Financial Reporting and Analysis
Exam Materials
Course Introduction
Financial Reporting and Analysis provides students with a comprehensive understanding of how financial statements are prepared, analyzed, and interpreted in accordance with accounting standards. The course covers key topics such as the structure and content of balance sheets, income statements, and cash flow statements, as well as the principles underlying asset, liability, and equity measurement. Students will learn to analyze financial statements for decision-making purposes, assess company performance, and apply various financial ratios and analytical tools. The course also examines the ethical considerations and regulatory environment of financial reporting, equipping students with practical skills to evaluate organizations' financial health and communicate findings effectively.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Sample Questions
Q1) Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?
A) Senior executive's estimates
B) Financial analyst forecasts
C) Market value
D) The present value of future cash flows discounted at the firm's cost of capital
Answer: C
Q2) A business merger differs from a business consolidation because
A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities and forms a new corporation.
B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities.
C) a merger is created when two entities join, but a consolidation is created when more than two entities join.
D) a consolidation is created when two entities join, but a merger is created when more than two entities join.
Answer: A
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) In reference to intercompany transactions between an investor and an investee, when the investor can significantly influence the investee, which of the following statements is correct, assuming that the investor is using the equity method?
A) There is the presumption of arms-length bargaining between the related parties.
B) As long as the investor recognizes the effects of the transaction in its financial statements, it is not required to provide any additional disclosures.
C) In reporting its share of earnings and losses of an investee, the investor must eliminate the effect of profits and losses on the intercompany transactions until they are realized.
D) None of the above is correct.
Answer: C
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4
Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The unamortized excess account is
A) a contra-equity account.
B) used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values.
C) used in allocating the amounts paid for each asset and liability that are above or below their book values, especially when numerous assets or liabilities are involved.
D) the excess purchase cost that is attributable to goodwill.
Answer: C
Q2) Which method must be used if FASB Statement No. 94 prohibits full consolidation of a 70% owned subsidiary?
A) The cost method
B) The Liquidation value
C) Market value
D) Equity method
Answer: D
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Chapter 4: Consolidated Techniques and Procedures
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Sample Questions
Q1) What is the amount of consolidated Retained Earnings?
A) $224,000
B) $259,200
C) $304,000
D) $324,000
Q2) When performing a consolidation, if the balance sheet does not balance,
A) that indicates that the Investment in Subsidiary account on the parent's books should not be adjusted to -0-, because there is excess value represented in the investment. B) it is frequently because of the noncontrolling interest, as these amounts do not appear on the separate companies' general ledgers.
C) the debit and credit totals of the adjusting/eliminating columns of the consolidation working paper should be checked to confirm that they balance, and if so, then there is no need to check the individual line items.
D) the amount that it is "off" will always equal the noncontrolling interest in the current year net income of the subsidiary.
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Chapter 5: Intercompany Profit Transactions Inventories
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Sample Questions
Q1) The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31, 2014 will show consolidated cost of sales of
A) $120,000.
B) $136,000.
C) $148,000.
D) $210,000.
Q2) If the intercompany sale was an upstream sale, the total amount of consolidated cost of goods sold for 2015 will be
A) $300,000.
B) $430,000.
C) $470,000.
D) $477,000.
Q3) The 2014 consolidated income statement showed cost of goods sold of
A) $500,000.
B) $516,000.
C) $532,000.
D) $660,000.
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Chapter 6: Intercompany Profit Transactions Plant Assets
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Sample Questions
Q1) Controlling interest share in consolidated net income for 2014 was
A) $121,000.
B) $125,000.
C) $131,000.
D) $143,000.
Q2) Several years ago, Pilot International purchased 70% of the outstanding stock of Skyway Incorporated, at a time when Skyway's book values were equal to its fair values. On January 1, 2011 Skyway purchased a truck for $80,000 which had no salvage value with a useful life of 8 years, depreciated on a straight-line basis. On January 1, 2014, Skyway sold the truck to Pilot Corporation for $28,000. The truck was estimated to have a five-year remaining life on this date, and no salvage value. All affiliates use the straight-line depreciation method.
Required:
Prepare all relevant entries with respect to the truck.
