Corporate Accounting Exam Preparation Guide
Course Introduction
Corporate Accounting provides students with an in-depth understanding of the accounting practices and standards used in corporations. The course covers the preparation and analysis of financial statements, accounting for share capital and debentures, amalgamations, absorption, internal reconstruction, and liquidation of companies. Emphasis is placed on regulatory frameworks, accounting for mergers and acquisitions, and the application of relevant accounting standards. Through case studies and practical exercises, students learn to interpret complex financial information, evaluate corporate financial performance, and understand the role of corporate governance in financial reporting.
Recommended Textbook
Advanced Accounting 12th Edition by Hoyle
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19 Chapters
1777 Verified Questions
1777 Flashcards
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) On January 4, 2012, Trycker, Inc. acquired 40% of the outstanding common stock of Inkblot Co. for $2,400,000. This investment gave Trycker the ability to exercise significant influence over Inkblot. Inkblot's assets on that date were recorded at $8,000,000 with liabilities of $2,000,000. There were no other differences between book and fair values.
During 2012, Inkblot reported net income of $500,000 and paid dividends of $300,000. The fair value of Inkblot at December 31, 2012 is $7,000,000. Trycker elects the fair value option for its investment in Inkblot.
At what amount will Inkblot be reflected in Trycker's December 31, 2012 balance sheet?
A) $2,400,000.
B) $2,280,000.
C) $2,480,000.
D) $2,800,000.
E) $7,000,000.
Answer: D
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Chapter 2: Consolidation of Financial Information
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107 Flashcards
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Sample Questions
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 are stock issuance costs accounted for in an acquisition business combination?
Answer: Stock issuance costs reduce the balance in the acquirer's Additional Paid-In Capital in an acquisition business combination.
Q3) What term is used to refer to a business combination in which only one of the original companies continues to exist?
Answer: The appropriate term is statutory merger.
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4
Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Sample Questions
Q1) Prince Company acquires Duchess, Inc. on January 1, 2011. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000. If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?
A) $400,000 and $1,600,000.
B) $500,000 and $1,700,000.
C) $400,000 and $1,700,000.
D) $500,000 and $2,000,000.
E) $500,000 and $1,600,000.
Answer: C
Q2) 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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Chapter 4: Consolidated Financial Statements and Outside Ownership
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?
Q2) In measuring non-controlling interest at the date of acquisition, which of the following would not be indicative of the value attributed to the non-controlling interest?
A) Fair value based on stock trades of the acquired company.
B) Subsidiary cash flows discounted to present value.
C) Book value of subsidiary net assets.
D) Projections of residual income.
E) Consideration transferred by the parent company that implies a total subsidiary value.
Q3) Where should a non-controlling interest appear on a consolidated balance sheet?
Q4) Where may a non-controlling interest be presented in a consolidated balance sheet?
Q5) What is preacquisition income?
Q6) How does a parent company account for the sale of a portion of an investment in a subsidiary?
Page 6
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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127 Flashcards
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Sample Questions
Q1) Virginia Corp. owned all of the voting common stock of Stateside Co. Both companies use the perpetual inventory method, and Virginia decided to use the partial equity method to account for this investment. During 2012, Virginia made cash sales of $400,000 to Stateside. The gross profit rate was 30% of the selling price. By the end of 2012, Stateside had sold 75% of the goods to outside parties for $420,000 cash. Prepare any 2013 consolidation worksheet entries that would be required regarding the 2012 inventory transfer.
Q2) Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land with a book value of $48,000. The selling price was $70,000. In its accounting records, Justings should
A) not recognize a gain on the sale of the land since it was made to a related party.
B) recognize a gain of $17,600.
C) defer recognition of the gain until Evana sells the land to a third party.
D) recognize a gain of $8,000.
E) recognize a gain of $22,000.
Q3) On April 7, 2013, 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?
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Page 7
Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Sample Questions
Q1) MacDonald, Inc. owns 80 percent of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows?
