Corporate Accounting
Textbook Exam Questions
Course Introduction
Corporate Accounting is a specialized branch of accounting that focuses on the financial activities and reporting requirements of corporations. This course covers essential topics such as the preparation and analysis of financial statements, accounting for share capital and debentures, corporate restructuring, amalgamations and absorptions, and the management of profits and dividends. Students will also explore regulatory frameworks, compliance with accounting standards, and the role of auditors in a corporate environment. By developing practical skills in recording and interpreting complex transactions, the course equips learners to handle the unique challenges associated with corporate financial management and reporting.
Recommended Textbook
Advanced Accounting 13th Edition by
Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) With respect to goodwill,an impairment
A)will be amortized over the remaining useful life.
B)is a two-step process which first compares book value to fair value at the business reporting unit level.
C)is a one-step process considering the entire firm.
D)occurs when asset values are adjusted to fair value in a purchase.
Answer: B
Q2) Durer Inc.acquired Sea Corporation in a business combination and Sea Corp.went out of existence.Sea Corp.developed a patent listed as an asset on Sea Corp.'s books at the patent office filing cost.In recording the combination,
A)fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp.
B)Sea Corp.'s prior expenses to develop the patent are recorded as an asset by Durer at purchase.
C)the patent is recorded as an asset at fair market value.
D)the patent's market value increases goodwill.
Answer: C
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Which method of accounting will generally be used when one company purchases less than 20% of the outstanding stock of another company?
A)Only the fair value method may be used.
B)Only the equity method may be used.
C)Either the fair value method or the equity method may be used,depending upon the relationship between the companies.
D)Only the acquisition method.
Answer: C
Q2) Equity investments at acquisitions require direct costs of registering equity securities be charged to additional paid-in capital.
A)True
B)False
Answer: True
Q3) The GAAP requires the recording of common stock acquisitions in the investor record at cost.
A)True
B)False Answer: True
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Push-down accounting
A)requires a subsidiary to use the same accounting principles as its parent company.
B)is required when the parent company uses the equity method to account for its investment in a subsidiary.
C)is required when the parent company uses the cost method to account for its investment in a subsidiary.
D)is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary.
Answer: D
Q2) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock.On the consolidated financial statements of Panini Corporation and Strathmore,Malone is
A)an affiliate.
B)a noncontrolling interest.
C)an equity investee.
D)a related party.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Q1) What amount of Inventory will be reported?
A)$170,000
B)$169,000
C)$186,500
D)$192,000
Q2) The trial balance approach to consolidation workpapers brings together the adjusted trial balances for affiliated companies.
A)True
B)False
Q3) Which one of the following will increase consolidated retained earnings?
A)An increase in the value of goodwill associated with a subsidiary subsequent to the parent's date of acquisition
B)The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value
C)The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value
D)The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) If the sale referred to above was a downstream sale,by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2014?
A)$3,000
B)$10,000
C)$14,000
D)$20,000
Q2) Plateau Incorporated bought 60% of the common stock of Sachet Company several years ago.At the time of purchase,the fair value and book value of Sachet's net assets were equal.The cost of the 60% investment was equal to 60% of the book value of Sachet's net assets.Plateau sells merchandise to Sachet at 125% above Plateau's cost.Intercompany sales from Plateau to Sachet for 2014 were $60,000.Unrealized profits in Sachet's December 31,2013 inventory and December 31,2014 inventory were $6,000 and $4,500,respectively.Sachet reported net income of $120,000 for 2014.
Required: In General Journal format,prepare consolidation working paper entries at December 31,2014 to eliminate the effects of the intercompany inventory sales.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Parrot Corporation acquired a 70% interest in Swifti Corp.on January 1,2013,when Swifti's book values and fair values were equivalent.On January 1,2014,Swifti sold a building with a book value of $60,000 to Parrot for $80,000.The building had a remaining life of five years,no salvage value,and was depreciated by the straight-line method.Swifti reported net income of $200,000 for 2014.What was the noncontrolling interest share for 2014?
