Consolidated Financial Statements
Textbook Exam Questions
Course Introduction
This course introduces students to the preparation and analysis of consolidated financial statements, which present the financial position and results of operations for a group of entities under common control as a single economic entity. Topics include the principles of consolidation, acquisition accounting, elimination of intercompany transactions, non-controlling interests, and the treatment of subsidiaries, associates, and joint ventures. Students will gain practical skills in applying the relevant accounting standards (such as IFRS 10 and IAS 28 or their local equivalents) and learn to interpret complex group structures, ensuring transparency and accuracy in financial reporting for business combinations.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) With respect to goodwill, an impairment
A) will be amortized over the remaining useful life.
B) is a two-step process which first compares book value to fair value at the business reporting unit level.
C) is a one-step process considering the entire firm.
D) occurs when asset values are adjusted to fair value in a purchase.
Answer: B
Q2) Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then dissolved. Salt had no liabilities. The fair values of Salt's assets were $3,750,000. Salt's only non-current assets were land and buildings with book values of $100,000 and $520,000, respectively, and fair values of $180,000 and $730,000, respectively. At what value will the buildings be recorded by Pepper?
A) $730,000
B) $520,000
C) $210,000
D) $0
Answer: A
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Bart Company purchased a 30% interest in Simpson Corporation on January 1, 2013, and Bart accounted for its investment in Simpson under the equity method for the next 3 years. On January 1, 2016, Bart sold one-half of its interest in Simpson after which it could no longer exercise significant influence over Simpson. Bart should
A) continue to account for its remaining investment in Simpson under the equity method for the sake of consistency.
B) adjust the investment in Simpson account to one-half of its original amount and account for the remaining 15% interest using the equity method.
C) account for the remaining investment under the cost method, using the investment in Simpson account balance immediately after the sale as the new cost basis.
D) adjust the investment account to one-half of its original amount (one-half of the purchase price in 2013), and account for the remaining 15% investment under the cost method.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) 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
Q2) Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for
A) investments in unconsolidated subsidiaries.
B) investments in consolidated subsidiaries.
C) capital stock.
D) ending retained earnings.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Q1) Which one of the following will increase consolidated retained earnings?
A) An increase in the value of goodwill associated with a subsidiary subsequent to the parent's date of acquisition
B) The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value
C) The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value
D) The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition
Q2) When preparing the consolidation workpaper for a company and its controlled subsidiary, which of the following would be used for the entities being consolidated?
A) Post-closing trial balances
B) Adjusted trial balances
C) Unadjusted trial balances
D) The adjusted trial balance for the parent and the unadjusted trial balance for all controlled subsidiaries
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Chapter 5: Intercompany Profit Transactions Inventories
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Q1) If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 2014 would be
A) $870,000.
B) $880,000.
C) $920,000.
D) $970,000.
Q2) The 2014 consolidated income statement showed noncontrolling interest share of A) $3,200.
B) $6,400.
C) $8,800.
D) $12,000.
Q3) If the intercompany sale was an upstream sale, the total amount of consolidated cost of goods sold for 2015 will be
A) $300,000.
B) $430,000.
C) $470,000.
D) $477,000.
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Chapter 6: Intercompany Profit Transactions Plant Assets
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Q1) On January 2, 2014, Paogo Company sold a truck with book value of $15,000 to Sanall Corporation, its wholly-owned subsidiary, for $20,000. The truck had a remaining useful life of five years with zero salvage value. Both firms use the straight-line depreciation method. If Paogo failed to make year-end adjustments/eliminations on the consolidated working papers in 2014, consolidated depreciation expense for 2014 would be
A) $5,000 too high.
B) $5,000 too low.
C) $1,000 too low.
D) $1,000 too high.
Q2) In preparing the consolidated financial statements for 2014, the elimination entry for depreciation expense was a
A) debit for $5,000.
B) credit for $5,000.
C) debit for $15,000.
D) credit for $15,000.
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Chapter 7: Intercompany Profit Transactions Bonds
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Q1) Bond Interest Receivable for 2013 of Pfadt's bonds on Senat's books was
A) $5,400.
B) $6,000.
C) $10,800.
D) $12,000.
Q2) The gain from the bond purchase that appeared on the December 31, 2013 consolidated income statement was
A) $4,320.
B) $4,800.
C) $5,400.
D) $6,000.
Q3) If the bonds were originally issued at 103, and 70% of them were purchased on January 2, 2016 at 104, the constructive gain or (loss) on the purchase was
A) $(142,800).
B) $( 42,000).
C) $ 42,000.
D) $ 142,800.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Consider a sale of stock by a subsidiary to parties outside the consolidated entity. This transaction requires an adjustment of the parent's investment and additional paid-in capital accounts except when
A) the shares are sold below book value per share.
B) the shares are sold above book value per share.
C) the shares are sold at book value per share.
D) All of the above are correct.
