Contemporary Issues in Accounting
Chapter Exam Questions
Course Introduction
This course explores current trends, challenges, and debates within the field of accounting, focusing on issues such as sustainability reporting, ethical considerations, international accounting standards, corporate governance, and the impact of technological advancements like artificial intelligence and blockchain. Through case studies, academic literature, and guest lectures, students critically analyze how evolving business environments and regulatory changes influence accounting practices and decision-making in both local and global contexts. The course is designed to enhance students ability to identify and evaluate emerging problems and to apply innovative solutions within the profession.
Recommended Textbook
Advanced Financial Accounting 11th Edition by Theodore Christensen
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Point Co.purchased 90% of Sharpe Corp.'s voting stock on January 1,20X2 for $5,580,000.Prior to the acquisition,Point held a 10% equity position in Sharpe Company.On January 1,20X2 Pointe's 10% investment in Sharpe has a book value of $340,000 and a fair value of $620,000.On January 1,20X2 Point records the following:
A) Debit Gain on revaluation of Sharpe's stock $280,000
B) Credit Gain on revaluation of Sharpe's stock $280,000
C) Credit Investment in Sharpe stock $5,860,000
D) Debit Investment in Sharpe stock $6,200,000
Answer: B
Q2) A statutory consolidation is a type of business combination in which:
A) one of the combining companies survives and the other loses its separate identity.
B) one company acquires the voting shares of the other company and the two companies continue to operate as separate legal entities.
C) two publicly traded companies agree to share a board of directors.
D) each of the combining companies is dissolved and the net assets of both companies are transferred to a newly created corporation.
Answer: D
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) On January 2,20X5,Well Co.purchased 10 percent of Rea,Inc.'s outstanding common shares for $400,000.Well is the largest single shareholder in Rea,and Well's officers are a majority on Rea's board of directors.As a result,Well is able to exercise significant influence over Rea.Rea reported net income of $500,000 for 20X5,and paid dividends of $150,000.In its December 31,20X5,balance sheet,what amount should Well report as investment in Rea?
A) $385,000
B) $450,000
C) $400,000
D) $435,000
Answer: D
Q2) Based on the preceding information,what amount of investment income will William Company report from its investment in eGate for the year?
A) $45,000
B) $42,000
C) $62,000
D) $35,000
Answer: B
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differentials
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Q1) In which of the following cases would consolidation be inappropriate?
A) The subsidiary is in bankruptcy.
B) Subsidiary's operations are dissimilar from those of the parent.
C) The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor.
D) Subsidiary is foreign.
Answer: A
Q2) Based on the preceding information,what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the parent company approach?
A) $350,000
B) $340,000
C) $280,000
D) $300,000
Answer: B
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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,the amount of differential associated with the acquisition is:
A) $0.
B) $58,000.
C) $22,000.
D) $36,000.
Q3) Based on the preceding information,what amount of differential will arise in the consolidation process?
A) $0
B) $5,000
C) $15,000
D) $65,000
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Chapter 5: Consolidation of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Questions
Q1) Based on the preceding information,what amount of total assets will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $800,000
B) $830,000
C) $1,010,000
D) $1,040,000
Q2) Based on the preceding information,what is the amount of write-off of differential associated with this acquisition recorded by Melkor during 20X9?
A) $0
B) $32,500
C) $26,000
D) $20,000
Q3) Noncurrent assets on the January 2,20X6,consolidated balance sheet should be:
A) $130,000
B) $150,000
C) $134,000
D) $136,000
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Page 7
Chapter 6: Intercompany Inventory Transactions
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Q1) Clark Co.had the following transactions with affiliated parties during 20X1:
-Sales of $60,000 to Dean,Inc.,with $20,000 gross profit.Dean had $15,000 of this inventory on hand at year end.Clark owns a 15% interest in Dean and does not exert significant influence.
-Purchases of raw materials totaling $240,000 from Kent Corp.,a wholly-owned subsidiary.Kent's gross profit on the sale was $48,000.Clark had $60,000 of this inventory remaining on December 31,20X1.
Before consolidating entries,Clark had consolidated current assets of $320,000.What amount should Clark report in its December 31,20X1,consolidated balance sheet for current assets?
A) $303,000
B) $320,000
C) $317,000
D) $308,000
Q2) What was the amount of intercompany sales from Pare to Shel during 20X5?
A) $12,000
B) $6,000
C) $64,000
D) $58,000
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Page 8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,what amount of income should be assigned to the noncontrolling shareholders in the consolidated income statement for 20X8?
A) $47,700
B) $44,400
C) $55,600
D) $60,000
Q2) Based on the information provided,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:
A) debited for $750 in the consolidating entries.
B) credited for $750 the consolidating entries.
C) credited for $1500 in the consolidating entries.
D) debited for $1500 in the consolidating entries.
Q3) Based on the preceding information,the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X8 will be:
A) $190,000.
B) $170,000.
C) $175,000.
