Consolidated Financial Statements
Exam Solutions
Course Introduction
This course explores the principles and practices involved in preparing and presenting consolidated financial statements in accordance with applicable accounting standards. Students will examine the process of combining the financial statements of a parent company and its subsidiaries to reflect their financial position and operating results as a single economic entity. Key topics include identifying subsidiaries and associates, acquisition method accounting, elimination of intercompany transactions and balances, treatment of non-controlling interests, and special issues such as foreign operations and changes in ownership interests. The course emphasizes analytical and problem-solving skills through practical exercises and real-world case studies, preparing students to interpret and produce consolidated financial reports for use by management, investors, and regulators.
Recommended Textbook
Advanced Financial Accounting 9th Edition by Richard Baker
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20 Chapters
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in
Other Entities
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Q1) The length of the measurement period allowed to value the assets and liabilities in an acquired business combination starts on the date of acquisition and lasts until:
A)All necessary information about the facts of the acquisition is obtained
B)All necessary information about the facts of the acquisition is obtained,not to exceed one month
C)All necessary information about the facts of the acquisition is obtained,not to exceed one reporting period
D)All necessary information about the facts of the acquisition is obtained,not to exceed one year
Answer: D
Q2) Based on the preceding information,under the acquisition method,what amount relating to the business combination would be expensed?
A)$72,000
B)$19,000
C)$53,000
D)$63,000
Answer: C
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Sample Questions
Q1) The consolidation process consists of all the following except:
A)Adding together the financial statements of two or more legally separate companies.
B)Eliminating intercompany transactions and holdings.
C)Closing the subsidiary's earnings into the parent's retained earnings.
D)Combining the accounts of separate companies,creating a single set of financial statements.
Answer: C
Q2) Based on the preceding information,what amount will be reported by Yang as income from its investment in Spiel for 20X7,if it used the fair value method of accounting?
A)$17,500
B)$12,500
C)$11,250
D)$7,500
Answer: A
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4
Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) On January 1,20X9,Gold Rush Company acquires 80 percent ownership in California Corporation for $200,000.The fair value of the noncontrolling interest at that time is determined to be $50,000.It reports net assets with a book value of $200,000 and fair value of $230,000.Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time,excluding its investment in California.What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice?
A)$50,000
B)$30,000
C)$40,000
D)$20,000
Answer: D
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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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Based on the information given above,what will be the amount of net assets reported in the consolidated balance sheet,prepared immediately following the combination?
A)$1,150,000
B)$1,550,000
C)$1,700,000
D)$1,830,000
Q2) Based on the preceding information,what amount of goodwill will be reported if the acquisition price was $240,000?
A)$0
B)$40,000
C)$15,000
D)$35,000
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)$615,000
B)$406,000
C)$300,000
D)$265,000
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Chapter 5: Consolidation of
Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Sample Questions
Q1) Based on the information given,what balance in accounts receivable did Y Company report at December 31,20X8?
A)$28,000
B)$48,000
C)$40,000
D)$38,000
Q2) Based on the preceding information,the amount of goodwill reported is:
A)$0.
B)$10,000.
C)$15,000.
D)$20,000.
Q3) Rohan Corporation holds assets with a fair value of $150,000 and a book value of $125,000 and liabilities with a book value and fair value of $50,000.What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Helms Company pays $90,000 to acquire 75 percent ownership in Rohan and goodwill of $20,000 is reported?
A)$50,000
B)$30,000
C)$40,000
D)$20,000
Page 7
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Chapter 6: Intercompany Inventory Transactions
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Sample Questions
Q1) Based on the information given above,what amount of cost of goods sold did ABC record in 20X8?
A)$2,765,000
B)$1,620,000
C)$1,422,000
D)$2,963,000
Q2) Based on the information given above,what will be the income assigned to controlling interest for 20X7?
A)$448,375
B)$495,000
C)$486,250
D)$615,375
Q3) Based on the information given above,what amount of cost of goods sold did XYZ record in 20X8?
A)$2,765,000
B)$1,620,000
C)$1,422,000
D)$2,963,000
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Sample Questions
Q1) Peter Architectural Services owns 100 percent of Smith Manufacturing.During the course of 20X8 Peter provides $100,000 of architectural services associated with Smith's new manufacturing facility,which will open January 4,20X9,and has a 5 year useful life.Explain the impact providing this service has on Peter Architectural Services' 20X8 and 20X9 consolidated financial statements.
Q2) A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years.The amount of income assigned to the noncontrolling interest for the second year should include the noncontrolling interest's share of gains:
A)unrealized in the second year from upstream sales made in the second year.