1. Record the journal entries on Pilot's books for 2014.
2. Record the journal entries on Skyway's books for 2014.
3. Prepare the consolidation entries required for Pilot and subsidiary for 2014 as a result of this transaction.
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Page 8
Chapter 7: Intercompany Profit Transactions Bonds
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Sample Questions
Q1) Sabu is a 65%-owned subsidiary of Peerless. On January 1, 2012, Sabu issued $1,000,000 of $1,000 face amount 8% bonds at $980 per bond. The bonds have interest payments on December 31 of each year and mature on January 1, 2017. On January 1, 2013, Peerless purchased all 1,000 bonds on the open market for $1,010 per bond.
Straight-line amortization is used by both companies.
Required: With respect to the bonds, use General Journal format to:
1. Record the journal entries on Sabu's books made from 2012 to 2017.
2. Record the journal entries on Peerless' books made from 2012 to 2017.
3. Record the elimination entries for the consolidation working papers for 2012 through 2017.
Q2) Bonds Payable appeared in the December 31, 2013 consolidated balance sheet of Pfadt Corporation and Subsidiary in the amount of
A) $398,925.
B) $441,000.
C) $443,250.
D) $450,000.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Sample Questions
Q1) On September 1, 2013, Nelson Corporation acquired a 90% interest in Corbin Corporation for $900,000. Corbin's stockholders' equity at January 1, 2013 consisted of $200,000 of Common Stock and $600,000 of Retained Earnings. The book values of its assets and liabilities were equal to their respective fair values on this date. All excess purchase cost was attributed to goodwill.
During 2013, Corbin uniformly earned $98,000 and paid dividends of $19,000 on each of four dates: February 1, June 1, August 1, and December 1.
Required: Compute the following:
1. Implied goodwill associated with Corbin Corporation based on Nelson's purchase price on September 1, 2013.
2. Nelson's income from Corbin for 2013.
3. Preacquisition income for Nelson Corporation and Subsidiary for 2013.
4. Noncontrolling interest share for 2013.
5. What is the balance in Nelson's Investment in Corbin account at December 31, 2013?
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10
Chapter 9: Indirect and Mutual Holdings
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Sample Questions
Q1) Controlling interest share of consolidated net income for the current year is
A) $504,800.
B) $516,800.
C) $545,200.
D) $557,200.
Q2) Bailey's noncontrolling interest share for 2014 is
A) $7,609.
B) $8,044.
C) $15,652.
D) $23,696.
Q3) When mutually-held stock involves subsidiaries holding the stock of each other, the ________ method is not used.
A) equity
B) cost
C) conventional
D) treasury stock
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11
Chapter 10: Subsidiary Preferred Stock, Consolidated
Earnings Per Share, and Consolidated Income Taxation
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Sample Questions
Q1) Pandy Corporation owns a 90% interest in Sakaj Corporation's common stock. Throughout 2014, Sakaj had 20,000 shares of common stock outstanding and Pandy had 50,000 shares of common stock outstanding. Sakaj's only dilutive security consists of 10,000 stock options, with an exercise price of $20 per share. The average price of Sakaj's stock is $50 per share in 2014. The options are exercisable for one share of Sakaj's common stock. Pandy's and Sakaj's separate net incomes for the year are $200,000 and $180,000, respectively.
Required:
Compute the amount of basic and diluted earnings per share for Pandy (Consolidated) and Sakaj Corporations.
Q2) What should be the noncontrolling interest share, common in the consolidated financial statements of Parminter for the year ending December 31, 2014?
A) $ 5,000
B) $20,000
C) $25,000
D) $30,000
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Page 12
Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) Which of the following statements about variable interest entities (VIE) is false?
A) Under GAAP, a VIE may be a corporation, partnership, limited liability company or trust.
B) Under GAAP, pension plans are excluded from VIE accounting.
C) A potential VIE must be a separate entity, not a subset, branch or division of another entity.
D) VIEs do not require the identification of a primary beneficiary.
Q2) Under parent company theory, noncontrolling interest is classified on the consolidated balance sheet as ________. Under entity theory, noncontrolling interest is classified on the consolidated balance sheet as ________.
