Corporate Accounting
Exam Questions
Course Introduction
Corporate Accounting introduces students to the principles and practices of accounting within the context of corporate entities. The course covers key topics such as the preparation and analysis of financial statements, accounting for share capital and debentures, dividend distribution, amalgamations, internal reconstructions, and liquidation of companies. Students will also explore regulatory frameworks, corporate reporting requirements, and the use of accounting information for decision-making by stakeholders. Emphasis is placed on understanding legal compliance, ethical considerations, and the application of accounting standards to real-world corporate scenarios.
Recommended Textbook
Advanced Accounting 6th Edition by
Debra C. Jeter
19 Chapters
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Page 2
Chapter 1: Introduction to Business Combinations and the
Conceptual Framework
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Q1) Estimating the value of goodwill to be included in an offering price can be done under several alternative methods.The excess earnings approach is frequently used.Identify the steps used in this approach to estimate goodwill.
Answer: The excess earnings approach to estimating goodwill includes the following steps: (a)Identify a normal rate of return for firms similar to the company being targeted,(b)Apply the identified rate of return of the level of identifiable assets (or net assets)of the target to approximate what would be normal earnings in this industry,(c)Estimate the expected future earnings of the target,(d)Subtract the normal earnings from the expected target earnings to compute "excess earnings",and (e)Assume an appropriate time period and a discount rate to compute the discounted value of the excess earnings the estimated goodwill.
Q2) A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n):
A)agreeable combination.
B)friendly combination.
C)hostile combination.
D)unfriendly combination. Answer: B
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Chapter 2: Accounting for Business Combinations
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Q1) If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets,the excess should be:
A)allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.
B)recognized as ordinary gain or loss.
C)allocated to reduce long-lived assets.
D)accounted for as goodwill.
Answer: D
Q2) If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test,the loss should be treated as a(n):
A)loss from a change in accounting principles.
B)extraordinary loss
C)loss from continuing operations.
D)loss from discontinuing operations.
Answer: A
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4
Chapter 3: Consolidated Financial Statements Date of Acquisition
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Q1) Reasons a parent company may pay more than book value for the subsidiary company's stock include all of the following EXCEPT:
A)the fair value of one of the subsidiary's assets may exceed its recorded value because of appreciation.
B)the existence of unrecorded goodwill.
C)liabilities may be overvalued.
D)stockholders' equity may be undervalued.
Answer: D
Q2) One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is:
A)an undervaluation of the subsidiary's assets.
B)the existence of unrecorded goodwill.
C)an overvaluation of the subsidiary's liabilities.
D)the existence of unrecorded contingent liabilities.
Answer: D
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Chapter 4: Consolidated Financial Statements After Acquisition
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Q1) On January 1,2017,Pantera Company purchased 40% of Stratton Company's 30,000 shares of voting common stock for a cash payment of $1,800,000 when 40% of the net book value of Stratton Company was $1,740,000.The payment in excess of the net book value was attributed to depreciable assets with a remaining useful life of six years.As a result of this transaction Pantera has the ability to exercise significant influence over Stratton Company's operating and financial policies.Stratton's net income for the ended December 31,2017 was $600,000.During 2017,Stratton paid $325,000 in dividends to its shareholders.The income reported by Pantera for its investment in Stratton should be: What is the ending balance in Pantera's investment account as of December 31,2017?
A)1,800,000
B)1,900,000
C)1,910,000
D)2,030,000
Q2) Two methods are available to account for interim acquisitions of a subsidiary's stock at the end of the first year.Describe the two methods of accounting for interim acquisitions.
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Chapter 5: Allocation and Depreciation of Differences
Between Implied and Book Values
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Q1) Goodwill represents the excess of the implied value of an acquired company over the:
A)aggregate fair values of identifiable assets less liabilities assumed.
B)aggregate fair values of tangible assets less liabilities assumed.
C)aggregate fair values of intangible assets less liabilities assumed.
D)book value of an acquired company.
Q2) The excess of fair value over implied value must be allocated to reduce proportionally the fair values initially assigned to:
A)current assets.