B)realized in the second year from downstream sales made in both years.
C)realized in the second year from upstream sales made in both years.
D)both realized and unrealized from upstream sales made in the second year.
Q3) Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:
A)Debited for $40,000 in the eliminating entries.
B)Credited for $10,000 in the eliminating entries.
C)Debited for $10,000 in the eliminating entries.
D)Credited for $40,000 in the eliminating entries.
Page 9
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Chapter 8: Intercompany Indebtedness
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Sample Questions
Q1) Based on the information given above,what amount of consolidated net income should be reported for 20X8?
A)$163,750
B)$161,250
C)$146,250
D)$148,750
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 $45,000 in the eliminating entries.
B)credited for $40,500 in the eliminating entries.
C)debited for $40,500 in the eliminating entries.
D)credited for $45,000 in the eliminating entries.
Q3) 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
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Chapter 9: Consolidation Ownership Issues
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Sample Questions
Q1) Based on the preceding information,what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement?
A)$10,000
B)$7,000
C)$11,800
D)$4,800
Q2) Based on the information provided,what amount will be reported as consolidated net income for 20X9 under the treasury stock method?
A)$150,000
B)$100,000
C)$75,000
D)$175,000
Q3) Based on the information provided,what amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement?
A)$130,750
B)$150,000
C)$141,250
D)$157,000
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what would Gulfstream report as income tax expense for the year?
A)$17,500
B)$18,760
C)$23,800
D)$22,540
Q2) Based on the information provided,income to the controlling interest for 20X9 is:
A)$155,370.
B)$56,000.
C)$168,000.
D)$250,000.
Q3) Assume that New Life uses the direct method of computing cash flows from operating activities.Based on the preceding information,what amount will be reported by the company as cash payments to suppliers for 20X9?
A)$350,000
B)$348,000
C)$312,000
D)$352,000
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12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Sample Questions
Q1) Company X issues variable-rate debt but wishes to fix its interest rates because it believes the variable rate may increase.Company Y has a fixed-rate bond but is looking for a variable-rate interest because it assumes the interest rates may decrease.The two companies agree to exchange cash flows.Such an arrangement is called:
A.a futures contract.
B.a forward contract.
C.a swap.
D.an option.
Q2) Company X denominated a December 1,20X9,purchase of goods in a currency other than its functional currency.The transaction resulted in a payable fixed in terms of the amount of foreign currency,and was paid on the settlement date,January 10,2010.Exchange rates moved unfavorably at December 31,20X9,resulting in a loss that should:
A.be included as a separate component of stockholders' equity at Dec.31,20X9.
B.be included as a component of income from continuing operations for 20X9.
C.be included as a deferred charge at December 31,20X9.
D.not be reported until January 10,2010,the settlement date.
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Page 13
Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Refer to the above information.Assuming the local currency of the country in which Perth Company is located is the functional currency,what are the translated amounts for the items below in U.S.dollars?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) If the U.S.dollar is the currency in which the foreign affiliate's books and records are maintained,and the U.S.dollar is also the functional currency,
A)the translation method should be used for restatement.
B)the remeasurement method should be used for restatement.
C)either translation or remeasurement could be used for restatement.
D)no restatement is required.
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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14
Chapter 13: Segment and Interim Reporting
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Sample Questions
Q1) Frahm Company incurred a first quarter operating loss before income tax effect of $4,000,000.This is a normal occurrence for Frahm because of seasonal fluctuations.Experience has demonstrated the income earned during the remaining quarters far exceeds the first quarter losses each year.Frahm estimates its annual income tax rate will be 30 percent.What net loss should Frahm report for the first quarter?
A)$4,000,000
B)$2,800,000
C)$700,000
D)$0
Q2) Denver Company,a calendar-year corporation,had the following actual income before income tax expense and estimated effective annual income tax rates for the first three quarters in 20X8: Denver's income tax expense in its interim income statement for the third quarter should be:
A)$126,000.
B)$68,400.
C)$62,400.
D)$54,000.
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Page 15
Chapter 14: Sec Reporting
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Sample Questions
Q1) Identify the regulation that created an entity which insures investors from possible losses if an investment house enters bankruptcy.
A)Federal Deposit Insurance Protection Act
B)Securities Investor Protection Act
C)Investment Advisers Act
D)Federal Bankruptcy Acts
Q2) According to the provisions of the Sarbanes-Oxley Act,
A)accounting firms can provide both audit and non-audit services to the same company.