A) Include 80 percent as a decrease in the investing section.
B) Include 100 percent as a decrease in the investing section.
C) Include 80 percent as a decrease in the operating section.
D) Include 100 percent as an increase in the operating section.
E) Not reported in the consolidated statement of cash flows.
Q2) Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows?
A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.
Q3) How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?
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Page 8
Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Sample Questions
Q1) What ownership pattern is referred to as mutual ownership? Describe briefly or illustrate with a diagram.
Q2) Evanston Co. owned 60% of Montgomery Corp. Montgomery owned 75% of Noir Inc., and Noir owned 15% of Montgomery. This pattern of ownership would be called
A) mutual ownership.
B) direct control.
C) indirect control.
D) an affiliated group.
E) a connecting affiliation.
Q3) T Corp. owns several subsidiaries that are eligible for inclusion on a consolidated income tax return, but T Corp. decided that each company in the group will file a separate return. Under what conditions would there be minimal advantage in filing a consolidated income tax return?
Q4) What are the essential criteria for including a subsidiary within an affiliated group?
Q5) Explain how the treasury stock approach treats shares of the parent's common stock that are owned by the subsidiary and the rationale behind the approach.
Q6) What are the benefits or advantages of filing a consolidated income tax return?
Page 9
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Chapter 8: Segment and Interim Reporting
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Sample Questions
Q1) Which of the following statements is false concerning the number of operating segments that should be disclosed?
A) At least 75 percent of total company sales made to outsiders should be presented.
B) Even though an operating segment has been reportable in the past and is of continuing significance, it must meet at least one of the three reporting tests to report separately in the current year.
C) If the 75 percent rule is not met by the results of applying all three reporting tests, additional segments must be disclosed separately despite their failure to satisfy even one of the three quantitative thresholds.
D) If an operating segment qualifies for disclosure in the current year, prior period segment data presented for comparative purposes must be restated to reflect the newly reportable segment as a separate segment.
E) The practical limit to the number of operating segments is 10.
Q2) Which two items of information must be reported for (1) the domestic country, (2) all foreign countries in which the enterprise derives revenues or holds assets, and (3) each foreign country in which a material amount of revenues is earned?
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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93 Flashcards
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Sample Questions
Q1) All of the following hedges are used for future purchase/sale transactions except
A) Forward contracts used as a fair value hedge of a firm commitment.
B) Options used as a fair value hedge of a firm commitment.
C) Option contract cash flow hedge of a forecasted transaction.
D) Forward contract cash flow hedges of a forecasted transaction.
E) Forward contracts used to hedge a foreign currency denominated liability.
Q2) Yelton Co. just sold inventory for 80,000 euros, which Yelton will collect in sixty days.
Briefly describe a hedging transaction Yelton could engage in to reduce its risk of unfavorable exchange rates.
Q3) How does a foreign currency forward contract differ from a foreign currency option?
Q4) Which of the following approaches is used in the United States in accounting for foreign currency transactions?
A) One-transaction perspective; defer foreign exchange gains and losses.
B) Two-transaction perspective; accrue foreign exchange gains and losses.
C) Three-transaction perspective; defer foreign exchange gains and losses.
D) One-transaction perspective; accrue foreign exchange gains and losses.
E) Two-transaction perspective; defer foreign exchange gains and losses.
Q5) What factors create a foreign exchange gain?
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Chapter 10: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) Which accounts are remeasured using current exchange rates?
A) all revenues and expenses.
B) all assets and liabilities.
C) cash, receivables, and most liabilities.
D) all current assets and liabilities.
E) all noncurrent assets and liabilities.
Q2) Where is the disposition of a translation loss reported in the parent company's financial statements?
A) Net loss in the income statement.
B) Cumulative translation adjustment as a deferred asset.
C) Cumulative translation adjustment as a deferred liability.
D) Accumulated other comprehensive income.
E) Retained earnings.