A)$54,000
B)$55,200
C)$60,000
D)$128,800
Q2) Gross profit on inventory items sold for use in the operations of an affiliate will be realized for consolidated statement purposes immediately.
A)True
B)False
Q3) For upstream sales the total amount of unrealized gains and losses are allocated between controlling and noncontrolling interest shares.
A)True
B)False
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Constructive retirement means that bonds are retired for consolidated statement purposes because the bond investment and payable items of the parent and the subsidiary are reciprocals that must be eliminated in consolidation.
A)True
B)False
Q2) A constructive retirement of parent bonds occurs when an affiliate purchases outstanding bonds of the parent.
A)True
B)False
Q3) The GAAP requires the effective interest method of amoritization on transactions between parent and subsidiary companies.
A)True
B)False
Q4) The difference between the book value of a bond liability and the purchase price of the bond investment is a gain or loss for consolidated statement purposes.
A)True
B)False
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Preacquisition income for 2013 is
A)$50,000.
B)$35,000.
C)$44,000.
D)$36,000.
Q2) Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2,2014.Giant's percentage ownership in Penguin immediately after the purchase of the additional stock is A)66-2/3%.
B)80%.
C)83-1/3%.
D)86-2/3%
Q3) Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2,2014.Giant's percentage ownership immediately after the sale of additional stock would be A)66-2/3%.
B)75%.
C)80%.
D)83-1/3%.
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Chapter 9: Indirect and Mutual Holdings
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Q1) Pallet Corporation owns 80% of Adelt Corporation and Adelt owns 60% of Bajo Inc.Which of the following is correct?
A)Bajo should not be consolidated because noncontrolling interests hold 52%.
B)Bajo should be consolidated because the 60% of Bajo stock is held in the affiliate structure.
C)Pallet has 8% indirect ownership of Bajo.
D)Pallet has 80% indirect ownership of Bajo.
Q2) Noncontrolling interest share for Achille is
A)$18,000.
B)$25,200.
C)$36,200.
D)$72,000.
Q3) Consolidated statements are appropriate when one corporation directly or indirectly owns a majority of the outstanding voting stock of another.
A)True
B)False
Q4) Mutual holdings occur when affiliates hold ownership interests in each other.
A)True
B)False
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Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) What should be the noncontrolling interest share,preferred in the consolidated financial statements of Parminter for the year ending December 31,2014?
A)$1,000
B)$2,000
C)$4,000
D)$5,000
Q2) In computing consolidated diluted EPS,the replacement calculation replaces the parent's equity in subsidiary earnings with the
A)parent's share of basic EPS of the subsidiary.
B)subsidiary's share of basic EPS of the parent.
C)parent's share of diluted EPS of the subsidiary.
D)subsidiary's share of diluted EPS of the parent.
Q3) If no redemption provision is provided on preferred stock,the equity allocation base is based on par value of the stock less any liquidation premium.
A)True
B)False
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Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) Under parent company theory,the amount of consolidated net income is equal to the amount of ________ under entity theory.
A)noncontrolling interest share
B)noncontrolling interest income
C)income attributable to controlling stockholders
D)income attributable to noncontrolling stockholders
Q2) Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.
A)book value; subsidiary
B)book value; parent
C)fair value; subsidiary
D)present value; parent
Q3) Goodwill was reported in the December 31,2014 consolidated balance sheet at A)$170,000.
B)$180,000.
C)$200,000.
D)$210,000.
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Page 13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) What exchange gain or loss appeared on Sooty's 2014 income statement?
A)a loss of $10,000
B)a loss of $15,000
C)a gain of $10,000
D)a gain of $15,000
Q2) A put option requires the seller to buy an asset at market price and the buyer of the put option has the option to sell the asset at market.
A)True
B)False
Q3) One reason corporations enter into a derivative contract is to reduce the vulnerability of their cash flows.
A)True
B)False
Q4) What exchange gain or loss appeared on Sooty's 2015 income statement?
