Corporate Financial Reporting
Exam Materials
Course Introduction
Corporate Financial Reporting explores the principles and practices involved in the preparation and analysis of financial statements for corporations, focusing on the requirements set by accounting standards such as IFRS and GAAP. The course covers the conceptual framework of financial reporting, key components of annual reports, disclosure requirements, and the role of financial statements in decision-making for investors, regulators, and other stakeholders. Students gain practical experience in interpreting balance sheets, income statements, statements of cash flows, and notes to accounts, while developing an understanding of ethical considerations and the impact of corporate governance on financial reporting quality.
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) Which of the following situations best describes a business combination to be accounted for as a statutory merger?
A)Both companies in a combination continue to operate as separate,but related,legal entities.
B)Only one of the combining companies survives and the other loses its separate identity.
C)Two companies combine to form a new third company,and the original two companies are dissolved.
D)One company transfers assets to another company it has created.
Answer: B
Q2) Based on the preceding information,Regan Company will report
A)additional paid-in capital of $0.
B)additional paid-in capital of $150,000.
C)additional paid-in capital of $162,000.
D)additional paid-in capital of $180,000.
Answer: C
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) A change from the cost method to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires:
A)only a footnote disclosure.
B)that the cumulative amount of the change be shown as a line item on the income statement,net of tax.
C)that the change be accounted for as an unrealized gain included in other comprehensive income.
D)retroactive restatement as if the investor always had used the equity method.
Answer: D
Q2) Based on the information provided,what amount of retained earnings will be reported in the consolidated balance sheet prepared on December 31,20X4?
A)$235,000
B)$210,000
C)$310,000
D)$225,000
Answer: A
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31,20X9,consolidated balance sheet?
A)$90,000
B)$54,000
C)$36,000
D)$0
Answer: C
Q2) On January 1,20X8,Zeta Company acquired 85 percent of Theta Company's common stock for $100,000 cash.The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Theta at that date.What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination is assigned to the noncontrolling interest?
A)None
B)15 percent
C)100 percent
D)Cannot be determined
Answer: A
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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,what amount should be allocated to goodwill in the consolidated balance sheet,prepared after this business combination?
A)$0
B)$25,000
C)$70,000
D)$45,000
Q2) On January 1,20X8,Blake Company acquired all of Frost Corporation's voting shares for $280,000 cash.On December 31,20X9,Frost owed Blake $5,000 for services provided during the year.When consolidated financial statements are prepared for 20X9,which entry is needed to eliminate intercompany receivables and payables in the consolidation worksheet?
A)Option A
B)Option B
C)Option C
D)Option D
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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 of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$0
B)$40,000
C)$20,000
D)$15,000
Q2) Based on the preceding information,what is the amount of consolidated comprehensive income reported for 20X9?
A)$145,000
B)$135,000
C)$138,750
D)$128,750
Q3) All of the following are examples of how a parent company may lose control over a subsidiary and discontinue future consolidation,except:
A)The parent sells some of its interest in the subsidiary.
B)The subsidiary issues additional common stock.
C)The subsidiary comes under the control of the government or other regulator.
D)The subsidiary issues a stock dividend or a stock split.
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Chapter 6: Intercompany Inventory Transactions
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Q1) Assume Push sold the inventory to Shove. Using the fully adjusted equity method,what journal entry would be recorded by Push to recognize the realization of the 20X1 deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory sales to Shove?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Based on the information given above,what amount of sales will be reported in the consolidated income statement for 20X8?
A)$500,000
B)$850,000
C)$600,000
D)$800,000
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company.Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Snoopy Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Snoopy Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9: Snoopy Co.sold equipment to Peanut Co.for a $42,000 gain on December 31,20X8.Snoopy Co.had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,20X8.At the time of the purchase,Peanut Co.estimated that the equipment still had a seven-year remaining useful life. Peanut sold land costing $90,000 to Snoopy Company on June 28,20X9,for $110,000. Required:
Give all eliminating entries needed to prepare a consolidation worksheet for 20X9 assuming that Peanut Co.uses the cost method to account for its investment in Snoopy Company.
