Corporate Accounting
Mock Exam
Course Introduction
Corporate Accounting is a course that focuses on the principles, procedures, and standards involved in the preparation and analysis of accounts for corporations. It covers key topics such as the formation and structure of companies, share capital and debenture accounting, preparation of company final accounts, dividend distributions, and regulatory compliance. The course also explores advanced issues like amalgamations, absorptions, reconstructions, and the accounting treatment for liquidations. Practical emphasis is placed on interpreting financial statements, understanding statutory requirements, and applying relevant accounting standards to corporate entities.
Recommended Textbook
Advanced Financial Accounting 9th Edition by Richard Baker
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Based on the preceding information,what would be the total amount of goodwill that Wilson should report at year-end?
A)$0
B)$69,000
C)$79,000
D)$94,000
Answer: B
Q2) Based on the preceding information,what was Conservative's book value of assets transferred to Spin Company?
A)$243,000
B)$263,000
C)$221,000
D)$201,000
Answer: D
Q3) Based on the preceding information,for Delta:
A)no goodwill should be reported at year-end.
B)goodwill impairment of $15,000 should be recognized at year-end.
C)goodwill impairment of $20,000 should be recognized at year-end.
D)goodwill of $30,000 should be reported at year-end.
Answer: B
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) Based on the information provided,what amount of net income will be reported in the consolidated financial statements prepared on December 31,20X4?
A)$100,000
B)$85,000
C)$110,000
D)$125,000
Answer: C
Q2) Under the equity method of accounting for a stock investment,the investment initially should be recorded at: A)cost.
B)cost minus any differential.
C)proportionate share of the fair value of the investee company's net assets.
D)proportionate share of the book value of the investee company's net assets.
Answer: A
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4
Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) The FASB issued Interpretation No.46 R related to the Consolidation of Variable Interest Entities.Describe what a Variable Interest Entity is and discuss why the FASB has difficulty in prescribing when these entities are consolidated.
Answer: A Variable Interest Entity (VIE)is a legal structure used for business purposes that either:
1.Does not have equity investors that: a.have voting rights or b.doesn't share in all of the entity's profits or losses.
2.Has equity investors that do not provide sufficient financial resources to support the entity's activities.
Therefore,FASB has been trying to define the Primary Beneficiary and from this lead to consolidation not just control as presumed under FASB 141.
Q2) Consolidated financial statements tend to be most useful for:
A)Creditors of a consolidated subsidiary.
B)Investors and long-term creditors of the parent company.
C)Short-term creditors of the parent company.
D)Stockholders of a consolidated subsidiary.
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 preceding information,the amount of differential associated with the acquisition is:
A)$0.
B)$58,000.
C)$22,000.
D)$36,000.
Q2) Tanner Company,a subsidiary acquired for cash,owned equipment with a fair value higher than the book value as of the date of combination.A consolidated balance sheet prepared immediately after the acquisition would include this difference in:
A)goodwill.
B)retained earnings.
C)deferred charges.
D)equipment.
Q3) Based on the preceding information,what amount will be reported as total assets in the consolidated balance sheet for 20X8?
A)$666,000
B)$747,000
C)$651,000
D)$946,000
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Chapter 5: Consolidation of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Q1) Based on the preceding information,what amount will be reported as noncontrolling interest in the consolidated balance sheet immediately following the acquisition?
A)$0
B)$70,000
C)$83,750
D)$100,000
Q2) Based on the preceding information,what is the amount of comprehensive income attributable to the controlling interest for 20X8?
A)$123,750
B)$118,750
C)$119,000
D)$104,000
Q3) Based on the preceding information,what is the amount of comprehensive income attributable to the controlling interest for 20X9?
A)$138,750
B)$131,000
C)$128,750
D)$135,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,by what amount was unadjusted revenue overstated in the combined income statement for 20X8?
A)$25,000
B)$56,892
C)$31,250
D)$6,250
Q2) Based on the information given above,what amount of cost of goods sold will be reported in the 20X8 consolidated income statement?
A)$62,000
B)$120,000
C)$90,000
D)$58,000
Q3) Based on the information given above,what amount of inventory should be eliminated in the consolidation worksheet for 20X8?
A)$15,000
B)$14,000
C)$12,000
D)$13,000
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Phobos Company holds 80 percent of Deimos Company's voting shares.During the preparation of consolidated financial statements for 20X9,the following eliminating entry was made:
Which of the following statements is correct?
A)Phobos Company purchased land from Deimos Company during 20X9.
