Corporate Accounting
Final Exam
Course Introduction
Corporate Accounting examines the accounting principles, standards, and practices applied in corporations. The course covers topics such as the preparation and presentation of corporate financial statements, accounting for share capital and debentures, company amalgamations, mergers and acquisitions, internal reconstruction, and liquidation. Students will also explore the analysis and interpretation of financial statements, issues related to dividends, managerial remuneration, and the regulatory framework governing corporate accounting. Emphasis is placed on understanding statutory requirements and the application of accounting policies in real-world corporate scenarios.
Recommended Textbook
Modern Advanced Accounting in Canada9th Edition by Darrell Herauf
12 Chapters
713 Verified Questions
713 Flashcards
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Page 2
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting
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Sample Questions
Q1) Which of the following would NOT be a reason to obtain a greater understanding of accounting practices in other nations?
A) Financial results are disclosed in different currencies.
B) One needs to be aware of differing disclosure requirements from nation to nation, as this impacts the preparation of financial statements.
C) Income-smoothing may have affected a foreign subsidiary's results; such smoothing practices are not permitted in North America.
D) Departures from the historical cost principle may be possible in other nations.
Answer: A
Q2) Which of the following is NOT a reason why a Canadian private company would elect to report under IFRS?
A) The company is planning to go public in the near future.
B) The company seeks comparability with public companies of a similar size.
C) It is likely to be less expensive than reporting under ASPE.
D) The company is a subsidiary of a Canadian public company.
Answer: C
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Chapter 2: Investments in Equity Securities
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Q1) Posthorn Corporation acquired 20,000 of the 100,000 outstanding common shares of Stamp Company on January 1, 2019, for a cash consideration of $200,000. During 2019, Stamp Company had net income of $120,000 and paid dividends of $80,000. At the end of 2019, shares of Stamp Company were trading for $11 each. If Posthorn Corporation accounts for its investment in Stamp Company at fair value through other comprehensive income (FVTOCI), what will the balance in the Investment in Stamp Company be at December 31, 2019
A) $200,000
B) $208,000
C) $220,000
D) $240,000
Answer: C
Q2) The difference between the investor's cost and the investor's percentage of the carrying value of the net identifiable assets of the associate is known as:
A) Goodwill.
B) the Acquisition Differential.
C) the Fair Value Increment.
D) the Excess Book Value.
Answer: B
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Page 4
Chapter 3: Business Combinations
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Q1) During an acquisition, when should intangible assets NOT be recognized apart from Goodwill?
A) The assets have been identified but not accounted for by the subsidiary.
B) The assets have been identified and accounted for by the subsidiary.
C) The assets can be sold, licensed or exchanged.
D) The assets have been accounted for by the subsidiary but have no Fair Value on the date of acquisition.
Answer: D
Q2) IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $800,000. On the date of acquisition, UNI's assets included $2,000,000 of inventory, and land with a book value of $120,000. UNI also had $1,400,000 in liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's land, which was estimated to have a fair market value which was $50,000 higher than its book value. How much goodwill would be created by IOU's acquisition of UNI?
A) $30,000
B) $50,000
C) $80,000
D) Nil
Answer: A
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Page 5
Chapter 4: Consolidation of Non-Wholly Owned
Subsidiaries
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Q1) Contingent consideration will be classified as a liability when:
A) it will be paid in the form of additional equity.
B) it will be paid in the form of cash or another asset.
C) the form of payment will be determined at a future date.
D) the acquirer decides the appropriate time to make a payment.
Q2) X Company Purchases a (100%) controlling interest in Y Company by issuing $2,000,000 worth of common shares. An agreement was drawn whereby X Company would pay 10% of any earnings in excess of $750,000 to Y's shareholders in the first year following the acquisition. On that date, X's shares had a market value of $80 per share. Required:
a) Assuming that Y's net income was $950,000, prepare any journal entries (for company X) that you feel may be necessary to reflect Y's results under IFRS 3 Business Combinations. Assume that on the acquisition date no provision was made for the contingent consideration.
b) Assuming that the agreement called for Y's shareholders to be compensated with 1,250 shares for any decline in X's share price, what journal entries would be required under IFRS 3, if the market value of X's shares dropped to $64 within the year?
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Q1) Testing intangible assets with indefinite useful lives for impairment:
A) occurs every year.
B) occurs when only there has been an indication of an impairment in the value of the asset such as a reduction in cash flow generation, idle assets, etc.
C) never occurs because the asset has an indefinite useful life.
D) occurs whenever required by the company's auditors.
Q2) Which of the following statements best describes the accounting treatment of Intangible Assets with indefinite lives?
A) All intangible assets are written down when their carrying values exceed their fair market values.
B) With the exception of Goodwill, all intangible assets are written down when their carrying values exceed their fair market values.
C) All intangible assets are written down when their carrying values exceed their undiscounted future cash flows.
D) The recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount than no impairment exists; otherwise, there is an impairment and the asset is written down to its recoverable amount.
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7
Chapter 6: Intercompany Inventory and Land Profits
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Q1) X Inc. owns 80% of Y Inc. During 2020, X Inc. sold inventory to Y for $10,000. Half of this inventory remained in Y's warehouse at year end. Y Inc. sold inventory to X Inc. for $5,000. 40% of this inventory remained in X's warehouse at year end. Both companies are subject to a tax rate of 40%. The gross profit percentage on sales is 20% for both companies. Unless otherwise stated, assume X Inc. uses the cost method to account for its investment in Y Inc.
