CPA Exam Preparation: Advanced Accounting Final Exam
Course Introduction
This course is designed to prepare students for the advanced accounting section of the CPA exam, emphasizing the complex topics and problem-solving skills required for success. Topics include business combinations, consolidated financial statements, foreign currency transactions, partnerships, segment and interim reporting, and accounting for derivatives and hedging activities. Students will engage with comprehensive review materials, targeted practice questions, and simulated exam scenarios to reinforce their mastery of advanced accounting principles in accordance with U.S. GAAP and relevant international standards. The aim is to equip candidates with both conceptual understanding and practical strategies for tackling challenging questions on the CPA examination.
Recommended Textbook
Advanced Accounting 9th Edition by Joe Ben Hoyle
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Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) Which of the following results in an increase in the Equity in Investee Income account when applying the equity method?
A)Amortizations of purchase price over book value on date of purchase.
B)Amortizations of purchase price over book value on date of purchase for the prior year.
C)Extraordinary gain of the investor.
D)Unrealized gain on intercompany inventory transfers for the prior year.
E)Sale of a portion of the investment at a loss.
Answer: D
Q2) Pursley,Inc.acquires 10% of Ritz Corporation on January 3,2008,for $80,000 when the book value of Ritz was $ 800,000.During 2008 Ritz reported net income of $125,000 and paid dividends of $30,000.On January 1,2009,Pursley purchased an additional 20% of Ritz for $325,000,giving Pursley the ability to significantly influence the operating policies of Ritz.Any excess of cost over book value is attributable to goodwill with an indefinite life.What journal entry(ies)is(are)required on January 1,2009?
Answer: 11ea88ab_df60_599e_bb89_cd0a7f1159e0_TB4174_00
Q3) What was the balance in the Investment in Nicole Corp.account at December 31,2006?
Answer: [$503,000 + $36,660 - ($40,000 x .4)] = $523,660
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3
Chapter 2: Consolidation of Financial Information
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Q1) Elon Corp.purchased all of the common stock of Finley Co. ,paying slightly less than the fair value of Finley's net assets.How should the difference between the purchase price and the fair value be treated if the transaction is treated as a purchase?
Answer: The difference between the purchase price and the fair value is used to reduce the balances in long-term assets (except for long-term investments).
Q2) Determine the balance for Goodwill that would be included in a February 1,2008,consolidation.
Answer: SHAPE \* MERGEFORMAT
11ea88ab_df3e_5297_bb89_63afa6c383b1_TB4174_00
Q3) What amount will be reported for consolidated cash after the purchase transaction?
A)$900.
B)$875.
C)$955.
D)$980.
E)$555.
Answer: E
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Page 4
Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) If this combination is viewed as an acquisition,what balance would Jaynes' Investment in Aaron Co.account have shown on December 31,2010,when the equity method was applied?
Answer: An allocation of the acquisition value (based on the fair value of the shares issued)must first be made.
11ea88ab_df38_37ef_bb89_5531f2f957e8_TB4174_00
Q2) Compute the December 31,2010,consolidated land.
A)$220,000.
B)$180,000.
C)$670,000.
D)$630,000.
E)$450,000.
Answer: C
Q3) The 2009 total amortization of allocations is calculated to be
A)$4,000.
B)$6,400.
C)$(2,400).
D)$(1,000).
E)$3,800.
Answer: D
Page 5
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) The non-controlling interest's share shown on Denber's income statement for 2009 is calculated to be
A)$22,000
B)$24,000
C)$48,000
D)$66,000
E)$72,000
Q2) In consolidation,the total amount of expenses related to Kailey and to Denber's acquisition of Kailey for 2009 is determined to be
A)$206,667
B)$211,667
C)$221,667
D)$620,000
E)$635,000
Q3) What is the consolidated balance of the Equipment account?
A)$666,400
B)$604,000
C)$756,000
D)$711,200
E)$764,000
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Chapter 5: Consolidated Financial StatementsIntercompany Asset Transactions
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Q1) How does a gain on an intercompany sale of equipment affect the calculation of a noncontrolling interest?
Q2) Compute the income from Gargiulo reported on Posito's books for 2011.
A)$84,600.
B)$84,375.