Q2) At December 31, 2014 year-end, Arnold Corporation's investment in Oakes Inc. was $200,000 consisting of 80% of Oakes's $250,000 stockholders' equity on that date. On April 1, 2015, Arnold sold 20% interest (one-fourth of its holdings) in Oakes for $65,000. During 2015, Oakes had net income of $75,000 (earned uniformly) and on July 1, 2015, Oakes paid dividends of $40,000. Arnold uses the equity method to account for the investment.
Required:
1. What is the gain or loss on sale of the 20% interest?
2. Record the journal entries for Arnold for the year ending December 31, 2015. Use the beginning-of-the-year-sale-date assumption.
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Chapter 9: Indirect and Mutual Holdings
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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) Controlling interest share of consolidated net income for the current year is A) $504,800.
B) $516,800.
C) $545,200.
D) $557,200.
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Chapter 10: Subsidiary Preferred Stock, Consolidated
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Q1) Palm owns a 70% interest in Sable, a domestic subsidiary. Sable is not part of Palm's affiliated group. Palm will pay taxes on
A) none of the dividends it receives from Sable.
B) 20% of the dividends it receives from Sable.
C) 66% of the dividends it receives from Sable.
D) 80% of the dividends it receives from Sable.
Q2) What should be the noncontrolling interest share, common in the consolidated financial statements of Parminter for the year ending December 31, 2014?
A) $ 5,000
B) $20,000
C) $25,000
D) $30,000
Q3) What is the implied goodwill for Salter based on Pardy's purchase price for Salter on January 1, 2014?
A) $ 0
B) $ 35,000
C) $ 70,000
D) $100,000
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Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) Noncontrolling interest share was reported in the 2014 consolidated income statement at
A) $5,000.
B) $6,000.
C) $8,000.
D) $10,000.
Q2) Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg's stockholders' equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings. The fair values of Sandberg's net assets were equal to their recorded book values. At the time of acquisition, on Paroz's books, Paroz will record A) goodwill for $60,000 under the parent company theory.
B) goodwill for $85,714 under the entity theory.
C) investment in Sandberg for $1,285,714 under the entity theory.
D) investment in Sandberg for $900,000 under the entity and parent company theories.
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) What exchange gain or loss appeared on Sooty's 2015 income statement?
A) a loss of $15,000
B) a loss of $5,000
C) a gain of $15,000
D) a gain of $5,000
Q2) On May 1, 2014, Deerfield Corporation purchased merchandise from a German firm for 78,000 euros when the spot rate for the euro was 1.48 euro per dollar. The account payable was denominated in the euro. Deerfield settled the account on August 1 when the spot rate for the euro was 1.39 euro per dollar. How much cash will Deerfield have to disburse to settle the account?
A) $ 52,702.72
B) $ 56,115.11
C) $108,420.00
D) $115,440.00
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
Page 14
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) International accounting standards differ from U.S. Generally Accepted Accounting Principles in that International standards
A) require that firm sale or purchase commitments are accounted for as fair value hedges.
B) require that firm sale or purchase commitments are accounted for as cash flow hedges.
C) state that firm sale or purchase commitments may not be treated as a hedged transaction.
D) permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges.
Q2) When preparing their year-end financial statements, the Warner Company includes a footnote regarding their hedging activities during the year. Which of the following is NOT required to be disclosed?
A) How hedge effectiveness is determined and assessed
B) The specific types of risks being hedged, and how they are being hedged
C) Alternative hedging options declined
D) The net gain or loss reported for the period for fair value hedges and where in the financial statements it is reported
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Chapter 14: Foreign Currency Financial Statements
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Q1) Pelmer has a foreign subsidiary, Sapp Corporation of Germany, whose functional currency is the euro. Sapp's books are maintained in euros. On December 31, 2014, Sapp has an account receivable denominated in British pounds. Which one of the following statements is true?
A) Because all accounts of the subsidiary are translated into U.S. dollars at the current rate, the Account Receivable is not adjusted on the subsidiary's books before translation.
B) The Account Receivable is remeasured into the functional currency, thus eliminating the need for translation.
C) The Account Receivable is first adjusted to reflect the current exchange rate in euros and then translated at the current exchange rate into dollars.
D) The Account Receivable is adjusted to euros at the current exchange rate, and any resulting gain or loss is included as a translation adjustment in the stockholders' equity section of the subsidiary's separate balance sheet.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A) They have similar amounts of intersegment revenues or expenses.
B) They have a similar distribution method for products.
C) They have similar production processes.
D) They have similar products or services.
Q2) In general, GAAP encourages the identification of reportable segments based on the following:
A) Reported segments must account for at least 75% of all external and inter-segment sales.
B) Reported segments must ideally account for at least 75% of all sales, unless there are many smaller divisions and separate reporting would create less clarity in reporting.
