CPA Exam Preparation: Advanced Accounting
Textbook Exam Questions
Course Introduction
This course is designed to help students prepare for the Advanced Accounting section of the CPA exam by focusing on complex accounting topics and principles tested on the exam. The curriculum covers areas such as business combinations and consolidations, foreign currency transactions, partnerships, governmental and not-for-profit accounting, and advanced financial reporting issues. Through a combination of lectures, practice problems, and mock examinations, students will strengthen their understanding of challenging topics and develop effective test-taking strategies. The course emphasizes applying accounting standards, analyzing real-world scenarios, and mastering the format and expectations of the CPA exam to enhance students' readiness and confidence.
Recommended Textbook
Fundamentals of Advanced Accounting 6th Edition by Hoyle
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12 Chapters
1199 Verified Questions
1199 Flashcards
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) On January 1, 2013, Deuce Inc. acquired 15% of Wiz Co.'s outstanding common stock for $62,400 and categorized the investment as an available-for-sale security. Wiz earned net income of $96,000 in 2013 and paid dividends of $36,000. On January 1, 2014, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave Deuce the ability to significantly influence the decision making of Wiz. During 2014, Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2014, Wiz reported a net book value of $468,000. For both purchases, Deuce concluded that Wiz Co.'s book values approximated fair values and attributed any excess cost to goodwill. On Deuce's December 31, 2014 balance sheet, what balance was reported for the Investment in Wiz Co. account?
A)$139,560.
B)$143,400.
C)$310,130.
D)$186,080.
E)$182,250.
Answer: B
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Page 3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Which of the following statements is true regarding a statutory consolidation?
A)The original companies dissolve while remaining as separate divisions of a newly created company.
B)Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.
C)The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.
D)The acquiring company acquires the stock of the acquired company as an investment.
E)A statutory consolidation is no longer a legal option.
Answer: A
Q2) How would you account for in-process research and development acquired in a business combination accounted for as an acquisition?
Answer: In-Process Research and Development is capitalized as an asset of the combination and reported as intangible assets with indefinite lives subject to impairment reviews.
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4
Chapter
3: Consolidations-Subsequent to the Date of Acquisition
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Sample Questions
Q1) Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2012, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2012 and $50,000 in 2013 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2012 and $47,000 in 2013 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2013, if the equity method has been applied?
A)$286,000.
B)$295,000.
C)$276,000.
D)$344,000.
E)$324,000.
Answer: A
Q2) For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?
Answer: The balance of the investment account is increased for the subsidiary's net income. It is decreased for subsidiary dividends and losses. The amortization of excess fair value allocations does not affect the account balance.
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Page 5
Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) Where should a non-controlling interest appear on a consolidated balance sheet?
Q2) In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true?
A)U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement.
B)U.S. GAAP and IFRS both require acquisition-date fair value measurement.
C)U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement.
D)U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement.
E)U.S. GAAP and IFRS both apportion goodwill to the parent only.
Q3) Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under what conditions will Beta be required to prepare consolidated financial statements?
Q4) What is preacquisition income?
Q5) How does a parent company account for the sale of a portion of an investment in a subsidiary?
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Chapter 5: Consolidated Financial Statementsintra-Entity
Asset Transactions
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Sample Questions
Q1) Pot Co. holds 90% of the common stock of Skillet Co. During 2013, Pot reported sales of $1,120,000 and cost of goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000. Included in the amounts for Skillet's sales were Skillet's sales of merchandise to Pot for $140,000. There were no sales from Pot to Skillet. Intra-entity sales had the same markup as sales to outsiders. Pot still had 40% of the intra-entity sales as inventory at the end of 2013. What are consolidated sales and cost of goods sold for 2013?
A)$1,400,000 and $952,000.
B)$1,400,000 and $966,000.
C)$1,540,000 and $1,078,000.
D)$1,400,000 and $974,400.
E)$1,540,000 and $1,092,000.
Q2) During 2013, Edwards Co. sold inventory to its parent company, Forsyth Corp. Forsyth still owned the entire inventory purchased at the end of 2013. Why must the gross profit on the sale be deferred when consolidated financial statements are prepared at the end of 2013?
Q3) How is the gain on an intra-entity transfer of a depreciable asset realized?
Q4) What is meant by unrealized inventory gains, and how are they treated on a consolidation worksheet?
Page 7
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Sample Questions
Q1) A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?
A)The investment in subsidiary will decrease.
B)Additional paid-in capital will decrease.
C)Retained earnings will increase.
D)The investment in subsidiary will increase.
E)No adjustment will be necessary.
Q2) If a subsidiary issues a stock dividend, which of the following statements is true?
A)Investment in subsidiary on the parent's books will increase.
B)Investment in subsidiary on the parent's books will decrease.
C)Additional paid-in capital on the parent's books will increase.