What is the after-tax dollar value of X's realized profits during the year on its sales to Y?
A) $2,000
B) $1,000
C) $600
D) $400
Q2) Which of the following methods does NOT call for the elimination of ALL intercompany profits?
A) Identifiable net asset method
B) Fair value enterprise method
C) Proportionate consolidation method
D) Partial goodwill method
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Page 8
Chapter 7: A Intercompany Profits in Depreciable Assets B
Intercompany
Bondholdings
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Q1) Duff Inc. owns 75% of Paddy Corp. and uses the Equity Method to account for its investment. Paddy purchased $120,000 face value of Duff's 12% par value bonds on January 1, 2020 for $100,000, when Duff's bond liability consisted of $240,000 par of 12% bonds maturing on January 1, 2030.
There was an unamortized bond discount of $20,000 attached to the bonds on that date. Interest payment dates are June 30 and December 31 each year. Straight line amortization is used.
Both companies have a December 31 year end. Intercompany bond gains and losses are to be allocated to each company. During 2020, Paddy earned a net income of $80,000 and paid dividends of $20,000. What was the pre-tax gain or loss to Paddy Inc. on the intercompany purchase of the bonds?
A) $20,000 loss
B) Nil
C) $20,000 gain
D) $40,000 loss
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Page 9
Chapter 8: Consolidated Cash Flows and Changes in Ownership
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Q1) What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?
A) It should be treated as an adjustment to goodwill.
B) It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C) It should be expensed in the current year.
D) It should be adjusted to a contributed surplus or retained earnings account.
Q2) Which of the following is not included in the amount of shareholders' equity allocated to the holders of the preference shares on the consolidated balance sheet?
A) The stated or par value of the preference shares.
B) Cumulative dividends in arrears on the preference shares.
C) Contributed surplus arising from the issue of preference shares.
D) Redemption premium payable on redemption of preference shares.
Q3) X owns 70% of Y, which in turn owns 25% of Z. X, also owns 20% of Z. Which of the following statements is correct?
A) X has direct control over Z.
B) X has indirect control over Z.
C) X has no control over Z.
D) X has contingent control over Z.
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Chapter 9: Other Consolidation Reporting Issues
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Q1) Which of the following is NOT used as a quantitative threshold to determine that an operating segment is reportable under IFRS 8 Operating Segments?
A) 10% of the combined revenues of all operating segments.
B) 10% of the combined assets of all operating segments.
C) 10% of all expenses are traced to the segment.
D) 10% or more of the greater, in absolute amount, of the combined reported profit of all operating segments that did not report a loss AND 10% or more of the absolute amount of the combined reported loss of all operating segments that did report a loss.
Q2) On December 31, 2020, XYZ Inc. has an account payable of $2,000 for operating expenses incurred during the year. These expenses are only tax deductible when paid. XYZ normally pays for its operating expenses one month after they are incurred.
Assuming a 20% tax rate, these expenses shall result in:
A) a deferred tax liability of $2,000.
B) a deferred tax liability of $400.
C) a deferred tax asset of $400.
D) a deferred tax asset of $2,000.
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Chapter 10: Foreign Currency Transactions
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Q1) On January 1, 2020, Canadian Music International (CMI), a manufacturer of high-end recording equipment based in Toronto, shipped US$120,000 worth of inventory to its main U.S. distributor in Chicago, with full payment of these goods due by February 28, 2020. CMI has a January 31 year end. A list of significant dates and exchange rates is shown below. \[\begin{array} { | l | l | }
\hline \text { Transaction Date: Jaruaary } 1,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.141 \\
\hline \text { Year-End Date: Jaruary } 31,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.142 \\
\hline \text { Setternent Date: February 28, 2020 } & \text { US } \$ 1 = \text { CDN } \$ 1.145 \\
\hline
\end{array}\] The invoice price billed by CMI was US$120,000. What is the amount of cash (in Canadian funds) received by CMI on the settlement date?
A) CDN$136,920
B) CDN$137,040
C) CDN$137,400
D) CDN$137,880
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Page 12
Chapter 11: Translation and Consolidation of Foreign Operations
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Q1) The exposure resulting from the translation of foreign-currency-denominated financial statements into Canadian dollars is referred to as:
A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk exposure.
Q2) Which of the following statements is correct?
A) If the functional currency of the foreign operation is different than the parent's functional currency, depreciation and amortization must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, depreciation and amortization are translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, depreciation and amortization must be translated using historical rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, depreciation and amortization must be translated using closing rates.
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Chapter 12: Accounting for Not-For-Profit and Public Sector Organizations
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Q1) If a not-for-profit organization has revenues in excess of $500,000, how must it report its capital assets?
A) All asset purchases must be immediately and entirely expensed.
B) All capital assets must be capitalized and amortized.
C) All capital assets must be capitalized but not amortized.
D) All capital assets must be disclosed in a note to the financial statements.
Q2) A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method of reporting and did not have a fund for this project?
A) $6,000
B) $14,000
C) $20,000
D) $34,000
Q3) Describe what fund accounting is and why is it used for not-for-profit organizations.
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Page 14