Corporate Financial Reporting Exam Preparation Guide
Course Introduction
Corporate Financial Reporting provides a comprehensive examination of the principles, standards, and procedures used in preparing and analyzing financial statements of corporations. The course covers the conceptual framework of financial reporting, the structure and content of income statements, balance sheets, and cash flow statements, as well as the application of international and national accounting standards. Students will explore topics such as revenue recognition, asset and liability measurement, shareholders' equity, and disclosure requirements. Through practical case studies and real-world examples, the course develops analytical skills necessary for interpreting financial reports and understanding their implications for decision-making by investors, management, and regulatory bodies.
Recommended Textbook
Advanced Financial Accounting 11th Edition by Theodore Christensen
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other
Entities
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Q1) Simmons Corporation paid $170,000 to acquire all of Bush Company's net assets.Bush reported assets with a book value of $189,000 and a fair value of $206,000 and liabilities with a book value and fair value of $48,000 on the date of the combination.Simmons also paid $8,000 to a search firm for finder's fees related to the acquisition.What amount will be recorded as goodwill by Simmons Corporation when recording its investment in Bush?
A) $29,000
B) $20,000
C) $12,000
D) $10,000
Answer: C
Q2) Based on the preceding information,what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $500,000 for the acquisition?
A) $0
B) $50,000
C) $150,000
D) $40,000
Answer: A
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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 preceding information,what amount of total assets did Alpha report in its balance sheet immediately after the acquisition?
A) $1,100,000
B) $1,000,000
C) $800,000
D) $1600,000
Answer: C
Q2) On October 1,20X7,Chicago Corporation purchased 6,000 shares of Buffalo Company's 15,000 outstanding share of common stock for $25 per share.On December 15,20X7,Buffalo paid $120,000 in dividends to its common stockholders.Buffalo's net income for the year ended December 31,20X7 was $300,000,earned evenly throughout the year.In its 20X7 income statement,what amount of income from this investment should Chicago report?
A) $12,000
B) $30,000
C) $48,000
D) $120,000
Answer: B
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differentials
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Q1) Based on the preceding information,what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31,20X9?
A) $120,000
B) $180,000
C) $156,000
D) $264,000
Answer: A
Q2) Based on the preceding information,what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the current accounting practice?
A) $350,000
B) $340,000
C) $280,000
D) $300,000
Answer: A
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Company X acquires 100 percent of the voting shares of Company Y for $275,000 on December 31,20X8.The fair value of the net assets of Company X at the date of acquisition was $300,000.This is an example of a(n):
A) positive differential.
B) bargain purchase.
C) extraordinary loss.
D) revaluation adjustment.
Q2) Based on the preceding information,at what amount should total land be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $130,000
B) $105,000
C) $115,000
D) $120,000
Q3) Based on the information provided,the beginning differential assigned to buildings and equipment is:
A) $50,000.
B) $40,000.
C) $10,000.
D) $36,000.
Page 6
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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 information given,what amount will be reported as total controlling interest in the consolidated balance sheet?
A) $254,000
B) $285,000
C) $364,000
D) $395,000
Q2) Based on the preceding information,what amount will be reported as noncontrolling interest in the consolidated balance sheet prepared immediately after the business combination?
A) $0
B) $81,000
C) $90,000
D) $96,000
Q3) Based on the information given,what was the fair value of Y Company as a whole at the date of acquisition?
A) $155,000
B) $110,000
C) $115,000
D) $135,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what amount of consolidated net income will be assigned to the controlling shareholders for 20X1?
A) $14,000
B) $16,100
C) $17,900
D) $20,000
Q2) Based on the information given above,what amount of cost of goods sold must be reported in the consolidated income statement for 20X4?
A) $1,612,000
B) $2,418,000
C) $2,790,000
D) $3,596,000
Q3) Based on the information given above,what amount should be eliminated from cost of goods sold in the combined income statement for 20X8?
A) $31,250
B) $25,000
C) $56,892
D) $6,250
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Pie Company acquired 75 percent of Strawberry Company's stock at the 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 Strawberry Company.Strawberry Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Strawberry Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Strawberry Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Pie Company and Strawberry Company in 20X8 and 20X9:
Strawberry Co.sold equipment to Pie Co.for a $42,000 gain on December 31,20X8.Strawberry 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,Pie Co.estimated that the equipment still had a seven-year remaining useful life. Pie Co.sold land costing $90,000 to Strawberry Co.on June 28,20X9,for $110,000.
Required:
Give all consolidating entries needed to prepare a consolidation worksheet for 20X9 assuming that Pie Co.uses the fully adjusted equity method to account for its investment in Strawberry Company. Problem 55 (continued):
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9
Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of gain or loss on bond retirement was recorded during the consolidation process?