B)Phobos Company purchased land from Deimos Company before January 1,20X9.
C)Deimos Company purchased land from Phobos Company during 20X9.
D)Deimos Company purchased land from Phobos Company before January 1,20X9.
Q2) Based on the preceding information,in the preparation of elimination entries related to the equipment transfer for the 20X8 consolidated financial statements,net effect on accumulated depreciation will be:
A)a decrease of $50,000.
B)an increase of $110,000.
C)an increase of $120,000.
D)a decrease of $160,000.
Q3) Based on the preceding information,consolidated net income for 20X9 will be:
A)$150,000.
B)$100,000.
C)$148,000.
D)$130,000.
Page 9
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Chapter 8: Intercompany Indebtedness
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Q1) A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the accounting records of the parent and its subsidiary:
I.at the date of constructive retirement.
II.over the remaining term of the bonds.
A)I
B)II
C)Both I and II
D)Neither I nor II
Q2) Based on the information given above,what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?
A)$240,500
B)$200,000
C)$245,000
D)$211,500
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1,20X9,is:
A)$40,000
B)$42,000
C)$36,000
D)$48,000
Q2) The ending balance in Additional Paid-In Capital would be:
A)$0
B)$187,500
C)$312,500
D)$125,000
Q3) By what amount did the Investment in Siena account change?
A)Increase of $296,500
B)Decrease of $296,500
C)Increase of $64,000
D)Decrease of $64,000
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash provided by operating activities for 20X9?
A)$350,000
B)$463,000
C)$335,000
D)$421,000
Q2) Which of the following observations concerning the comparisons between the direct and indirect approaches of presenting a cash flow statement is true?
A)The final number of cash flows from operating activities is different under the two approaches.
B)The direct approach provides a clearer picture of cash flows related to operations.
C)Authoritative bodies have generally expressed a preference for the indirect method.
D)A separate reconciliation of operating cash flows and net income is required under the indirect approach.
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,which of the following adjusting entries would be required on December 31,20X8?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Company X denominated a December 1,20X9,purchase of goods in a currency other than its functional currency.The transaction resulted in a payable fixed in terms of the amount of foreign currency,and was paid on the settlement date,January 10,2010.Exchange rates moved unfavorably at December 31,20X9,resulting in a loss that should:
A)be included as a separate component of stockholders' equity at Dec.31,20X9.
B)be included as a component of income from continuing operations for 20X9.
C)be included as a deferred charge at December 31,20X9.
D)not be reported until January 10,2010,the settlement date.
Q3) Based on the preceding information,the entries on January 30,20X9,include a:
A)Debit to Dollars Payable to Exchange Broker,$184,000.
B)Credit to Foreign Currency Transaction Gain,$4,000.
C)Credit to Foreign Currency Receivable from Exchange Broker,$180,000.
D)Debit to Foreign Currency Units (SFr),$184,000.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) For each of the items listed below,state whether they increase or decrease the balance in cumulative translation adjustments (assuming a credit balance at the beginning of the year)when the foreign currency strengthened relative to the U.S.dollar during the year.
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Based on the preceding information,what amount should Leo record as "income from subsidiary" based on the British subsidiary's reported net income?
A)$72,930
B)$52,500
C)$72,600
D)$69,300
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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14
Chapter 13: Segment and Interim Reporting
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Q1) If a company changes the method it uses to compute the allowance for uncollectible accounts receivable because more recent information has become available,how is this change in method is accounted for?
A)The change is only reported in the current period in which the change is made
B)The change is reported in all future periods affected by the change
C)Previously issued financial statements are not adjusted by the change
D)All of the above are correct ways to account for the change
Q2) Derby Company pays its executives a bonus of 6 percent of income before deducting the bonus and income taxes.For the quarter ended March 31,20X8,Derby had income before the bonus and income tax of $12,000,000.For the year ended December 31,20X8,Derby estimates that its income before bonus and income taxes will be $70,000,000.For the quarter ended March 31,20X8,what is the amount of the bonus that Derby should deduct on its income statement?
A)$4,200,000
B)$720,000
C)$1,050,000
D)$180,000
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Chapter 14: Sec Reporting
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Q1) The preparation of which of the following items is covered by Regulation S-K?
A)Descriptions of business
B)Pro forma disclosures
C)Schedules
D)Reports of accountants
Q2) Which of the following acts requires that a trustee be appointed for sales of bonds,debentures,and other debt securities of public corporations?