Q3) Farley Brothers, a U.S. company, had a subsidiary in Italy. Under what conditions would the U.S. dollar be the functional currency for this subsidiary?
Q4) In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses?
Q5) Contrast the purpose of remeasurement with the purpose of translation.
Page 12
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Sample Questions
Q1) What is the IOSCO?
Q2) In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must:
A) present financial statements that comply with international GAAP.
B) conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
C) have a demonstrated need for capital to be used for operations in the U.S.
D) use the U.S. dollar as their reporting currency.
E) use IFRS, or use foreign GAAP and provide a reconciliation to U.S. GAAP.
Q3) In countries where there is less pressure for public accountability and information disclosure:
A) information needs can be satisfied by requesting information from internal company sources.
B) public offerings of stock shares are the primary source of financing for companies.
C) accounting information is prepared to meet the needs of taxing authorities.
D) accounting standards emphasize accounting for high inflation situations.
E) the accounting focus is on recent market economy reforms.
Q4) Which two EU directives have helped harmonize accounting standards?
Q5) What are the two major types of legal systems used around the world?
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Sample Questions
Q1) A wrap-around filing:
A) may be used by large companies to sell securities over a period of two years without refiling with the SEC.
B) is a simplified registration procedure for securities to be issued by small companies. C) allows a company to simplify its form 10-K by referring to information in its annual report.
D) is a filing completed using the SEC's electronic filing system.
E) may remain in effect for a period of one to five years.
Q2) Which one of the following regulates the subsequent trading of securities through brokers and exchanges?
A) The Securities Act of 1933.
B) The Securities Exchange Act of 1934.
C) The Investment Company Act of 1940.
D) The Investment Advisers Act of 1940.
E) The Sarbanes-Oxley Act of 2002.
Q3) What is included in Part I of a securities registration statement?
Q4) Why was the Public Utility Holding Company Act of 1935 created?
Q5) Who has the responsibility for the evaluation of the quality of an investment?
Q6) Describe the two parts of the SEC registration statement.
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Sample Questions
Q1) What is meant by a "fully secured liability"?
Q2) What information is included on the statement of realization and liquidation?
Q3) What is the purpose of Chapter 7 of the Bankruptcy Reform Act?
Q4) What are the three categories of assets in a Statement of Financial Affairs?
Q5) Which of the following is not a responsibility of the bankruptcy trustee?
A) Recover all property belonging to the insolvent company.
B) Liquidate common stock of the company.
C) Preserve the estate from any further deterioration.
D) Make distributions to the proper claimants.
E) Void preferences made by the debtor within 90 days prior to the filing of the bankruptcy petition if the company was already insolvent.
Q6) Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
Total payment on the bond is calculated to be what amount?
Q7) What is the role of the trustee in the liquidation of a company?
Q8) What is meant by a "partially secured liability"?
Q9) Who must accept and confirm the Reorganization plan? Page 15
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Page 16
Chapter 14: Partnerships: Formation and Operation
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Sample Questions
Q1) P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.
C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's beginning capital balance?
A) $20,000
B) $25,000
C) $27,600
D) $32,600
E) $38,000
Q2) Why are the terms of the Articles of Partnership important to partners?
Q3) What events cause the dissolution of a partnership?
Q4) What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of a partnership?
Q5) Brown and Green are forming a business as partners. If they do not create a formal written partnership agreement, what risks are they exposing themselves to?
Q6) For what events or conditions should the Articles of Partnership make provision?
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Page 17
Chapter 15: Partnerships: Termination and Liquidation
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Sample Questions
Q1) What is the purpose of a predistribution plan?
Q2) Why is a Schedule of Liquidation prepared?
Q3) Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner has a deficit balance in their respective capital account. All assets from the partnership have been liquidated and all of the liabilities had been paid. How should any additional cash coming into the partnership be distributed to the partners?
Q4) What accounting transactions are not recorded by an accountant during partnership liquidation?
A) The conversion of partnership assets into cash.