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9
Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X8 consolidated financial statements?
A)$3,500
B)$2,800
C)$5,000
D)$2,500
Q2) Cutler Company owns 80 percent of the common stock of Marina Inc.Cutler acquires some of Marina's bonds from an unrelated party for less than the carrying value on Marina's books and holds them as a long-term investment.For consolidated reporting purposes,how is the acquisition of Marina's bonds treated?
A)As a decrease in the Bonds Payable account on Marina's books.
B)As an increase in noncurrent assets.
C)Everything related to the bonds is eliminated in the consolidation worksheet,and nothing related to the bonds appears in the consolidated financial statements.
D)As a retirement of bonds.
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10
Chapter 9: Consolidation Ownership Issues
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Q1) The elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:
A)debit to common stock for $812,500
B)credit to additional paid-in capital for $187,500
C)credit to Investment in Siena Co.for $744,000
D)credit to retained earnings for $350,000
Q2) What is Pisa's new ownership interest?
A)84 percent
B)55 percent
C)70 percent
D)64 percent
Q3) Based on the information provided,what amount of income will be assigned to the controlling interest in the 20X8 consolidated income statement?
A)$130,750
B)$150,000
C)$141,250
D)$157,000
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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 used in investing activities for 20X9?
A)$180,000
B)$100,000
C)$255,000
D)$110,000
Q2) Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?
A)$455,000
B)$475,000
C)$450,000
D)$425,000
Q3) Based on the preceding information,what amount will be reported by the company as cash payments to suppliers for 20X8?
A)$292,000
B)$305,000
C)$262,000
D)$258,000
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Upon arrival in Chile,Karen exchanged $1,000 of U.S.currency into 480,000 Chilean Pesos.While returning after her two month visit,she exchanged her remaining 50,000 Pesos into $100 of U.S.currency.What amount of gain or a loss did Karen experience on the 50,000 pesos she held during her visit and converted to U.S.dollars at the departure date?
A)Loss of $4.
B)Gain of $4.
C)Loss of $6.
D)No gain or loss.
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.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Based on the preceding information,in the journal entry to record the receipt of dividend from Steamship,
A)Investment in Steamship Company will be credited for $3,450.
B)Cash will be debited for $3,300.
C)Investment in Steamship Company will be credited for $4,000.
D)Cash will be debited for $3,600.
Q2) 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
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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Chapter 13: Segment and Interim Reporting
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Q1) 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
Q2) Based on the preceding information,in the entry in August to record the sale of the 2,000 units:
A)Cost of Goods Sold will be debited for $70,000.
B)Inventory will be credited for $85,000.
C)Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for $15,000.
D)Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for $67,000.
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15
Chapter 14: Sec Reporting
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Q1) Accounting and Auditing Enforcement Releases
Q2) Which of the following covers new or revised administrative practices and interpretations used by the SEC staff in reviewing financial statements?
A)Securities Exchange Act releases
B)Exchange Act industry guides
C)Accounting and Auditing Enforcement Releases
D)Staff Accounting Bulletins
Q3) Which regulation resulted in the creation of the Public Company Accounting Oversight Board?
A)Investment Advisers Act
B)Securities Investor Protection Act
C)Sarbanes-Oxley Act
D)Trust Indenture Act
Q4) Regulation S-X presents the rules for preparing all of the following except:
A)financial statements.
B)footnotes.
C)auditor's report.
D)management's discussion.
Q5) Customary Review
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Chapter 15: Partnerships: Formation, operation, and
Changes in Membership
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Q1) When the old partners receive a bonus upon admission of a new partner into a partnership,the bonus is allocated to:
I.all the partners in their profit and loss sharing ratio.
II.the existing partners in their profit and loss sharing ratio.