A) No gain or loss
B) $35,000 loss
C) $35,000 gain
D) $15,000 loss
Q2) Which of the following statements is (are)correct?
I.The amount assigned to the noncontrolling interest may be affected by a constructive retirement of bonds.
II.A constructive retirement of bonds normally results in an extraordinary gain or loss.
III.In constructive retirement,the entity would still consider the bonds outstanding,even though they are treated as if they were retired in preparing consolidated financial statements.
A) I
B) II
C) I and III
D) I, II, and III
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Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) Based on the information given above,what price did Senior pay to purchase the Junior bonds?
A) $530,000
B) $516,875
C) $533,750
D) $550,625
Q2) Based on the information given above,what amount of interest expense will be eliminated in the preparation of the 20X9 consolidated financial statements?
A) $17,000
B) $13,300
C) $18,500
D) $22,200
Q3) Based on the information given above,what amount of interest income will be eliminated in the preparation of the 20X9 consolidated financial statements?
A) $17,000
B) $13,300
C) $18,500
D) $22,200
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11
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,what was the balance in the investment account reported by Autumn on January 1,20X4,before its sale of shares?
A) $360,000
B) $450,000
C) $486,000
D) $500,000
Q2) 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
Q3) Based on the information provided,what amount of consolidated net income will X Corporation report for 20X8?
A) $148,750
B) $175,000
C) $150,000
D) $158,750
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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 by the company as cash received from customers during the year?
A) $455,000
B) $475,000
C) $450,000
D) $425,000
Q2) Based on the preceding information,what is the consolidated earnings per share for 20X8?
A) 4.46
B) 4.14
C) 4.35 D) 4.55
Q3) Based on the information provided,what amount was reported as dividends paid in the cash flow from financing activities section of the consolidated statement of cash flows?
A) $60,000
B) $48,000
C) $40,000
D) $20,000
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,what is the net gain or loss on the euro speculative contract?
A) $8,000 gain
B) $6,000 gain
C) $3,000 loss
D) $1,000 loss
Q2) All of the following are management tools available for a U.S.company to hedge its net investment in a foreign affiliate except for:
A) Forward exchange contracts
B) Foreign currency commitments
C) Intercompany financing arrangements including intercompany transactions
D) None of the above.
Q3) Based on the preceding information,what is the overall effect of speculation on 20X8 net income?
A) $4,000 gain
B) $6,000 gain
C) $8,000 loss
D) $8,000 gain
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Refer to the above information.Assuming Perth's local currency is the functional currency,what is the amount of patent amortization for 20X8 that results from Johnson's acquisition of Perth's stock on January 2,20X8.Round your answer to the nearest dollar.
A) $11,500
B) $11,884
C) $7,667
D) $9,394
Q2) Gains from remeasuring a foreign subsidiary's financial statements from the local currency,which is not the functional currency,into the company's functional currency should be reported as a(n)
A) Deferred foreign exchange gain.
B) Part of continuing operations.
C) Separate component of stockholders' equity.
D) Extraordinary item, net of income taxes.
Q3) Briefly explain the following terms associated with accounting for foreign entities:
a)Functional Currency
b)Translation
c)Remeasurement
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Chapter 13: Segment and Interim Reporting
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Q1) In 20X6 and 20X7,each of Putney Company's four operating segments met one of the three quantitative tests for segment reporting.In 20X8,Segment B failed to qualify under the prescribed tests because of abnormal financial conditions.The other three segments qualified for reporting.For 20X8,Segment B:
A) should be excluded from segment disclosure but referred to in the management letter to shareholders.
B) should be distinctly separated from the other three segments and listed as a "nonqualifying" segment.
C) should be combined with one of the other three segments and reported.
D) should be included in the segment disclosures at the discretion of management.
Q2) ASC 270 uses which view of interim reporting?
A) Integral
B) Discrete
C) Segmental
D) Comprehensive
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Chapter 14: Sec Reporting
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Q1) Regulation S-X and Regulation S-K:
A) govern the preparation of financial statements and associated disclosures.
B) govern the registration requirements for private placements.
C) outline responsibilities for audit committees of publicly held companies.
D) prohibit artificial pyramids of capital in public utilities.
Q2) According to the provisions of the Sarbanes-Oxley Act,
A) accounting firms can provide both audit and non-audit services to the same company.
B) the auditor should report directly to, and have its work overseen by, the company's management.
C) audit committees should be composed of non-management members of a company's board of directors.
