a 2014 net loss of $200,000. No dividends are declared or paid in 2014. What is the change in Pardy's Investment in Salter for the year ending December 31, 2014?
A) $ 50,000
B) $ 70,000
C) $140,000
D) $210,000
Q2) If a parent company has controlling interest in a subsidiary which has no potentially dilutive securities outstanding, then in the calculation of consolidated diluted EPS, it will be necessary to
A) only make an adjustment of subsidiary's basic earnings.
B) replace the parent's equity in subsidiary earnings with the parent's equity in subsidiary's diluted EPS.
C) make a replacement calculation in the parent's basic earnings for the EPS.
D) only use the parent's common shares and shares represented by the parent's potentially dilutive securities.
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12
Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Sample Questions
Q1) The SEC requires push-down accounting for SEC filings of subsidiaries when the subsidiary has no substantial publicly-held debt or preferred stock outstanding and
A) the parent has substantial ownership (5% or greater).
B) the parent has substantial ownership (20% or greater).
C) the parent has substantial ownership (50% or greater).
D) the parent has substantial ownership (90% or greater).
Q2) Under parent company theory, noncontrolling interest is classified on the consolidated balance sheet as ________. Under entity theory, noncontrolling interest is classified on the consolidated balance sheet as ________.
A) stockholders' equity; stockholders' equity
B) stockholders' equity; liability
C) liability; a liability
D) liability; stockholders' equity
Q3) Noncontrolling interest share was reported in the 2014 consolidated income statement at
A) $5,000.
B) $6,000.
C) $8,000.
D) $10,000.
Page 13
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Sample Questions
Q1) 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
Q2) If the sale of merchandise is denominated in dollars, the November 30 entry to record receipt of the payment from Watchem included a
A) credit to Accounts Receivable for $104,040.
B) credit to Exchange Gain for $3,060.
C) debit to Cash for $107,100.
D) debit to Exchange Loss for $3,060.
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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Sample Questions
Q1) 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.
Q2) What is the fair value of the forward contract at March 1?
A) $-0-
B) $1,654.97 asset
C) $1,654.97 liability
D) $1,680 asset
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Chapter 14: Foreign Currency Financial Statements
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Sample Questions
Q1) Selvey Inc. is a wholly-owned subsidiary of Parsfield Incorporated, a U.S. firm. The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions. Therefore, for purposes of preparing consolidated financial statements, the functional currency is
A) its reporting currency.
B) its current rate method currency.
C) the US dollar.
D) its local currency.
Q2) 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
Q3) Which of the following assets and/or liabilities are considered monetary?
A) Intangible Assets and Plant, Property, and Equipment
B) Bonds Payable and Common Stock
C) Cash and Accounts Payable
D) Notes Receivable and Inventories carried at cost
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Chapter 15: Segment and Interim Financial Reporting
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Sample Questions
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 disclosures for each reportable operating segment for each of the following, except for
A) Revenues.
B) Depreciation expense.
C) R&D expenditures.
D) Extraordinary items.
Q3) What is the purpose of interim reporting?
A) Provide shareholders with more timely information
B) Provide shareholders with more accurate information
C) Provide shareholders with more extensive detail about specific accounts and transactions
D) Provide shareholders with more current audited information
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Page 17
Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Sample Questions
Q1) Drawings
A) are advances to a partnership.
B) are loans to a partnership.
C) are a function of interest on partnership average capital.
D) are the same nature as withdrawals.
Q2) Austin contributes his computer equipment to the landscaping partnership he starts with Bentley. At what amount should the computer equipment be credited to Austin's partnership capital?
A) The tax basis
B) The fair value at the date of contribution
C) Austin's original cost
D) At the amount that Bentley contributes, with the assumption that they both contribute equally to the partnership
Q3) If the average capital balances for Bertram and Ernest are $200,000 and $240,000, what will the total partnership profit allocations be for Bertram and Ernest in 2014?
A) $100,000 and $140,000
B) $108,000 and $132,000
C) $120,000 and $120,000
D) $140,000 and $100,000
Page 18
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Chapter 17: Partnership Liquidation
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Sample Questions
Q1) Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation, if the partner with a negative capital balance is personally insolvent?
A) The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.
B) The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.
C) The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.
D) The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to the same level of the other partners' capital accounts.
Q2) A cash distribution plan for the Sammi, Tammy, and Udd partnership was as follows:
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Chapter 18: Corporate Liquidations and Reorganizations
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Sample Questions
Q1) 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.