D)Additional paid-in capital on the parent's books will decrease.
E)No adjustment is necessary.
Q3) Parent Corporation loaned money to its subsidiary with a five-year note at the market interest rate. How would the note be accounted for in the consolidation process?
Q4) What documents or other sources of information would be used to prepare a consolidated statement of cash flows?
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) What is meant by the spot rate?
Q2) How does a foreign currency forward contract differ from a foreign currency option?
Q3) Winston Corp., a U.S. company, had the following foreign currency transactions during 2013: (1) Purchased merchandise from a foreign supplier on July 16, 2013 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2013 at the U.S. dollar equivalent of $54,000.
(2) On October 15, 2013 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2013. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2013, and $299,000 on October 15, 2014.
What amount should be included as a foreign exchange gain or loss from the two transactions for 2014?
A)$1,000 loss.
B)$1,000 gain.
C)$2,000 loss.
D)$4,000 gain.
E)$4,000 loss.
Q4) How is the fair value of a Forward Contract determined by U.S. GAAP?
Page 9
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Chapter 8: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) Under the temporal method, inventory at market would be remeasured at what rate?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q2) A historical exchange rate for common stock of a foreign subsidiary is best described as
A)The rate at date of the acquisition business combination.
B)The rate when the common stock was originally issued for the acquisition transaction.
C)The average rate from date of acquisition to the date of the balance sheet.
D)The rate from the prior year's balances.
E)The January 1 exchange rate.
Q3) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
Q4) What is the justification for the remeasurement of foreign currency transactions?
Q5) Contrast the purpose of remeasurement with the purpose of translation.
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They admitted Zell to a 30% interest in the partnership, and the total amount of goodwill credited to the original partners was $700. What amount did Zell contribute to the business?
A)$900.
B)$560.
C)$600.
D)$590.
E)$630.
Q2) P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. If C is to contribute an amount equal to his book value share of the new partnership, how much should C contribute?
A)$22,000
B)$20,000
C)$25,000
D)$18,000
E)$10,000
Q3) By what methods can a person gain admittance to a partnership?
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Page 11
Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) Jones, Marge, and Tate LLP decided to dissolve and liquidate the partnership on September 30, 2013. After realization of a portion of the noncash assets, the capital account balances were Jones $50,000; Marge $40,000; and Tate $15,000. Cash of $35,000 and other assets with a carrying amount of $100,000 were on hand. Creditors' claims totaled $30,000. Jones, Marge, and Tate shared net income and losses in a 2:1:1 ratio, respectively.
Prepare a working paper to compute the amount of cash that may be paid to creditors and to partners at this time, assuming that no partner is solvent.
Q2) The Amos, Billings, and Cleaver partnership had two assets: (1) cash of $40,000 and (2) an investment with a book value of $110,000. The ratio for sharing profits and losses is 2:1:1. The balances in the capital accounts were:
Amos, capital: $45,000
Billings, capital: $75,000
Cleaver, capital: $30,000
Required:
If the investment was sold for $80,000, how much cash would each partner have received?
Q3) For a partnership, how should liquidation gains and losses be accounted for?
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Chapter 11: Accounting for State and Local Governments,
Part I
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Sample Questions
Q1) Which of the following is not a classification of non-exchange transactions?
A)Derived tax expenditures.
B)Voluntary non-exchange transactions.
C)Government-mandated non-exchange transactions.
D)Derived tax revenues.
E)Imposed non-exchange revenues.
Q2) Which group of financial statements is prepared using the "modified accrual accounting" approach?
A)GAAP-Based Financial Statements.
B)Fund Financial Statements.
C)Cost-Based Financial Statements.
D)Government-Wide Financial Statements.
E)General Purpose Financial Statements.
Q3) The reporting of the fund balance of governmental funds will result in a maximum of ___________ categories:
A)One
B)Two
C)Three
D)Four
E)Five
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Chapter 12: Accounting for State and Local Governments,
Part II
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Sample Questions
Q1) The City of Kamen maintains a collection of paintings of a former citizen in its City Hall building. During the year, one painting was purchased by the city for $2,000 at an auction using appropriated funds in the General Fund. Also during the year, a donation of a painting valued at $3,000 was made to the city and the city has appropriately decided to record this painting as an asset.
Required:
Prepare the journal entry/entries for the two transactions for the purposes of preparing the government-wide financial statements.
Q2) What is meant by the term fiscally independent?
Q3) GASB Codification Section 2200.106-107 makes which of the following statements regarding Management's Discussion and Analysis?
A)MD&A is required only for Proprietary Fund Financial Statements.
B)MD&A is required for all state and local government financial statements.
C)MD&A is only required for comprehensive annual financial reports.
D)MD&A for state and local government financial statements must include an analysis of potential, untapped revenue sources.
E)MD&A is an optional inclusion for state and local government financial statements.
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Page 14