B)noncurrent assets.
C)both current and noncurrent assets.
D)none of these
Q3) The SEC requires the use of push down accounting when the ownership change is greater than:
A)50%
B)80%
C)90%
D)95%
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Chapter 6: Elimination of Unrealized Profit on Intercompany
Sales of Inventory
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Q1) P Company sold merchandise costing $240,000 to S Company (90% owned)for $300,000.At the end of the current year,one-third of the merchandise remains in S Company's inventory.Applying the lower-of- cost-or-market rule,S Company wrote this inventory down to $92,000.What amount of intercompany profit should be eliminated on the consolidated statements workpaper?
A)$20,000.
B)$18,000.
C)$12,000.
D)$10,800.
Q2) Pruitt Company owns 80% of Stoney Company's common stock.During 2017,Stoney sold $400,000 of merchandise to Pruitt.At December 31,2017,one-fourth of the merchandise remained in Pruitt's inventory.In 2017,gross profit percentages were 25% for Pruitt and 30% for Stoney.The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is:
A)$80,000.
B)$24,000.
C)$30,000.
D)$25,000.
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Chapter 7: Elimination of Unrealized Gains or Losses on
Intercompany Sales of Property and
Equipment
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Q1) In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a gain,the noncontrolling interest in consolidated income is computed by multiplying the noncontrolling interest percentage by the subsidiary's reported net income:
A)minus the net amount of unrealized gain on the intercompany sale.
B)plus the net amount of unrealized gain on the intercompany sale.
C)minus intercompany gain considered realized in the current period.
D)plus intercompany gain considered realized in the current period.
Q2) P Company purchased land from its 80% owned subsidiary at a cost of $30,000 greater than it subsidiary's book value.Two years later P sold the land to an outside entity for $15,000 more than P's cost.In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:
A)$15,000.
B)$36,000.
C)$39,000.
D)$45,000.
Q3) An eliminating entry is needed to adjust the consolidated financial statements when the purchasing affiliate sells a depreciable asset that was acquired from another affiliate.Describe the necessary eliminating entry.
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Chapter 8: Changes in Ownership Interest
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Q1) Which one of the following statements regarding IFRS and accounting for step acquisitions is most correct?
A)Under IFRS goodwill is identified and net assets remeasured to fair value for all subsequent transactions,both increasing and decreasing the ownership percentage,after control is achieved.
B)IFRS requires the recording of additional goodwill on subsequent increases in the parent's ownership percentage.
C)Under IFRS acquisition accounting is applied only at the date that control is achieved.
D)IFRS requires the non-controlling interest to be measured at fair value.
Q2) If a parent company acquires additional shares of its subsidiary's stock directly from the subsidiary for a price less than their book value:
A)total noncontrolling book value interest increases.
B)the controlling book value interest increases.
C)the controlling book value interest decreases.
D)total noncontrolling book value interest increases; and the controlling book value interest decreases.
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Chapter 9: Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements
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Q1) Pallet Corporation owns 90% of the outstanding common stock of Stealth Company.On January 1,2014,Stealth Company issued $500,000,12%,ten-year bonds. On January 1,2016,Pallet Corporation paid $412,000 for Stealth Company bonds with a par value of $400,000 and a carrying value of $393,600.Both companies use the straight-line method to amortize bond premiums and discounts.Pallet Corporation accounts for the investment using the cost method of accounting.
Pallet Corporation would report a balance in the Investment in Stealth Company Bonds account on December 31,2016,of
A)$412,000.
B)$393,600.
C)$410,500.
D)$400,000.
Q2) The constructive gain or loss on an intercompany bond retirement is recognized in the consolidated income statement _________ the recognition of the gain or loss on the individual companies' books.
A)after B)before C)at the same time as D)before or after
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Chapter 10: Insolvency Liquidation and Reorganization
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Q1) Ford Corporation entered into a troubled debt restructuring agreement with their local bank.The bank agreed to accept land with a carrying value of $200,000 and a fair value of $300,000 in exchange for a note with a carrying amount of $425,000.Ignoring income taxes,what amount should Ford report as a gain on its income statement?