Q2) Gonne Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.35 on the dollar. Odemay Corporation holds a $100,000 mortgage note receivable from Gonne that is secured by equipment with a $120,000 book value and a $75,000 fair value.
Q3) A primary difference between voluntary and involuntary bankruptcy petitions is that
A) creditors file the petition in an involuntary filing.
B) trustees are not used in an voluntary filing.
C) voluntary petitions are not subject to review by the bankruptcy court.
D) the debtor corporation files the petition in an involuntary filing.
Q4) Trustin Corporation is in a Chapter 7 bankruptcy liquidation. For each of the following transactions, show the journal entry that would be required by the trustee of the estate.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Sample Questions
Q1) Governmental accounting differs from corporate financial accounting primarily because
A) the size of the government and the various levels would make it unreasonable to use corporate GAAP.
B) governments lack a profit motive and must focus on accountability to the public they serve.
C) the government has no stakeholders who require financial reporting.
D) the government has too many types of organizations to use one type of corporate GAAP.
Q2) Because a fund is an accounting entity, each fund has I. its own accounting equation.
II) its own journals, ledgers, and other accounting records.
III) its own separate auditor.
A) I only
B) II only
C) I and II
D) I, II and III
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Sample Questions
Q1) 1. Urban City issued $6 million of general obligation bonds at par to finance the construction of a city building. The bonds are 6%, 10-year bonds, and interest is paid on June 30 and December 31.
2. The city transferred $3,600,000 from its General Fund to its Debt Service Fund to provide a portion of the resources needed to service the bonds.
3. The city paid the first interest payment to the bondholders. Required:
Prepare journal entries for each of the above transactions. Identify the appropriate fund or funds used by the city of Urban.
Q2) At any point in time, a government will be able to spend an amount equal to A) appropriations minus expenditures.
B) appropriations minus expenditures minus encumbrances.
C) appropriations minus encumbrances.
D) expenditures minus encumbrances.
Q3) What statements are required for Government-wide financial statements?
A) Statement of Cash Flows and Balance Sheet
B) Statement of Cash Flows and Statement of Net Assets
C) Statement of Net Position and Statement of Activities
D) Operating Statement and Balance Sheet
Page 22
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Platinum City collects state sales taxes quarterly from local businesses and then gives the state revenue department the money at the end of the year. The sales taxes would go in Platinum City's
A) special revenue fund.
B) general fund.
C) agency fund.
D) enterprise fund.
Q2) Prepare journal entries to record the following grant-related transactions of an Enterprise Fund.
1. Received an operating grant in cash from the state, $2,500,000.
2. Incurred and paid qualifying operating expenses on the state grant program, $1,600,000.
3. Received a federal grant to finance construction of a plant, $4,500,000 (cash received in advance).
4. Incurred and paid construction costs on the plant, $3,000,000. The plant is not completed.
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23
Chapter 22: Accounting for Not-For-Profit Organizations
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Sample Questions
Q1) A nongovernmental, not-for-profit entity is subject to: I. GASB
II) FASB
A) I only
B) II only
C) a combination of I and II depending on the entity's purpose
D) neither I or II
Q2) General Hospital is a private, not-for-profit hospital. The following information is available about the operations.
1. Gross patient services charges totaled $3,700,000.
2. Included in the above revenues are: charity services, $360,000; contractual adjustments, $1,200,000; courtesy allowances, $20,000; and estimated uncollectible amounts, $250,000.
3. Premium fees receipts were $110,000.
4. Purchased $75,000 of hospital supplies on account, with payments on that account, $36,000.
5. Received cash donations for a new hospital wing of $2,500,000.
6. Paid contractor $275,000 for billed costs toward the new hospital wing.
Required:
Prepare journal entries for the aforementioned transactions.
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Page 24
Chapter 23: Estates and Trusts
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Q1) 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.
Q2) If estate assets are insufficient to pay all claims in full, under the Uniform Probate Code which of the following would be paid first?
A) Reasonable funeral expenses
B) Necessary medical and hospital expenses of the last illness of the decedent
C) Unsecured debts
D) The costs and expenses of administration of the estate
Q3) In reference to accounting for trusts or estates, which of the following statements is correct?
A) Estates are subject to taxation, but trusts are not.
B) Estates are subject to probate laws that vary widely across the fifty states.
C) Estates are subject to income taxes at the federal level, but not at the state level.
D) Estates and trusts are taxed regardless of size.
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