D) $150,000.
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of interest expense will be eliminated in the preparation of the 20X5 consolidated financial statements?
A) $7,224
B) $7,259
C) $14,516
D) $21,775
Q2) 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
Q3) Based on the information given above,what amount of interest expense should be reported in the 20X5 consolidated income statement?
A) $0
B) $14,448
C) $14,516
D) $21,775
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10
Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of interest income will be eliminated in the preparation of the 20X9 consolidated financial statements?
A) $17,000
B) $13,300
C) $18,500
D) $22,200
Q2) Based on the information given above,what amount of constructive gain will be allocated to noncontrolling interest in 20X8 consolidated financial statements?
A) $4,925
B) $5,550
C) $5,625
D) $4,625
Q3) Based on the information given above,what amount of interest expense will be eliminated in the preparation of the 20X8 consolidated financial statements?
A) $13,000
B) $13,500
C) $10,000
D) $15,000
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11
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,in the journal entry recorded by Autumn for the sale of shares
A) Cash will be credited for $90,000.
B) Investment in Spring Stock will be credited for $90,000.
C) Investment in Spring Stock will be credited for $75,000.
D) Additional Paid-in Capital will be credited for $9,000.
Q2) Based on the preceding information,what amount is reported as preferred stock outstanding reported in the consolidated balance sheet as of January 1,20X8?
A) $0
B) $40,000
C) $50,000
D) $44,000
Q3) Based on the information provided,what is the book value of the common stock on January 1,20X9?
A) $410,000
B) $360,000
C) $390,000
D) $350,000
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) For a subsidiary to be eligible to be included in a consolidated tax return,at least _____ of its stock must be held by the parent company or another company included in the consolidated return.
A) 50 percent
B) 40 percent
C) 75 percent
D) 80 percent
Q2) Based on the preceding information,what amount would Gulfstream report as net income (after taxes)for the year?
A) $49,240
B) $68,000
C) $64,000
D) $67,500
Q3) Based on the preceding information,what amount will be reported by the company as cash payments to suppliers for 20X5?
A) $325,000
B) $333,000
C) $358,000
D) $367,000
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Page 13
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) An investor purchases a put option with a strike price of $100 for $3.This option is considered "in the money" if the underlying is trading:
A) below $100.
B) at $100.
C) above $100.
D) above $103.
Q2) All of the following are true statements when measuring hedge effectiveness except:
A) Effectiveness means there is an approximate offset with the range of 80% to 125% of the changes in the fair value of the cash flows
B) Effectiveness means there is an approximate offset in fair value to the risk being hedged.
C) A Company may elect to choose from several different measures for assessing hedge effectiveness.
D) Effectiveness must be assessed at least annually when the company reports their annual financial statements.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Which combination of accounts and exchange rates is correct for the remeasurement of a foreign entity's financial statements from its local currency to U.S.dollars?
A) Option A
B) Option B
C) Option C
D) Option D
Q2) Which of the following statements is true regarding the SEC's timeline for convergence?
A) The SEC has no immediate plans to converge GAAP reporting with IFRS standards.
B) The SEC has a plan in place to allow firms to begin filing in the United States based on IFRS during the next several years.
C) The SEC has a plan in place to allow companies to choose to file statements under GAAP reporting or IFRS standards indefinitely.
D) The SEC currently allows domestic companies to choose to file financial statements under either GAAP or IFRS reporting standards.
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15
Chapter 13: Segment and Interim Reporting
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Q1) On June 30,20X8,String Corporation incurred a $220,000 net loss from disposal of a business component.Also,on June 30,20X8,String paid $60,000 for property taxes assessed for the calendar year 20X8.What amount of the preceding items should be included in the determination of String's net income or loss for the six-month interim period ended June 30,20X8?
A) $250,000
B) $220,000
C) $140,000
D) $280,000
Q2) All of the following situations require a retrospective application of a change in a reporting entity except for:
A) Presenting consolidated financials rather than individual statements for separate entities
B) Changing the specific subsidiaries that make up a consolidated entity.
C) Presenting foreign subsidiaries in addition to domestic subsidiaries.
D) Changing entities that are included in combined financial statements.
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Chapter 14: Sec Reporting
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Q1) Which of the following statements concerning the management discussion and analysis (MD&A)of a company's financial condition is true?
I.It should cover the financial statements and other statistical data for the most recent three-year time span.
II.It should make year-to-year comparisons of material changes in the line items.
III.Management need not explain the cause(s)of the material changes.
IV.Disclosure of material off-balance sheet transactions,arrangements,and obligations is required in each annual and each quarterly report.
A) I, II, and IV
B) II and III
C) I, III, and IV
D) I, II, III, and IV
Q2) The SEC administers many laws and regulations governing the information made in files reports.
Required:
a)What is the difference in issues covered by Regulation S-X and Regulation S-K?
b)How do the issues covered by these regulations differ from the AAERs and SABs?