A) stockholders' equity; stockholders' equity
B) stockholders' equity; liability
C) liability; a liability
D) liability; stockholders' equity
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13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) A U.S. importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the
A) dollar weakened relative to the Korean won and the won was the denominated currency.
B) dollar weakened relative to the Korean won and the dollar was the denominated currency.
C) dollar strengthened relative to the Korean won and the won was the denominated currency.
D) dollar strengthened relative to the Korean won and the dollar was the denominated currency.
Q2) When the billing for a U.S. company's sale to a company in a foreign country is denominated in U.S. dollars, ________ is required when preparing journal entries for the sale.
A) translation to a foreign currency
B) conversion to a foreign currency
C) translation to U.S. dollars
D) no translation
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) International accounting standards differ from U.S. Generally Accepted Accounting Principles in that International standards
A) require that firm sale or purchase commitments are accounted for as fair value hedges.
B) require that firm sale or purchase commitments are accounted for as cash flow hedges.
C) state that firm sale or purchase commitments may not be treated as a hedged transaction.
D) permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges.
Q2) Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on November 2?
A) $-0-
B) $100 asset
C) $100 liability
D) $38,100 asset
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Chapter 14: Foreign Currency Financial Statements
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Q1) A U.S. parent corporation loans funds to a foreign subsidiary to be used to purchase equipment. The loan is denominated in U.S. dollars and the functional currency of the subsidiary is the euro. This intercompany transaction is a foreign currency transaction of
A) neither the subsidiary nor the parent, as it is eliminated as part of the consolidation procedure.
B) the subsidiary but not the parent.
C) both the subsidiary and the parent.
D) the parent but not the subsidiary.
Q2) Accounts representing an allowance for uncollectible accounts are converted into U.S. dollars at
A) historical rates when the U.S. dollar is the functional currency.
B) current rates only when the U.S. dollar is the functional currency.
C) historical rates regardless of the functional currency.
D) current rates regardless of the functional currency.
Q3) Which of the following assets and/or liabilities are considered monetary?
A) Intangible Assets and Plant, Property, and Equipment
B) Bonds Payable and Common Stock
C) Cash and Accounts Payable
D) Notes Receivable and Inventories carried at cost
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) GAAP requires disclosures for each reportable operating segment for each of the following, except for
A) Revenues.
B) Depreciation expense.
C) R&D expenditures.
D) Extraordinary items.
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
Q3) Which one of the following operating segment disclosures is not required by GAAP?
A) Total Assets
B) Equity
C) Intersegment sales
D) Extraordinary items
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17
Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) Which of the following is a reason to use a partnership as the legal form of a business?
A) Partnerships avoid the issue of mutual agency.
B) Partnerships avoid the issue of unlimited liability.
C) Partnerships avoid the issue of double-taxation faced by corporations.
D) Partnerships avoid the difficulty of raising capital.
Q2) In a limited partnership, a general partner
A) is excluded from management of the business.
B) is not entitled to a bonus at the end of the year.
C) has limited liability for partnership debt.
D) has unlimited liability for partnership debt.
Q3) If the average capital for Bertram and Ernest from the above information is $224,000 and $238,000, respectively, what will be the total amount of profit allocated to salary and interest distributions?
A) $ 93,800
B) $146,200
C) $218,200
D) $240,000
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Chapter 17: Partnership Liquidation
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Q1) 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.
Q2) Using a safe payment schedule, how much cash should Lola receive in the first distribution?
A) $ 81,000
B) $ 98,000
C) $168,600
D) $202,500
Q3) A cash distribution plan for the Sammi, Tammy, and Udd partnership was as follows:
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) A primary difference between voluntary and involuntary bankruptcy petitions is that A) creditors file the petition in an involuntary filing.
B) trustees are not used in an voluntary filing.
C) voluntary petitions are not subject to review by the bankruptcy court.
D) the debtor corporation files the petition in an involuntary filing.
Q2) A company emerging from bankruptcy will have a reorganization value that A) approximates the book value of the entity's assets prior to bankruptcy. B) approximates the book value of the entity prior to bankruptcy. C) approximates the fair market value of the entity without considering liabilities. D) approximates the fair market value of the entity's liabilities.