D) both the lead audit partner and the audit review partner for publicly held companies should be rotated at least every two years.
Q3) Both the FCPA (Foreign Corrupt Practices Act of 1977)and SOX (Sarbanes-Oxley Act of 2002)contain provisions related to Internal Control.Discuss some significant differences between how the two acts impact internal control practices for publicly held companies.
Q4) "Red Herring" Prospectus
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Refer to the information provided above.Erin directly purchases a one-fifth interest by paying Jacob $33,000 and Katy $9,000.The land account is increased for its implied increase in value before Erin is admitted.By what amount is the land account increased?
A) $20,000
B) $24,000
C) $30,000
D) $36,000
Q2) Shue,a partner in the Financial Brokers Partnership,has a 30 percent share in partnership profits and losses.Shue's capital account had a net decrease of $100,000 during 20X8.During 20X8,Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the partnership.What was the net income of the Financial Brokers Partnership for 20X8?
A) $633,334
B) $466,666
C) $300,000
D) $190,000
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Chapter 16: Partnerships: Liquidation
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Q1) 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
Q2) During the liquidation of the FGH partnership,a cash distribution was made to all the partners,who share profits and losses 60 percent,20 percent,and 20 percent,respectively.Assuming that the cash distribution referred to was made properly,how much would G receive if an additional $60,000 was distributed?
A) $60,000
B) $20,000
C) $17,000
D) $12,000
Q3) Listen and Hear are thinking of dissolving their partnership.Listen has a friend who told him to complete a "lump-sum" liquidation.Hear wants to complete an "installment" liquidation.They have come to you for advice.What do you recommend and Why?
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Blue Ridge Township uses the consumption method of accounting for its inventory of supplies.On the December 31,20X7 balance sheet for the general fund,the township reported $10,000 of supplies inventory.During 20X8,expenditures for supplies amounted to $40,000,and,at December 31,20X8,unused supplies totaled $7,000.In the adjusting entry for supplies at December 31,20X8,
A) Expenditures should be credited for $3,000.
B) Expenditures should be debited for $3,000.
C) Fund Balance-Nonspendable should be debited for $7,000.
D) Fund Balance-Nonspendable should be credited for $7,000.
Q2) Which of the following funds are classified as fiduciary funds?
A) Agency and Special revenue funds.
B) Internal service and Enterprise funds.
C) Private-purpose trust and Agency funds.
D) Capital projects and Debt service funds.
Q3) Which of the following funds should use the accrual basis of accounting?
A) Enterprise and private-purpose trust funds.
B) Permanent funds and internal service funds.
C) Debt service and agency funds.
D) Special revenue and capital projects funds.
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Q4) Briefly discuss the various types of governmental funds and proprietary funds.
Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) For which of the following long-term debt obligations would payments not be accounted for in a debt service fund?
A) Notes and warrants secured by specific tax revenues.
B) Special assessment bonds sold to acquire enterprise fund assets.
C) Notes and warrants.
D) Special assessment bonds may be used to finance capital projects.
Q2) In accordance with the Single Audit Act of 1984,external auditors issue the standard audit report on the governmental unit's financial statements and must also issue:
I.a special report on the effectiveness with which the governmental unit is achieving its social objectives.
II.a special report on the governmental unit's internal control system.
III.a special report on the governmental unit's compliance with laws and regulations.
A) I only
B) I and II
C) II and III
D) I, II, and III
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21
Chapter 19: Not-For-Profit Entities
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Q1) Transaction: Received contributions restricted by donors for research activities. 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.
Q2) ASC 958 requires that an "other not-for-profit entity" (ONPO)provide three financial statements.Which of the following is NOT one among them?
A) A statement of functional expenses
B) A statement of financial position
C) A statement of activities
D) A statement of cash flows
Q3) "Net asset classifications per FAC 6" describes which term listed above?
Q4) "Classification of an endowment contribution" describes which term listed above?
Q5) "Basis of accounting for private NFPs" describes which term listed above?
Q6) "Classification of contributions restricted by purpose" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) A transfer of assets by a company in financial difficulty is considered a sale if:
I.the transfer includes a recourse provision allowing the buyer to return the asset.
II.the transferee obtains the right to pledge or exchange the transferred assets.
III.the transferred assets have been isolated from the transferor.
IV.the transferor does not maintain effective control over the transferred assets.
A) I, II, and IV
B) Both I and III
C) Both I and II
D) II, III, and IV
Q2) The accounting statement of affairs is prepared:
A) at the end of the reorganization process.
B) at the end of the liquidation process.
C) at the beginning of the reorganization process.
D) at the beginning of the liquidation process.
Q3) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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