B) The allocation of gains and losses from sales of assets.
C) The payment of liabilities and expenses.
D) The initiation of legal action by creditors of the partnership.
E) Write-off of remaining unpaid debts.
Q5) The Arnold, Bates, Carlton, and Delbert partnership was liquidating. It had paid all its liabilities and had some assets yet to be sold. The partners had capital account balances of ($50,000), $90,000, $110,000, and $130,000. There was $40,000 cash available for distribution to the partners. What procedures would be followed to determine the amount of cash that could safely be distributed to each partner?
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Chapter 16: Accounting for State and Local Governments
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Sample Questions
Q1) The Town of Anthrop has recorded the receipt of a $10,000 grant to make its Town Hall handicapped-accessible. The town now spends $10,000 to make the Town Hall handicapped-accessible.
Required:
Prepare the journal entry (or entries), and identify the fund for recording, to record that the town spends $10,000 of a grant it received to make the Town Hall handicapped-accessible.
Q2) The school system had some booklets printed by a local print shop on September 22, 2013. The school system was charged $1,560 for the printing, but the bill is not due until October.
Required:
(A.) Prepare the required journal entry in the General Fund for the Fund Financial Statements.
(B.) Prepare the required journal entry for the Government-Wide Financial Statements.
Q3) What is a special revenue fund used to account for?
Q4) In governmental accounting, what term is used for a decrease in financial resources?
Q5) What is the purpose of government-wide financial statements?
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Chapter 17: Accounting for State and Local Governments
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Sample Questions
Q1) The Town of Wakefield opened a solid waste landfill in 2012 that was at 20% capacity on December 31, 2012 and at 50% capacity on December 31, 2013. The city initially anticipated closure costs of $2.3 million but in 2013 revised the estimate of the closure costs to be $2.7 million. None of these costs will be incurred until the landfill is scheduled to be closed.
Assuming the landfill is recorded within the General fund, what is the journal entry that should be recorded in the Fund Financial Statements on December 31, 2013?
Q2) For government-wide financial statements, what account is credited when a piece of equipment is leased on a capital lease?
A) Equipment-Capital Lease
B) Encumbrances-Long Term
C) Encumbrances-Lease Obligations
D) Capital Lease Obligation
E) The lease is not recorded.
Q3) What are the three broad sections of a state or local government's CAFR?
Q4) What is meant by the term legally independent?
Q5) What information is required in the financial section of a state or local government's CAFR?
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Chapter 18: Accounting and Reporting for Private
Not-For-Profit Organizations
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Sample Questions
Q1) What term is used by voluntary health and welfare organizations for contributions?
Q2) A gift to a not-for-profit school that is not restricted by the donor is credited to:
A) Fund Balance.
B) Deferred Revenues.
C) Contribution Revenues.
D) Non-Operating Revenues.
E) Encumbrances.
Q3) During 2013, the Garfield Humane Society, a voluntary health and welfare organization, received cash donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to be used in building a new animal shelter. Also during 2013, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for public support for 2013.
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Page 21
Chapter 19: Accounting for Estates and Trusts
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Sample Questions
Q1) The terms of a will currently undergoing probate are: "A gift to my brother David of $25,000 cash; to my son James, $50,000 from my savings account; and to my Daughter Lila, all of my remaining property." At the time of death, the balance in the savings account was $40,000, and there was additional cash (after payment of funeral expenses and all claims against the estate) of $70,000.
The gift to James is a
A) general legacy.
B) specific legacy.
C) demonstrative legacy.
D) residual legacy.
E) devise.
Q2) The executor of Danny Mack's estate has listed the following properties at fair value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds
$50,000, Rental Property
$100,000, and Personal Property
$80,000. Additionally, the executor found $100,000 of various debts incurred before the decedent's death. The cost of Danny Mack's funeral was $20,000.
Prepare the journal entry for claims of $100,000 made against the estate for various debts incurred before the decedent's death, and $20,000 for funeral expense bills.
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