C)$83,925.
D)$84,825.
E)$84,850.
Q3) Compute Simon's share of income from Wilson for consolidation for 2009.
A)$72,000.
B)$90,000.
C)$73,575.
D)$73,800.
E)$72,500.
Q4) Varton Corp.acquired all of the voting common stock of Caleb Co.on January 1,2009.Varton owned some land with a book value of $84,000 that was sold to Caleb for its fair value of $120,000.How should this transaction be accounted for by the consolidated entity?
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Q5) How do upstream and downstream inventory transfers differ in their effect on a year-end consolidation?
Chapter 6: Variable Interest Entities, intercompany Debt,
Statement of Cash Flows, and Other Issues
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Q1) A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share.The last day of the year,the subsidiary issues new shares entirely to outside parties at $33 per share.The parent still holds control over the subsidiary.Which of the following statements is true?
A)Since the sale was made at the end of the year,the parent's investment account is not affected.
B)Since the shares were sold for more than book value,the parent's investment account must be increased.
C)Since the shares were sold for more than book value,the parent's investment account must be decreased.
D)Since the shares were sold for more than book value but the parent did not buy any of the shares,the parent's investment account is not affected.
E)None of the above.
Q2) Parent Corporation recently acquired some of its subsidiary's outstanding bonds,at an amount which required the recognition of a loss.In what ways could the loss be allocated? Which allocation would you recommend? Why?
Q3) Describe how this transaction would affect Panton's books.
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Page 8
Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Q1) Compute the income tax payable by White for 2009.
A)$93,600.
B)$91,350.
C)$94,500.
D)$90,900.
E)$90,000.
Q2) In a tax-free business combination,
A)the income tax basis for acquired assets and liabilities is adjusted to current fair value.
B)any goodwill created by the combination may be amortized in calculating taxable income.
C)the subsidiary's assets and liabilities are assigned an income tax basis of zero dollars,so that they will have no future income tax consequences.
D)any goodwill created by the combination must be deducted in total in calculating taxable income.
E)the subsidiary's costs for assets are retained for income tax calculations.
Q3) Required:
Prepare a schedule to show consolidated net income.
Q4) Under what conditions must a deferred income tax asset be recorded?
Page 9
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Chapter 8: Segment and Interim Reporting
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Q1) Which of the following are required to be disclosed in interim reports?
A)Cash flows from investing activities.
B)Change in cash.
C)Total current liabilities.
D)Total assets.
E)Gross revenues.
Q2) Which of the following is not a required disclosure in an interim financial report?
A)Net income.
B)Earnings per share.
C)Gross profit.
D)Significant changes in estimates or provisions for income taxes.
E)Disposal of a segment,net of income taxes.
Q3) What is the major objective of segment reporting?
Q4) Prepare the asset test to determine which of these segments was separately reportable.
Q5) Prepare the revenue test to determine which of these segments was separately reportable.
Q6) What approach for segment determination was adopted by SFAS 131?
Q7) What is meant by the term,disaggregated financial information?
Page 10
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) When a U.S.company purchases parts from a foreign company,which of the following will result in no foreign exchange gain or loss?
A)The transaction is denominated in U.S.dollars.
B)The transaction resulted in an extraordinary gain.
C)The transaction resulted in an extraordinary loss.
D)The foreign currency appreciated in value relative to the U.S.dollar.
E)The foreign currency depreciated in value relative to the U.S.dollar.
Q2) What was the net impact on Mattie's 2008 income as a result of this fair value hedge of a firm commitment?
A)$379,760.60 decrease.
B)$8,360.60 increase.
C)$8,360.60 decrease.
D)$ 4,390.40 decrease.
E)$379,760.60 increase.
Q3) How much US $ will it cost Brisco to finally pay the payable on June 7?
A)$1,666,667.
B)$2,440,000.
C)$2,520,000.
D)$2,500,000.
E)$2,400,000.
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Chapter 10: Translation of Foreign Currency Financial Statements
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Q1) Under the current rate method,depreciation expense would be restated at what rate?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q2) Assuming the functional currency of the subsidiary is the U.S.dollar,what total should be included in Parker's consolidated balance sheet at December 31,2008,for the above items?
A)$407,500.