A)Securities Investor Protection Act
B)Trust Indenture Act
C)Investment Company Act
D)Investment Advisors Act
Q3) The Securities Exchange Act of 1934 requires publicly held companies to file periodic financial disclosures as updates of their economic activity.The three basic forms used for this updating are Form 10-K,Form 10-Q,and Form 8-K.
Required:
Describe the information contained in each of the three basic forms noted above.
Q4) Accounting and Auditing Enforcement Releases
Q5) Customary Review
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Chapter 15: Partnerships: Formation, operation, and
Changes in Membership
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Q1) 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.What are the capital balances of Allen and Daniel after David is admitted into the partnership?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) A joint venture may be organized as a: I.Partnership.
II.Corporation.
III.Undivided interest.
A)I only
B)II only
C)I or III only
D)I,II,or III
Q3) The ABC partnership had net income of $100,000 for 2009.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/2009 books they discovered that $30,000 was spent on a piece of land in December 2009 and was expensed.What should happen?
Page 17
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Chapter 16: Partnerships: Liquidation
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Q1) Based on the preceding information,what amounts will be distributed to Page and Larry upon liquidation of the partnership?
A)Option A
B)Option B
C)Option C
D)Option D
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 second month?
A)$27,000
B)$36,000
C)$18,000
D)$0
Q3) According to UPA 1997,during partnership liquidation,loans the partners have made to the partnership have the same status as loans from third-party creditors.As a practical matter,most loans from partners:
A)are subordinated to third-party creditors.
B)have the same status as loans from third-party creditors.
C)are paid prior to third-party creditors.
D)None of the above.
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Page 18
Chapter 17: Governmental Entities: Introduction and General
Fund Accounting
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Q1) The general fund of Caldwell had the following operating budget for the fiscal year beginning July 1,20X9: When the general fund records its operating budget on July 1,20X9,Budgetary Fund
Balance-Unassigned should be
A)credited for $600,000.
B)debited for $900,000.
C)debited for $600,000.
D)credited for $900,000.
Q2) Due to an error,the general fund of Pueblo did not record an encumbrance for police equipment which had been ordered but not received on June 30,20X9,the end of its fiscal year.Pueblo's outstanding encumbrances at year-end are nonlapsing.What was the effect of this error on the balance sheet of Pueblo's general fund?
A)Assets are overstated.
B)Liabilities are understated.
C)Total fund balance is overstated.
D)Unassigned fund balance is overstated.
Q3) Accounting processes differ between a for-profit entity and a governmental entity.Discuss three differences between a governmental entity and a for-profit entity.
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Chapter 18: Governmental Entities: Special Funds and Government-Wide Financial Statements
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Q1) Which of the following items is optional information for a special-purpose governmental entity when issuing financial reports?
A)Management's Discussion and Analysis
B)Footnotes to the financial repots
C)Supplementary Information to the financial reports
D)All of the above are required.
Q2) Refer to the above information.For the year ended June 30,20X9,what amount should the trust fund report as investment earnings on the statement of revenues,expenses,and changes in fund balance?
A)$60,000
B)$68,000
C)$70,000
D)$78,000
Q3) For which of the following funds are the principles and accounting most like those of the general fund?
A)Debt service fund
B)Internal service fund
C)Special revenue fund
D)Investment trust fund
20
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Chapter 19: Not-For-Profit Entities
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Q1) "Financial statement of a private NFP entity" describes which term listed above?
Q2) Refer to the above information.At June 30,20X9,the amount of permanently restricted net assets reported on the statement of financial position would be:
A)$1,070,000.
B)$1,030,000.
C)$1,000,000.
D)$960,000.
Q3) Transaction: Received contributions restricted by donors for equipment acquisition. Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.
Q4) The FASB has issued five standards that have direct applicability to private,not-for-profit entities.From the list given below,match each standard to the area it deals with.
Q5) "Classification of an endowment contribution" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) Chapter 11 of the Bankruptcy Code provides for:
I.Reorganization.
II.Liquidation.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q2) The payment to general unsecured creditors is often termed:
A)a "preference payment."
B)a "dividend."
C)a "write-off."
D)a "bonus."
Q3) A reorganization value in excess of amounts assignable to identifiable assets is:
A)not reported.
B)reported as an intangible asset called Reorganization Value in Excess of Amounts Allocable to Identifiable Assets.
C)reported as Goodwill Associated with Exit or Disposal Activities.
D)passed on to prior shareholders of the company.
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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