B)the auditor should report directly to,and have its work overseen by,the company's management.
C)audit committees should be composed of non-management members of a company's board of directors.
D)both the lead audit partner and the audit review partner for publicly held companies should be rotated at least every two years.
Q3) Accounting and Auditing Enforcement Releases
Q4) Customary Review
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Chapter 15: Partnerships: Formation, operation, and
Changes in Membership
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Q1) Refer to the information provided above.David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000.The land account is increased before David is admitted.What are the capital balances of Allen and Daniel after David is admitted into the partnership?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Which of the following observations is true of an S corporation?
A)It elects to be taxed in the same manner as a corporation.
B)It does not have the burden of double taxation of corporate income.
C)Its shareholders have personal liability for the corporation's obligations.
D)Its primary income source should be passive investments.
Q3) Based on the preceding information,what amount of goodwill will be recorded if Daniel invests $450,000 for a one-third interest?
A)$0
B)$10,000
C)$50,000
D)$100,000
Page 17
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Chapter 16: Partnerships: Liquidation
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Q1) The personal financial statements of a partner include which of the following?
I.Statement of financial condition.
II.Statement of changes in net worth.
III.Statement of cash flows.
A)I and II
B)I and III
C)II and III
D)I,II,and III
Q2) 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
Q3) A partnership may be involved in "Dissociation" or "Dissolution."
Required:
Describe "Dissociation" and "Dissolution."
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Page 18
Chapter 17: Governmental Entities: Introduction and General
Fund Accounting
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Q1) Under the modified accrual basis of accounting for the general fund,expenditures should be recognized in the period in which the related liability is:
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q2) The Town of Pasco has no supplies inventory in its general fund on January 1,20X8.During 20X8,Pasco incurred expenditures of $200,000 for the acquisition of supplies.On December 31,20X8,Pasco's inventory of supplies amounted to $30,000.Assume Pasco uses the purchase method of accounting for supplies in its general fund and that the village reports on the calendar year.On December 31,20X8,the general fund of Pasco should credit:
A)Expenditures for $170,000.
B)Fund Balance-Unassigned for $170,000.
C)Fund Balance-Nonspendable for $30,000.
D)Expenditures for $30,000.
Q3) Accounting processes differ between a for-profit entity and a governmental entity.Discuss three differences between a governmental entity and a for-profit entity.
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) Which of the following items would not be reported on the financial statements of a special revenue fund?
A)Long-term productive assets.
B)Expenditures and revenues.
C)Vouchers payable and unreserved fund balance.
D)Fund balance reserved for encumbrances and expenditures.
Q2) Refer to the above information.For the year ended June 30,20X9,what amount should the trust fund report as investment earnings on the statement of revenues,expenses,and changes in fund balance?
A)$60,000
B)$68,000
C)$70,000
D)$78,000
Q3) Which of the following characteristics best describes an enterprise fund?
A)Capital maintenance,revenues from general public user charges,and net income.
B)Operating budgets,expenditures,and tax revenues from general public.
C)Capital maintenance,revenues from user charges to other funds,and net income.
D)Capital maintenance,tax revenues from general public,and net income.
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Chapter 19: Not-For-Profit Entities
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Q1) Based on the information provided,in Golden Path's statement of activities for the year ended December 31,20X8,what amount should be reported under the classification of revenue from unrestricted funds?
A)$980,000
B)$1,100,000
C)$1,210,000
D)$1,020,000
Q2) The disclosure,"net assets released from restrictions," is reported on which of the following financial statements for a voluntary health and welfare organization?
I.The statement of cash flows.
II.The statement of activities.
A)I only.
B)II only.
C)Both I and II.
D)Neither I nor II.
Q3) Incurred fund-raising costs.
Q4) Received cash contributions restricted by donors for equipment.
Q5) "Basis of accounting for private NFPs" describes which term listed above?
Q6) Received cash contributions restricted by donors for research.
Page 21
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Chapter 20: Corporations in Financial Difficulty
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Q1) _____ have liens,or security interests,on specific assets.
A)Secured creditors
B)Creditors with priority
C)Unsecured creditors
D)Assured creditors
Q2) To obtain cash quickly,DebCo.sold $750,000 of its receivables to Finco. ,with recourse.As the accountant for DebCo. ,what issues do you need to resolve in order to determine the appropriate accounting treatment?
Q3) What are the conditions necessary for using fresh start reporting in reorganization?
Q4) The payment to general unsecured creditors is often termed:
A)a "preference payment."
B)a "dividend."
C)a "write-off."
D)a "bonus."
Q5) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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