A)$0.
B)$100,000.
C)$125,000.
D)$225,000.
Q2) When a secured claim is not fully settled by the selling of the underlying collateral,the remaining portion:
A)of the claim cannot be collected by the creditor.
B)remains as a secured claim.
C)is classified as an unsecured priority claim.
D)is classified as an unsecured nonpriority claim.
Q3) When a bankruptcy court enters an "order for relief" it has:
A)accepted the petition.
B)dismissed the petition.
C)appointed a trustee.
D)started legal action against the debtor by its creditors.
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Chapter 11: International Financial Reporting Standards
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Q1) Under IFRS,the criteria to determine whether a lease should be capitalized include:
A)the present value of the minimum lease payments is 90% or more of the fair value of the asset at the inception of the lease.
B)the term of the lease is 75% or more of the economic life of the asset.
C)the term of the lease is equal to substantially all of the economic life of the asset.
D)the present value of the minimum lease payments is equal to substantially all of the fair value of the asset at the inception of the lease.
Q2) All of the following are options for non-US companies who wish to list securities on a US exchange EXCEPT:
A)The company can use either IFRS or their local GAAP.
B)If a company uses their local GAAP they must reconcile net income and shareholders' equity or fully disclose all financial information required of US companies.
C)If a company uses their local GAAP they must reconcile net income and shareholders' equity and fully disclose all financial information required of US companies
D)The company must file a form 20-F with the SEC.
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Chapter 12: Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk
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Q1) The discount or premium on a forward contract entered into as a hedge of an exposed asset or liability position should be:
A)included as a separate component of stockholders' equity.
B)amortized over the life of the forward contract.
C)deferred and included in the measurement of related foreign currency transaction.
D)none of these.
Q2) An indirect exchange rate quotation is one in which the exchange rate is quoted:
A)in terms of how many units of the domestic currency can be converted into one unit of foreign currency.
B)for the immediate delivery of currencies exchanged.
C)in terms of how many units of the foreign currency can be converted into one unit of domestic currency.
D)for the future delivery of currencies exchanged.
Q3) Accounting for a foreign currency transaction involves the terms measured and denominated.Describe a foreign currency transaction and distinguish between the terms measured and denominated.
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Chapter 13: Translation of Financial Statements of Foreign
Affiliates
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Q1) The objective of remeasurement is to:
A)produce the same results as if the books were maintained in the currency of the foreign entity's largest customer.
B)produce the same results as if the books were maintained solely in the local currency.
C)produce the same results as if the books were maintained solely in the functional currency.
D)None of these.
Q2) Paid-in capital accounts are translated using the historical exchange rate under:
A)the current rate method only.
B)the temporal method only.
C)both the current rate and temporal methods.
D)neither the current rate nor temporal methods.
Q3) Which of the following would be restated using the average exchange rate under the temporal method?
A)cost of goods sold
B)depreciation expense
C)amortization expense
D)None of these
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Chapter 14: Reporting for Segments and for Interim
Financial Periods
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Q1) To determine whether a substantial portion of a firm's operations are explained by its segment information,the combined revenue from sales to unaffiliated customers of all reportable segments must constitute at least:
A)10% of the combined revenue of all operating segments.
B)75% of the combined revenue of all operating segments.
C)10% of the combined revenue from sales to unaffiliated customers of all operating segments.
D)75% of the combined revenue from sales to unaffiliated customers of all operating segments.
Q2) Inventory losses from market declines that are expected to be temporary:
A)should be recognized in the interim period in which the decline occurs.
B)should be recognized in the last (fourth)quarter of the year in which the decline occurs.
C)should not be recognized.
D)none of these.
Q3) Publicly owned companies are usually required to file some type of quarterly (interim)report as part of the agreement with the stock exchanges that list their stock.Indicate two problems with interim reporting and GAAP's position on this reporting.