B)$418,000.
C)$396,000.
D)$403,500.
E)$398,500.
Q3) Assume (1)that Boerkian was a foreign subsidiary of a U.S.multinational company that used the U.S.dollar as its functional currency and (2)that the stickle was the functional currency of the subsidiary.What was the translation adjustment for this subsidiary for 2008?
Q4) Contrast the purpose of remeasurement with the purpose of translation.
Page 12
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) The IASB and FASB are working on several joint projects.What is the purpose of the Performance Reporting Project?
A)to provide guidance on the application of the purchase method.
B)to enhance the usefulness of information in assessing the financial performance of the reporting enterprise.
C)to develop a common comprehensive standard on revenue recognition.
D)to develop a common conceptual framework that both boards can use as a basis of futures standards.
E)to agree upon financial statement titles that will have no differentiation after translation to various languages.
Q2) The U.S.Securities and Exchange Commission (SEC)requires foreign companies that wish to have stocks traded on U.S.stock exchanges to
A)present financial statements which comply with international accounting standards.
B)conform with U.S.GAAP or to present a reconciliation to U.S.GAAP.
C)have a demonstrated need for capital to be used for operations in the U.S.
D)use the U.S.dollar as their reporting currency.
E)become licensed to do business in the U.S.
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Page 13
Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Q1) Briefly describe Regulation S-K.What is its purpose?
Q2) Which one of the following forms is used in connection with registration of securities of real estate companies?
A)S-8.
B)S-6.
C)S-4.
D)SB-1.
E)S-11.
Q3) Which one of the following forms is used when no other form is prescribed?
A)S-5.
B)S-4.
C)S-3.
D)S-2.
E)S-1.
Q4) Name the two broad categories of filings with the SEC.
Q5) What is blue sky legislation?
Q6) Name five securities offerings exempt from registration with the SEC.
Q8) How are the operations of the SEC funded? Page 14
Q7) When is the SEC's Registration Form S-4 used?
Q9) When must Form 8-K be filed with the SEC?
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Page 15
Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Q1) Which one of the following is a requirement that must be met before an involuntary bankruptcy petition can be filed?
A)The petition must be filed by all creditor(s)to whom the debtor owes at least $13,475.
B)The petition must be signed by creditor(s)with unsecured debts of at least $5,000.
C)The petition must be signed by a majority of the creditor(s).
D)The petition must be signed by creditor(s)to whom the debtor owes more than half of its debts.
E)The petition must be signed by creditor(s)with unsecured debts of at least $13,475.
Q2) On a statement of financial affairs,a company's assets should be valued at A)historical cost.
B)net realizable value,if lower than historical cost.
C)replacement cost.
D)net realizable value,if higher than historical cost.
E)net realizable value,whether higher or lower than historical cost.
Q3) What is meant by a "fully secured liability"?
Q4) What is the meaning of the phrase debtor in possession?
Q5) To what does the term Chapter 11 bankruptcy refer?
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Chapter 14: Partnerships: Formation and Operation
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Q1) What was Wasser's capital balance at the end of 2008?
A)$201,000.
B)$263,520.
C)$264,540.
D)$304,040.
E)$313,780.
Q2) When Danny withdrew from John,Daniel,Harry,and Danny LLP,he was paid $80,000,although his capital account balance was only $60,000.The four partners shared net income and losses equally.The journal entry of the partnership to record Danny's withdrawal preferably should include :
A)$6,667 debit to John,Capital.
B)$6,667 credit to John,Capital.
C)$6,667 debit to John,Drawing.
D)$5,000 debit to John,Capital.
E)$5,000 credit to John,Capital.
Q3) Why are the terms of the Articles of Partnership important to partners?
Q4) Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership.Goodwill was to be recorded.The four original partners shared all profits and losses equally.After Eden made his investment,what were the individual capital balances?
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Chapter 15: Partnerships: Termination and Liquidation
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Q1) For a partnership,how should liquidation gains and losses be accounted for?
Q2) A partnership had the following account balances: Cash,$91,000;Other Assets,$702,000;Liabilities,$338,000;Polk,Capital (50% of profits and losses),$221,000;Garfield,Capital (30%),$143,000;Arthur,Capital (20%),$91,000.The company liquidated and $10,400 became available to the partners.