Q3) Staff Accounting Bulletins
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17
Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) The ABC partnership had net income of $100,000 for 20X9.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/20X9 books they discovered that $30,000 was spent on a piece of land in December 20X9 and was expensed.What should happen?
Q2) 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.By what amount is the land account increased?
A) $40,000
B) $10,000
C) $36,000
D) $20,000
Q3) Refer to the information above.Nancy is paid $84,000,and no goodwill is recorded.In the journal entry to record Nancy's withdrawal
A) Lynn, Capital will be debited for $7,000
B) Marty, Capital will be debited for $6,000
C) Nancy, Capital will be credited for $70,000
D) Cash will be debited for $84,000
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Page 18
Chapter 16: Partnerships: Liquidation
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Q1) In order to avoid inequalities in the liquidation process the legal doctrine of setoff effectively treats loans from partners to the partnership as:
A) outside debt that can offset a deficit capital account balance
B) inside debt that can offset a deficit capital account balance.
C) additional capital investments that can offset a deficit capital account balance.
D) additional capital investments that can offset a partnership loss.
Q2) Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Lilly at the end of the first month?
A) $24,000
B) $40,000
C) $16,000
D) $64,000
Q3) Listen and Hear are thinking of dissolving their partnership.Listen has a friend who told him to complete a "lump-sum" liquidation.Hear wants to complete an "installment" liquidation.They have come to you for advice.What do you recommend and Why?
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Elm City issued a purchase order for supplies with an estimated cost of $5,000.When the supplies were received,the accompanying invoice indicated an actual price of $4,950.What amount should Elm debit (credit)to the budgetary fund balance account after the supplies and invoice were received?
A) $4,950
B) ($50)
C) $50
D) $5,000
Q2) Which of the following observations concerning interfund transfers is true?
A) They are expected to be repaid.
B) They are classified as fund revenues or expenditures.
C) The receiving fund recognizes these transfers as revenue.
D) These transfers are classified under "Other Financing Sources or Uses."
Q3) Which of the following funds provides goods and services only to other departments or agencies of the government on a cost-reimbursement basis?
A) Internal service funds
B) Enterprise funds
C) Special revenue funds
D) The general fund
Page 20
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) The City of Edmond established a capital projects fund for the construction of a reading room for the City Library.The estimated cost of the construction is $300,000.On January 1,20X8,an 8 percent,$200,000 bond issue was sold at 102.At that date,the county board provided a $100,000 grant.On March 3,20X8,the premium from issuance of the bonds was transferred to the debt service fund established to repay the bond principal and interest.On March 1,20X8,a general contractor's bid was accepted to construct the facility at a cost of $270,000.The construction was completed on October 5,20X8; its actual cost was $285,000.The city council approved payment of the total actual cost of $285,000.In addition to the $285,000,$9,000 was spent to make the facility ready for use.On November 3,20X8,the city council gave the final approval for both these payments.After all bills were paid,the remaining fund balance was transferred to the debt service fund.
Required
a.Prepare entries for the capital projects fund for 20X8.
b.Prepare a statement of revenues,expenditures,and changes in fund balance for 20X8 for the capital projects fund. Problem 79 (continued):
Q2) GASB 34 requires a Reconciliation schedule for the Statement of Net Assets.What does this schedule document?
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Chapter 19: Not-For-Profit Entities
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Q1) Assume that a private university collects tuition and fees at the beginning of summer school,in which two weeks are offered in the first fiscal year and the remaining six weeks are offered in the second fiscal year.According to the approach recommended by the National Association of College and University Business Officers (NACUBO),the university would:
A) record the collections as a debit to Cash and a credit to Deferred Revenue for the entire amount of the collections.
B) record the collections as a debit to Cash and a credit to Restricted current revenue for the entire amount of the collections.
C) account for the entire tuition and fees as revenue in the first fiscal period.
D) recognize revenue in the first fiscal period for two-eighths of the tuition and fees and record six-eighths of the collections as a deferred revenue.
Q2) The CFO of a "Not-for-Profit" hospital is making a presentation at your college.The presentation is for Business and Health-Science majors.During the presentation the CFO mentions assets being reported "above the line." On the way out your roommate a health-science major asks,you an accounting major,to explain what the CFO was referring to.What do you respond?
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Chapter 20: Corporations in Financial Difficulty
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Q1) Creditors may file which type of petition when seeking remedy under the Bankruptcy Code?
I.Voluntary
II.Involuntary
A) I only
B) II only
C) Either I or II
D) Neither I nor II
Q2) Which of the following could be true of the proceedings under Chapter 11 of the Bankruptcy Code?
A) Always administered by the bankruptcy courts.
B) The debtor's assets are sold and its liabilities extinguished.
C) The company does not operate during this period.
D) The debtor continues as a business after the reorganization.
Q3) All of the following items are reported in a statement of realization and liquidation except:
A) Cash
B) Prepaid assets
C) Depreciable assets (net)
D) Receiver's expenses
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