Consolidated Financial Statements
Mock Exam
Course Introduction
This course provides an in-depth exploration of the preparation and analysis of consolidated financial statements in accordance with relevant accounting standards. It covers the principles and procedures involved in group accounting, including the identification of parent and subsidiary relationships, the consolidation process, and the elimination of intercompany transactions. Students will learn about non-controlling interests, goodwill, and the impact of acquisitions and disposals on consolidated accounts. The course also addresses complex group structures, foreign subsidiaries, and the reporting requirements for consolidated financial statements, equipping students with the practical skills needed for advanced financial reporting and analysis.
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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Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) On January 1, 2010, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2010, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2011 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco.
The balance in the investment in Sacco account at December 31, 2010, is
A) $100,000.
B) $112,000.
C) $106,000.
D) $107,500.
E) $140,000.
Answer: D
Q2) When should an investor not use the equity method for an investment of 21% in another corporation?
Answer: When the investor does not have significant influence with regard to the investee.
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Page 3
Chapter 2: Consolidation of Financial Information
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Q1) Which of the following statements is true regarding a statutory consolidation?
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 consolidation is no longer a legal option.
Answer: A
Q2) 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.
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Chapter 3: Consolidationssubsequent to the Date of Acquisition
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Q1) Consolidated net income using the equity method for an acquisition combination is computed as follows:
A) Parent company's income from its own operations plus the equity from subsidiary's income recorded by the parent.
B) Parent's reported net income.
C) Combined revenues less combined expenses less equity in subsidiary's income less amortization of fair-value allocations in excess of book value.
D) Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent.
E) All of the above.
Answer: D
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.
Q3) For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping is the easiest for the parent to use?
Answer: The initial value method is the easiest to use.
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Page 5
Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) All of the following statements regarding the sale of subsidiary shares are true except which of the following?
A) The use of specific identification based on serial number is acceptable.
B) The use of the FIFO assumption is acceptable.
C) The use of the averaging assumption is acceptable.
D) The use of specific LIFO assumption is acceptable.
E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.
Q2) For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except:
A) identifiable assets acquired, at fair value.
B) liabilities assumed, at book value.
C) non-controlling interest, at fair value.
D) goodwill or a gain from bargain purchase.
E) none of these choices is correct.
Q3) What is preacquisition income?
Q4) How is a non-controlling interest in the net income of an entity reported in the income statement?
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Q5) Where should a non-controlling interest appear on a consolidated balance sheet?
Chapter 5: Consolidated Financial Statementsintra-Entity
Asset Transactions
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Q1) On April 7, 2011, Pate Corp. sold land to Shannahan Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer actually be earned?
Q2) Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2010. During 2010, Gentry sold Gaspard Farms for $625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2011, Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned 10% of the goods at year-end. For 2011, cost of goods sold was $5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What was consolidated cost of goods sold for 2011?
A) $6,600,000.
B) $6,604,000.
C) $5,620,000.
D) $5,596,000.
E) $5,625,000.
Q3) How is the gain on an intra-entity transfer of a depreciable asset realized?
Q4) Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards' inventory in 2011. The transfer price was equal to 30 percent of the sales price. When preparing consolidated financial statements, what amount of these sales is eliminated?
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Chapter 6: Variable Interest Entities,
Consolidated Cash Flows, and Other Issues
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Q1) If a subsidiary issues a stock dividend, which of the following statements is true?
A) Investment in subsidiary on the parent's books will increase.
B) Investment in subsidiary on the parent's books will decrease.
C) Additional paid-in capital on the parent's books will increase.
D) Additional paid-in capital on the parent's books will decrease.
E) No adjustment is necessary.
Q2) A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?
A) The investment in subsidiary will decrease.
B) Additional paid-in capital will decrease.
C) Retained earnings will increase.
D) The investment in subsidiary will increase.
E) No adjustment will be necessary.
Q3) Parent Corporation acquired some of its subsidiary's bonds on the open bond market. The remaining life of the bonds was eight years, and Parent expected to hold the bonds for the full eight years. How would the acquisition of the bonds affect the consolidation process?
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Page 8
Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) A forward contract may be used for which of the following?
1) A fair value hedge of an asset.