A)a loss of $15,000
B)a loss of $5,000
C)a gain of $15,000
D)a gain of $5,000
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Chapter 13: Accounting for Derivatives and Hedging
Activities
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Q1) A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using
A)Modified Cash Basis Accounting.
B)Critical Term Hedge Analysis.
C)Fair Value Hedge Accounting.
D)Hedge of Net Investment in Foreign Subsidiary.
Q2) The net gain or loss in earnings during the period for a fair-value hedge must be reported in the financial statement footnotes.
A)True
B)False
Q3) A cash-flow hedge attempts to limit a company's exposure to price changes in forecasted purchases.
A)True
B)False
Q4) When a company attempts to control the impact of price fluctuations on its future cash flows and its sales,it is entering into a cash-flow hedge.
A)True
B)False
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Chapter 14: Foreign Currency Financial Statements
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Q1) When the functional currency of a foreign entity is the U.S.dollar,the foreign entity's accounts are remeasured into its U.S.dollar functional currency.
A)True
B)False
Q2) At the time of a business acquisition,
A)identifiable assets and liabilities are allocated the portion of the translation or remeasurement adjustment that existed on the date of acquisition.
B)a foreign entity's assets and liabilities are translated into U.S.dollars using the current exchange rate in effect on that date.
C)the difference between investment fair value and translated net assets acquired is treated as a remeasurement gain or loss on the income statement.
D)the difference between investment fair value and translated net assets acquired is recorded as a cumulative translation adjustment on the balance sheet.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) In general,GAAP encourages the identification of reportable segments based on the following:
A)Reported segments must account for at least 75% of all external and inter-segment sales.
B)Reported segments must ideally account for at least 75% of all sales,unless there are many smaller divisions and separate reporting would create less clarity in reporting.
C)If there are more than 10 reportable segments,the company should consider additional aggregation of their segments.
D)Reported segments must account for 100% of the external sales,but only 75% of external and inter-segment sales.
Q2) Similar operating segments may be combined if the segments have similar economic characteristics.Which one of the following is a similar economic characteristic under GAAP?
A)The segments' management teams
B)The tax reporting law sections
C)The distribution method for products or services
D)The expected rates of return and risk for the segments' productive assets
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2014?
A)$100,000 and $140,000
B)$108,000 and $132,000
C)$120,000 and $120,000
D)$140,000 and $100,000
Q2) In the Uniform Partnership Act,partners have A)mutual agency.
B)limited liability.
C)no mutual agency.
D)association rights.
Q3) Required:
1.Prepare a schedule to allocate income or loss to the partners assuming that the partnership incurs a net loss of $36,000 for 2014.
2.Prepare a journal entry to distribute the partnership's loss to the partners (assume that an Income Summary account is used by the partnership).
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Chapter 17: Partnership Liquidation
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Q1) A cash distribution plan involves ranking the partners in terms of their vulnerability to possible losses.
A)True
B)False
Q2) Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed.When this happens
A)creditors may only file against partnership assets.
B)creditors must file against all partners and recover their claims based on the individual partner's profit and loss distribution percentage.
C)creditors must file against all partners and recover their claims based on the individual partner's percentage ownership.
D)creditors may file against an individual partner to recover their claims,or against any combination of partners.
Q3) A partnership is solvent if enough resources exist to pay creditors and make a cash distribution to the partners.
A)True
B)False
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) The duties of a debtor in possession in a Chapter 11 bankruptcy case do not include A)filing a list of creditors and schedules of assets and liabilities with the bankruptcy court.
B)operating the business during the reorganization period.
C)filing a reorganization plan.
D)issuing an order of relief.
Q2) Which condition must be met for fresh-start reporting for an emerging company from Chapter 11?
A)Holders of existing voting shares immediately before confirmation of the reorganization plan must receive more than fifty percent of the emerging entity.
B)The loss of control by voting shareholders must be temporary.
C)The reorganization value of the emerging entity's assets immediately before the date of the confirmation of the reorganization plan must be less than the total of all postpetition liabilities and allowed claims.