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Chapter 15: Partnerships: Formation, operation and Ownership Changes
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Q1) Carter and Gore are partners in an automobile repair business.Their respective capital balances are $425,000 and $275,000,and they share profits in a 3:2 ratio.Because of growth in their repair business,they decide to admit a new partner.Bush is admitted to the partnership,after which Carter,Gore,and Bush agree to share profits in a 3:2:1 ratio.
Required:
Prepare the necessary journal entries to record the admission of Bush in each of the following independent situations:
A.Bush invests $300,000 for a one-fourth capital interest,but will not accept a capital balance of less than his investment.
B.Bush invests $150,000 for a one-fifth capital interest.The partners agree that assets and the firm as a whole should be revalued.
C.Bush purchases a 20% capital interest from each partner.Carter receives $100,000 and Gore receives $50,000 directly from Bush.
Q2) The principal types of partnerships are general partnerships,limited partnerships,and joint ventures.Describe the characteristics of each type of partnership.
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Chapter 16: Partnership Liquidation
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Q1) Under the Uniform Partnership Act:
A)partnership creditors have first claim (Rank I)against the assets of an insolvent partnership.
B)personal creditors of an individual partner have first claim (Rank I)against the personal assets of all partners.
C)partners with credit capital balances share (Rank I)the personal assets of an insolvent partner that has a debit capital balance with personal creditors of that partner.
D)personal creditors of the partners of an insolvent partnership share partnership assets on a pro rata basis (Rank I)with partnership creditors.
Q2) A schedule prepared each time cash is to be distributed is called a(n):
A)advance cash distribution schedule.
B)marshaling of assets schedule.
C)loss absorption potential schedule.
D)safe payment schedule.
Q3) The Uniform Partnership Act specifies specific steps in distributing available partnership assets in liquidation.Describe the steps used to distribute partnership assets during the liquidation process.
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Chapter 17: Introduction to Fund Accounting
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Q1) The Expenditures account of a governmental unit is debited when:
A)the budget is recorded.
B)supplies are ordered.
C)supplies encumbered are received.
D)the supplies invoice is paid.
Q2) The term used to describe the application of accounting to expendable fund entities is the:
A)accrual method.
B)cash method.
C)modified cash method.
D)modified accrual method.
Q3) Which of the following requires the use of the encumbrance system?
A)Capital projects fund
B)Debt service fund
C)Internal service fund
D)Enterprise fund
Q4) Fund entities may be classified as expendable fund entities,fiduciary fund entities,and proprietary fund entities.Distinguish among expendable,fiduciary,and proprietary fund entities.
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Chapter 18: Introduction to Accounting for State and Local
Governmental Units
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Q1) Part of the general obligation bond proceeds from a new issuance was used to pay for the cost of a new city hall as soon as construction was completed.The remainder of the proceeds was transferred to repay the debt.Entries are needed to record these transactions in the:
A)general fund and capital projects fund.
B)general fund and debt-service fund.
C)trust fund and debt-service fund.
D)debt-service fund and capital projects fund.
Q2) The highest level of priority of pronouncements that a government entity should look to for accounting and reporting guidance is:
A)GASB Technical Bulletins.
B)GASB Concepts Statements.
C)AICPA Industry Accounting Guides.
D)GASB Statements.
Q3) GASB Statement No.34 specifies how governments report capital assets.Describe where capital assets are reported in government financial statements.
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Chapter 19: Accounting for Nongovernment Nonbusiness
Organizations: Colleges and Universities, hospitals, and
Other Health Care Organizations
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Q1) A good reason for NNOs to adopt fund accounting even though FASB standards do NOT require it is because:
A)the capital assets are significant.
B)the donated services are significant.
C)the program services are involved with more than one type of revenue.
D)restrictions are placed by donors in many cases.
Q2) Board designated funds should be accounted for as:
A)restricted funds.
B)specific purpose funds.
C)unrestricted funds.
D)none of these.
Q3) A municipality's capital projects fund is similar to a university's:
A)renewals and replacements fund.
B)retirement of indebtedness fund.
C)investment in plant fund.
D)none of these.
Q4) Contributions to NNOS include gifts of cash,pledges,donated services,and gifts of noncash assets.Explain how contributions are recorded by NNOS.
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