2) A cash flow hedge of an asset.
3) A fair value hedge of a liability.
4) A cash flow hedge of a liability.
A) 1 and 3
B) 2 and 4
C) 1 and 2
D) 1, 3, and 4
E) 1, 2, 3, and 4
Q2) What is meant by the spot rate?
Q3) What is the purpose of a hedge of foreign exchange risk?
Q4) How does a foreign currency forward contract differ from a foreign currency option?
Q5) What factors create a foreign exchange gain?
Q6) What is the major assumption underlying the one-transaction perspective?
Q7) What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency appreciates?
Page 9
Q8) Where can you find exchange rates between the U.S. dollar and most foreign currencies?
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Page 10
Chapter 8: Translation of Foreign Currency Financial Statements
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Q1) When consolidating a foreign subsidiary, which of the following statements is true?
A) Parent reports a cumulative translation adjustment from adjusting its investment account under the equity method.
B) Parent reports a gain or loss in net income from adjusting its investment account under the equity method.
C) Subsidiary's cumulative translation adjustment is carried forward to the consolidated balance sheet.
D) Subsidiary's income/loss is carried forward to the consolidated balance sheet.
E) All foreign currency gains/losses are eliminated in the consolidated income statement and balance sheet.
Q2) Which method of remeasuring a foreign subsidiary's financial statements is correct?
A) Historical rate method.
B) Working capital method.
C) Current rate method.
D) Translation.
E) Temporal method.
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) Which of the following statements is correct regarding the admission of a new partner?
A) A new partner must purchase a partnership interest directly from the business.
B) The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners.
C) The right to participate in management of the business can be conveyed without the consent of other existing partners.
D) The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.
E) A new partner always pays book value.
Q2) Partnerships have alternative legal forms including all of the following except:
A) General Partnership.
B) Limited Partnership.
C) Subchapter S Partnership.
D) Limited Liability Partnership.
E) Limited Liability Company.
Q3) Determine the balance in both capital accounts at the end of 2011 to the nearest dollar.
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Chapter 10: Partnerships: Termination and Liquidation
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Q1) When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to:
A) declare personal bankruptcy.
B) initiate legal proceedings against the partnership.
C) contribute cash to the partnership.
D) deliver a note payable to the partnership with specific payment terms.
E) None of the above. The partner has no legal responsibility to cover the capital deficit balance.
Q2) A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2.
If the building is sold for $50,000, how much cash will Waters receive in the final settlement?
A) $5,000.
B) $9,000.
C) $18,000.
D) $28,000.
E) $55,000.
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Chapter 11: Accounting for State and Local Governments
Part 1
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Sample Questions
Q1) GASB Codification Section N50.104 divides all eligibility requirements into four general classifications including all of the following except:
A) Required characteristics of the recipients.
B) Time requirements.
C) Reimbursement.
D) Contingencies.
E) Refunding.
Q2) Governmental funds are
A) Funds used to account for the activities of a government that are carried out primarily to provide services to citizens.
B) Funds used to account for a government's ongoing organizations and activities that are similar to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee capacity.
D) Funds used to account for all financial resources except those required to be accounted for in another fund.
E) Funds used to account for revenues that have been legally restricted as to expenditure.
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Chapter 12: Accounting for State and Local Governments
Part 2
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Sample Questions
Q1) Drye Township has received a donation of a rare painting worth $1,000,000. For Drye's government-wide financial statements, three criteria must be met before Drye can opt not to recognize the painting as an asset. Which of the following is not one of the three criteria?
(1)) The painting is held for public exhibition, education, or research in furtherance of public service, rather than financial gain.
(2)) The painting is scheduled to be sold immediately at auction.
(3)) The painting is protected, kept unencumbered, cared for, and preserved.
A) Item 1 is not one of the three criteria.
B) Item 2 is not one of the three criteria.
C) Item 3 is not one of the three criteria.
D) All three items are required criteria.
E) None of the three items are required criteria.
Q2) What three criteria must be met to identify a governmental unit as a primary government?
Q3) What information is required in the financial section of a state or local government's CAFR?
Q4) What is meant by the term legally independent?
Q5) What are the three broad sections of a state or local government's CAFR?
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