D)The fresh-start entity must have a deficit.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) The following are transactions for the city of Salem.
a.Incurred salaries of $44,000 to be paid next month.
b.Tax bills totaling $500,000 mailed to city residents.
c.Paid salaries above.
d.Computer equipment received in the amount of $11,000,to be paid in 30 days.
Required:
Analyze the above transactions by using the accounting equation for a governmental fund.
Q2) General governmental activities provide goods and services to citizens without regard to their ability to pay.
A)True
B)False
Q3) The accounting equation for a governmental fund is A)Assets = Liabilities + Equity.
B)Current assets + Noncurrent assets - Current liabilities - Noncurrent liabilities = Net position.
C)Current assets - Current liabilities = Fund Balance.
D)Assets = Liabilities + Fund Balance.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) The proceeds from a bond issuance for the construction of a new public school should be recorded in the ________ fund at the time the bonds are sold.At the time of the bond issue,the debit is to cash and the credit is to ________.
A)capital projects; revenues
B)general; bonds payable
C)general; other financing sources
D)capital projects; other financing sources
Q2) A restricted fund balance represents amounts that can only be spent for the specific purposes stipulated by constitution,external resource providers,or through enabling legislation.
A)True
B)False
Q3) At any point in time,a government will be able to spend an amount equal to A)appropriations minus expenditures.
B)appropriations minus expenditures minus encumbrances.
C)appropriations minus encumbrances.
D)expenditures minus encumbrances.
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Chapter 21: Accounting for State and Local Governmental
Units - Proprietary and Fiduciary Funds
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Q1) The accounting equation for the Proprietary fund is A)assets = liabilities.
B)current assets + current liabilities = fund balance.
C)current assets - current liabilities = net position.
D)current assets + noncurrent assets - current liabilities - noncurrent liabilities = net position.
Q2) Restricted net position for proprietary funds is composed of restricted assets reduced by liabilities and deferred inflows of resources related to those assets.
A)True
B)False
Q3) GASB Statement No.34 mandates that the indirect method be used for the cash flow statement of proprietary funds.
A)True
B)False
Q4) Enterprise funds use full accrual accounting procedures.
A)True B)False
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Voluntary health and welfare organizations
A)may not have paid executives or staff.
B)are governed by separate GASB statements.
C)use fund accounting,following the rules for proprietary fund reporting.
D)are supported by,and provide voluntary services to,the public.
Q2) Record the following transactions for Porter Hospital,a private,nonprofit hospital:
1.Gross patient services revenues: $25,000,000.Billed to patients.
2.Included in the above revenues are: charity services,$500,000; contractual adjustments,$11,000,000; and estimated uncollectible amounts,$250,000.
3.Purchased equipment by issuing a 5-year note for $200,000.
4.Received cash donations restricted for a capital building addition program,$5,100,000.
5.Incurred and paid $1,700,000 of contractor billings for the capital building program.
Q3) Contractual adjustments are discounts arranged with third-party payors that frequently have agreements to reimburse at less-than-established rates.
A)True
B)False
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Chapter 23: Estates and Trusts
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Q1) Richard Stands passed away at on September 2,2011.The probate court ruled that most assets could be excluded from estate inventory.Ty Republic has been appointed to serve as executor for the estate.The estate assets consisted of the following at that date: \(\begin{array}{|l|r|r|}
\hline\text { Asset } & \text { Cost } & \text { Fair Value } \\
\hline \text { Cash } & 160,750 & 160,750 \\
\hline \text { Certificates of Deposit } & 100,000 & 100,000 \\
\hline \text { Investments/Mutual Funds } & 487,160 & 3,506,490 \\
\hline \text { Residence } & 185,000 & 368,000 \\
\hline \text { Lake cottage } & 12,000 & 123,000 \\
\hline \text { Cookie Jar collection } & 8,785 & 74,000 \\
\hline 1966 \text { Alpha Romeo } & 42,000 & 79,750 \\
\hline
\end{array}\)
Required:
Prepare an inventory of estate assets as of September 2,2011.
Q2) A trust created pursuant to a will is referred to as a testamentary trust.
A)True
B)False
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