C) If there are more than 10 reportable segments, the company should consider additional aggregation of their segments.
D) Reported segments must account for 100% of the external sales, but only 75% of external and inter-segment sales.
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Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income, after deduction of the bonus. If the partnership's income is $140,000, how much is Partner Y's bonus allocation?
A) $12,727
B) $13,860
C) $14,000
D) $15,400
Q2) The profit and loss sharing agreement for the Jill, Kelly, and Lila partnership provides that each partner receives a bonus of 5% on the original amount of partnership net income if net income is above $25,000. Jill and Kelly receive a salary allowance of $7,500 and $10,500, respectively. Lila has an average capital balance of $260,000, and receives a 10% interest allocation on the amount by which her average capital account balance exceeds $200,000. Residual profits and losses are allocated to Jill, Kelly, and Lila in their respective ratios of 7:5:8.
Required:
Prepare a schedule to allocate $88,000 of partnership net income to the partners.
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Chapter 17: Partnership Liquidation
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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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Q1) Oceana 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. Loans-R-Us holds a $1,000,000 mortgage note receivable from Oceana that is secured by building and equipment with a $1,200,000 book value and a $900,000 fair value.
Q2) 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.
Q3) A bankruptcy petition filed by a firm's creditors is
A) a Chapter 2 petition.
B) a petition for liquidation.
C) an involuntary petition.
D) a voluntary petition.
Q4) An entity which qualified for fresh-start accounting is not required to disclose which of the following items in their initial financial statements?
A) Adjustments from historical cost of assets and liabilities
B) Amount of debt of the prior entity forgiven
C) Amount of ending retained earnings/deficit of the prior entity
D) Changes to the management team from the prior entity
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) The modified accrual basis of accounting is used for A) governmental funds.
B) proprietary funds.
C) internal service funds.
D) both A and C.
Q2) The accounting equation for an agency fund is
A) Current assets - Current liabilities = Fund Balance.
B) Assets - Liabilities = Equity.
C) Assets = Equity + Liabilities.
D) Assets = Liabilities.
Q3) Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to as A) appropriations.
B) allotments.
C) allocations.
D) encumbrances.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Match the following fund balance descriptions for a General Fund with the proper classification for a fund balance. Each classification may be used more than once.
A. Nonspendable Fund Balance
B. Restricted Fund Balance
C. Committed Fund Balance
D. Assigned Fund Balance
E. Unassigned Fund Balance
________ 1. Amounts can only be spent for the specific purposes determined by a formal action of the government's highest level of decision-making authority.
________ 2. Amounts can only be spent for the specific purposes stipulated by constitution, external resource provider or enabling legislation.
________ 3. Residual classification of funds for the General Fund.
________ 4. Dollar amount of Ending Inventory.
________ 5. Amounts intended to be used by the government for specific purposes but do not meet the criteria of restricted or committed.
________ 6. Dollar amount of endowment principal.
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Proceeds from bonds issued for the construction of capital assets are classified on the Statement of Cash Flows for an Enterprise Fund as
A) Cash Flows from Operating Activities.
B) Cash Flows from Noncapital Financing Activities.
C) Cash Flows from Capital and Related Financing Activities.
D) Cash Flows from Investing Activities.
Q2) Journalize the following utility transactions in the Quest County Enterprise Fund:
1. Billings to external customers $1,600,000; billings to Quest County governmental funds $130,000.
2. Collected refundable deposits from new customers $10,000.
3. Collected 95% of all billings by fiscal year-end.
4. Refunded $4,000 in deposits to former customers.
5. Unbilled services to outside customers at year-end $14,000.
Q3) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) An alumnus of a nonprofit, nongovernmental university establishes an endowment of $50,000. When the university receives the endowment from the donor, what account will the university credit?
A) Temporarily restricted revenues
B) Temporarily restricted support
C) Permanently restricted revenues
D) Permanently restricted support
Q2) Which of the following is not true?
A) A not-for-profit entity operates for purposes other than to provide goods or services at a profit.
B) A not-for-profit entity may be governmental or non-governmental.
C) A not-for-profit entity may possess ownership interests like a corporation.
D) A not-for-profit entity receives resources from resource providers who do not expect commensurate or proportionate pecuniary return.
Q3) In a nonprofit, nongovernmental hospital, courtesy allowances are
A) charity care services.
B) revenue deductions.
C) expenses.
D) revenues earned even if the standard charge is above or below the allowance.
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Chapter 23: Estates and Trusts
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Q1) Which of the following are entitled to the remainder of the estate after all other rightful claims on the estate have been satisfied?
A) Remainder beneficiaries
B) Residual beneficiaries
C) Alternate beneficiaries
D) Secondary beneficiaries
Q2) What is the current annual gift amount that can be left to an individual donee, without being subject to a federal gift tax?
A) $6,500
B) $14,000
C) $19,500
D) $26,000
Q3) 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.
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