Required: Who would have received the $10,400?
Q3) Why is a Schedule of Liquidation prepared?
Q4) If the noncash assets were sold for $105,000,what would have been the maximum amount of cash that Canton could have expected to receive?
Q5) Under the marshaling of assets doctrine,personal creditors can claim a partner's share of partnership assets under which condition?
A)When payment of all partnership debts is assured.
B)When the insolvent partner has a positive capital balance.
C)When payment of all partnership debts is assured and the insolvent partner has a positive capital balance.
D)When the other partner's agree to the claim..
E)Personal creditors can not claim a partner's share of partnership assets.
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Chapter 16: Accounting for State and Local Governments,
Part I
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Q1) Which standard issued by the Governmental Accounting Standards Board in 1999 significantly modified fund accounting and created "a second group of financial statements based on an entirely different approach to financial reporting"?
A)GASB Statement No.32.
B)GASB Statement No.33.
C)GASB Statement No.34.
D)GASB Statement No.35.
E)GASB Statement No.36.
Q2) The term "current financial resources" refers to
A)Those assets that can quickly be converted into cash.
B)Monetary assets that are available to meet the government's needs.
C)The government's current assets and current liabilities.
D)The current value of all net assets owned by the governmental unit.
E)Financial resources used to provide electricity to local citizens.
Q3) Under modified accrual accounting,when are expenditures recorded?
Q4) What are the four fiduciary fund types?
Q5) What is a special revenue fund used to account for?
Q6) What is the definition of the term fund?
Page 19
Q7) What are the five types of governmental funds?
Q8) What is the purpose of fund-based financial statements?
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Chapter 17: Accounting for State and Local
Governments,part II
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Q1) Which statement is false regarding the Statement of Revenues,Expenditures,and Changes in Fund Balance when it is included with government-wide financial statements?
A)The Statement of Revenues,Expenditures,and Changes in Fund Balance uses the modified accrual method for timing purposes.
B)The Statement of Revenues,Expenditures,and Changes in Fund Balance presents revenues as either program revenues or general revenues.
C)A presentation reconciles the the change in governmental fund balance to the change in net assets for governmental activities.
D)Other financing sources are presented on the Statement of Revenues,Expenditures,and Changes in Fund Balance.
E)All nonmajor funds are combined and reported together.
Q2) What are the three broad sections of a state or local government's CAFR?
Q3) What is meant by the term fiscally independent?
Q4) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Q5) Prepare a Statement of Activities
Q6) What is meant by the term legally independent?
Page 21
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Chapter 18: Accounting for Not-For-Profit Organizations
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Q1) When are unconditional promises to give recognized as revenues?
A)In the period the promise is received.
B)In the period the promise is collected.
C)In the period in which the conditions on which they depend are substantially met.
D)In the period in which the conditions on which they depend have begun to be met.
E)Unconditional promises from potential donors are not revenues.
Q2) During 2008,the Garfield Humane Society,a voluntary health and welfare organization,received cash donations of $892,000 and membership dues of $62,000.A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member.A pet food manufacturer donated dog food valued at $16,400.The Humane Society received a gift of $140,000,to be used in building a new animal shelter.Also during 2008,investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for public support for 2008.
Q3) Prepare the necessary journal entry to record the revenue and receivables.
Q4) Record the journal entries that reflect all of this information.
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Chapter 19: Accounting for Estates and Trusts
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Q1) What is a remainderman?
Q2) Which of the following is not normally viewed as an adjustment to the principal of an estate?
A)Dividends declared prior to death.
B)Investment commissions and other costs.
C)Funeral expenses.
D)Insurance expenses.
E)Debts incurred prior to death.
Q3) Administrative expenses of $13,000 were paid. Prepare the journal entry to record the transaction.
Q4) What are the goals of probate laws?
(1)gather and preserve all of the decedent's property; (2)carry out an orderly and fair settlement of all debts;
(3)discover and follow the decedent's intent for the remaining property
A)1 only.
B)2 only.
C)3 only.
D)1 and 2.
E)1,2,and 3.
Q5) In settling an estate,what is the meaning of the term legacy?
Page 23
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