Corporate Accounting
Question Bank
Course Introduction
Corporate Accounting provides an in-depth examination of accounting principles and practices as they apply to corporate entities. This course covers key topics such as the preparation and presentation of financial statements, accounting for share capital and debentures, company final accounts, and the treatment of dividends and profits. Students will learn about regulatory frameworks, compliance with accounting standards, and the intricacies of amalgamations, absorption, and reconstruction of companies. By emphasizing both theoretical concepts and practical applications, the course prepares students to analyze and interpret corporate financial information for informed decision-making and reporting.
Recommended Textbook
Modern Advanced Accounting in Canada9th Edition by Darrell Herauf
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12 Chapters
713 Verified Questions
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Page 2
Chapter 1: Conceptual and Case Analysis Frameworks for Financial Reporting
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Sample Questions
Q1) What approach did Canada first decide to take with respect to convergence with IFRS?
A) Harmonization of CPA Canada Handbook with IFRS.
B) Substituting IFRS for Canadian GAAP when approved by the IASB.
C) Adopting some but not necessarily all IFRSs by reviewing them on a case by case basis.
D) Reviewing them with all publically accountable entities to see which ones would be acceptable.
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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3
Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) 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
Q2) What is the dominant factor used to distinguish non-strategic investments from significant influence investments?
A) Use of the cost method to account for and report the investment.
B) Use of the equity method to account for and report the investment.
C) The investor's intention to establish or maintain a long-term operating relationship with the investee.
D) The percentage of equity held by the investor.
Answer: C
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Chapter 3: Business Combinations
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Sample Questions
Q1) Which of the following is considered to be part of the acquisition cost of a subsidiary?
A) Due diligence fees paid to lawyers.
B) The fair value of assets transferred by the acquirer.
C) The costs of issuing debt or shares.
D) Amounts paid to accountants for advice.
Answer: B
Q2) Which of the following pertaining to Consolidated Financial Statements is correct?
A) The preparation of Consolidated Financial Statements means that the companies involved cease to operate as separate legal entities.
B) The preparation of Consolidated Financial Statements is at the Parent Company's discretion.
C) When one company has control over another, Consolidated Financial Statements must be prepared for the combined entity.
D) Before preparing Consolidated Financial Statements, a subsidiary's Financial Statements prior to the date of acquisition must be restated.
Answer: C
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Chapter 4: Consolidation of Non-Wholly Owned
Subsidiaries
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Q1) On the date of formation of a 100% owned subsidiary by the parent, which of the following statements pertaining to consolidated financial statements is TRUE?
A) It is possible to prepare consolidated financial statements that include all the assets and liabilities of the subsidiary.
B) Consolidated financial statements are difficult to prepare because the assets and liabilities of the subsidiary have yet to be determined.
C) Consolidation requires the elimination of the parent's investment account against the subsidiary's share capital.
D) Consolidation will not be required since a new legal entity will have been formed.
Q2) Any negative goodwill arising on the date of acquisition:
A) is prorated among the parent company's identifiable net assets.
B) is recognized as a gain on the date of acquisition.
C) should be amortized over a predetermined period.
D) is recognized as a gain on date of acquisition by both the parent and the non-controlling interest.
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Sample Questions
Q1) Under the Equity Method, which of the following statements is TRUE?
A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
D) The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.
Q2) Prepare a consolidated balance sheet for Par Inc. as at June 30, 2021.
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7
Chapter 6: Intercompany Inventory and Land Profits
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Sample Questions
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 Y's unrealized profits during the year on its sales to X?
A) $240
B) $360
C) $400
D) $500
Q2) Intercompany profits on sales of inventory are only realized:
A) once the seller receives payment for the sale.
B) once the inventory has been sold to outsiders.
C) when the inventory has been received by the purchaser.
D) when the inventory has been shipped to the purchaser.
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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 would be the pre-tax gain or loss to the combined entity on the intercompany sale of the bonds?
A) $20,000 loss
B) $10,000 loss
C) Nil
D) $10,000 gain
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Page 9
Chapter 8: Consolidated Cash Flows and Changes in Ownership
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Sample Questions
Q1) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750. ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is ABC's ownership interest in 123 after its sale?
A) 70%
B) 14%
C) 42%
D) 56%
Q2) 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.
Page 10
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Chapter 9: Other Consolidation Reporting Issues
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Sample Questions
Q1) JNG Corp has 4 segments, the details of which are shown below. All figures are in thousands of dollars. \(\begin{array}{|l|r|r|r|}
\hline \text { Segment } & \text { Revenues } & \text { Profits } & \text { Assets } \\
\hline \mathrm{A} & \$ 12 & \$ 6 & \$ 40 \\
\hline \mathrm{B} & \$ 60 & \$ 2 & \$ 80 \\
\hline \mathrm{C} & \$ 35 & \$ 10 & \$ 80 \\
\hline \mathrm{D} & \$ 200 & \$ 80 & \$ 20\\\hline \end{array}\) Using only the Revenue test, which of the following segment(s) would be reportable?
A) A
B) A, B, and D
C) B, C, and D
D) C and D
Q2) How are intercompany transactions handled in a joint venture?
A) They are ignored.
B) They are completely eliminated.
C) Only the venturer's share of any after tax profit is eliminated.
D) Intercompany profits are treated as an adjustment to the acquisition differential.
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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 CMI's foreign exchange gain or loss at year-end?
A) CDN$120 loss
B) CDN$480 gain
C) CDN$120 gain
D) Nil; foreign exchange gains or losses are deferred to settlement
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Page 12
Chapter 11: Translation and Consolidation of Foreign Operations
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Q1) Under the presentation currency translation (PCT) method, which of the following statements is correct?
A) Transaction exposure is greatest.
B) The relationship of balance sheet items is best preserved.
C) Income statement items are translated using a mix of rates.
D) Income statement items are translated using average rates.
Q2) According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-inflationary" means:
A) an annual inflation rate of 50%.
B) an annual inflation rate of 100%.
C) a cumulative inflation rate of 100% over a 3-5 year period.
D) it does not establish an absolute rate which is deemed to be hyper-inflation.
Q3) Under the functional currency translation (FCT) method, which of the following statements is correct?
A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D) Historic rates are used to translate most non-monetary items.
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Chapter 12: Accounting for Not-For-Profit and Public Sector Organizations
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Sample Questions
Q1) The maximum amortization period specified by Section 4433 with respect to capital assets is:
A) 5 years.
B) 10 years.
C) 20 years.
D) No maximum amortization period is specified.
Q2) Describe what fund accounting is and why is it used for not-for-profit organizations.
Q3) Collections are works of art that have been excluded from the definition of capital assets. Which of the following statements is NOT a criterion which must be met before works of art qualify as collections under Canadian accounting standards?
A) It must be possible to establish a useful life for the works and an appropriate amortization period.
B) They are held for public exhibition, education, or research.
C) They are protected, cared for, and preserved.
D) They are subject to organizational policies that require any proceeds from their sale to be used to acquire other items for the collection, or for the direct care of the existing collection.
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Page 14