A)I only
B)II only
C)Either I or II
D)Neither I nor II
Q2) Refer to the information provided above.Allen and Daniel agree that some of the inventory is obsolete.The inventory account is decreased before David is admitted.David invests $40,000 for a one-fifth interest.What is the amount of inventory written down?
A)$4,000
B)$20,000
C)$15,000
D)$10,000
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?
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Chapter 16: Partnerships: Liquidation
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Q1) In the computation of a partner's Loss Absorption Power (LAP),the individual partner's capital balance and profit-and-loss percentage are used in which of the following ways?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Based on the preceding information,the journal entry on the partnership's books to record distribution of stock to prior partners will include a debit to Wilfred,Capital for:
A)$140,000.
B)$91,700.
C)$86,700.
D)$126,700.
Q3) Based on the preceding information,what amount will be paid out to Bill upon liquidation of the partnership?
A)$0
B)$25,000
C)$11,667
D)$2,500
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Which governmental fund includes resources that are legally restricted so that the governmental entity must maintain the principal and can use only the earnings from the fund's resources to benefit the government's programs for all of its citizens?
A)General fund
B)Special revenue fund
C)Capital projects fund
D)Permanent fund
Q2) Which of the following observations concerning interfund transfers is true?
A)They are expected to be repaid.
B)They are classified as fund revenues or expenditures.
C)The receiving fund recognizes these transfers as revenue.
D)These transfers are classified under "Other Financing Sources or Uses."
Q3) What is the correct sequence in the expenditure process in governmental accounting?
A)Appropriation,Encumbrance,Expenditure,and Disbursement.
B)Encumbrance,Expenditure,Disbursement,and Appropriation.
C)Expenditure,Encumbrance,Disbursement,and Appropriation.
D)Appropriation,Expenditure,Encumbrance,and Disbursement.
Q4) Briefly discuss the various types of governmental funds and proprietary funds.
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) On the statement of cash flows prepared for an internal service fund,cash received from customers and cash paid for operating expenses should be reported as
A)investing activities.
B)operating activities.
C)noncapital financing activities.
D)capital and related financing activities.
Q2) On the statement of revenues,expenditures,and changes in fund balance for a capital projects fund,proceeds of general obligation bonds should be reported:
A)in the revenue section of the statement.
B)as a direct addition to the beginning balance of unreserved fund balance.
C)in the other financing sources (uses)section of the statement.
D)as a subtraction from construction expenditures.
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
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Chapter 19: Not-For-Profit Entities
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Q1) During the fiscal year ended June 30,20X9,Global Charities,a voluntary health and welfare organization,received unrestricted cash contributions of $500,000 and temporarily restricted cash contributions of $300,000.All of the temporarily restricted contributions were restricted by the donors for equipment acquisitions.During the year ended June 30,20X9,equipment costing $250,000 was acquired with the restricted contributions.As a result of these two contributions,Global Charities' statement of cash flows,prepared for the year ended June 30,20X9,would report an increase in net cash provided by operating activities of:
A)$500,000.
B)$800,000.
C)$750,000.
D)$550,000.
Q2) The governing board designated assets for plant expansion.
Q3) FASB 93 (ASC 958):
A)guides depreciation.
B)guides accounting for contributions.
C)establishes financial display requirements.
D)establishes the accounting for investments.
Q4) "Classification of an endowment contribution" describes which term listed above?
Q5) "Net asset classifications per FAC 6" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) A "debtor-in-possession" balance sheet is prepared for a company which:
A)is having its debts restructured.
B)is undergoing a liquidation under Chapter 7.
C)is undergoing a reorganization under Chapter 11.
D)is in bankruptcy reorganization but management still controls the company.
Q2) A debtor may file which type of petition when seeking judicial protection under the Bankruptcy Reform Act?
I.Voluntary
II.Involuntary
A)I only.
B)II only.
C)Either I or II.
D)Neither I nor II.
Q3) _____ have liens,or security interests,on specific assets.
A)Secured creditors
B)Creditors with priority
C)Unsecured creditors
D)Assured creditors
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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