Q3) Finale Company is in bankruptcy and is being liquidated under the provisions of Chapter 7 of the bankruptcy code. The trustee has converted all assets into $180,000 cash and has prepared the following list of approved claims:
Q4) Gonne Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.35 on the dollar. Odemay Corporation holds a $100,000 mortgage note receivable from Gonne that is secured by equipment with a $120,000 book value and a $75,000 fair value.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) What basis of accounting is used to prepare Government-wide financial statements?
A) Modified accrual basis
B) Accrual basis
C) Cash basis
D) Fiduciary basis
Q2) Because a fund is an accounting entity, each fund has I. its own accounting equation.
II) its own journals, ledgers, and other accounting records.
III) its own separate auditor.
A) I only
B) II only
C) I and II
D) I, II and III
Q3) Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to as
A) appropriations.
B) allotments.
C) allocations.
D) encumbrances.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Bounty County had the following transactions in 2014.
1. The budget for the county was approved, showing estimated revenues of $320,000 from local income taxes, and total estimated expenditures of $316,000.
2. Tax bills were mailed amounting to $326,000, which are due in 60 days. All but 2% was expected to be collectible.
3. Taxes collected prior to the due date amounted to $260,800. The balance was delinquent.
4. $4,200 of taxes due were determined to be uncollectible and written off.
5. The year-end books were closed, with the expectation that the remaining taxes due would be collected evenly over the first two months after the fiscal year end.
Required:
Prepare the journal entries for the General Fund for the transactions.
Q2) When the interest income of $50,000 is received, what account should be credited?
A) Other Financing Sources
B) Other Financing Uses
C) Revenue collected in advance
D) Revenue
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Page 22
Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) What is a significant difference for agency funds when compared to governmental funds?
A) An agency fund has a separate ledger.
B) An agency fund does not report revenues.
C) Agency funds are not associated with any governmental unit.
D) An agency fund will not balance because there is no fund balance account.
Q2) The trust fund for a school library is required to prepare financial statements that include
A) Balance Sheet and Income Statement.
B) Statement of Revenues, Expenses and Changes in Fiduciary Net Assets.
C) Statement of Fund Balance and Statement of Changes in Fund Balance.
D) Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position.
Q3) Proceeds from bonds issued for the construction of capital assets are classified on the Statement of Cash Flows for an Enterprise Fund as
A) Cash Flows from Operating Activities.
B) Cash Flows from Noncapital Financing Activities.
C) Cash Flows from Capital and Related Financing Activities.
D) Cash Flows from Investing Activities.
Page 23
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Chapter
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Q1) On January 1, 2011, a Voluntary Health and Welfare Organization (VHWO) receives an unconditional promise to give $6,000. The money is not collectible until 2012. The VHWO estimates that 10% of pledges are uncollectible. On January 1, 2011, the VHWO will credit A) Unrestricted Support - Contribution, $6,000.
B) Allowance for Uncollectible Contributions $600, and Unrestricted SupportContribution, $5,400.
C) Allowance for Uncollectible Contributions $600, Temporarily Restricted SupportContribution, $5,400.
D) Allowance for Uncollectible Contributions $600, Contribution Revenue $5,400.
Q2) For nonprofit, nongovernmental organizations, unconditional promises to give that include promises of payments due in future periods (next year or later) are reported as A) unrestricted revenues.
B) unrestricted support.
C) deferred revenues until payment is received.
D) restricted support.
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24
Chapter 23: Estates and Trusts
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Q1) If estate assets are insufficient to pay all claims in full, under the Uniform Probate Code which of the following would be paid first?
A) Reasonable funeral expenses
B) Necessary medical and hospital expenses of the last illness of the decedent
C) Unsecured debts
D) The costs and expenses of administration of the estate
Q2) In reference to the probate process, which of the following statements is correct?
A) The personal representative of the deceased can file a petition with the appropriate probate court requesting that an existing will be probated.
B) The Uniform Probate Code varies from state to state.
C) The Uniform Probate Code is applied to all wills found to be valid, and to wills found to be invalid in probate court.
D) The Uniform Probate Code is applied to all wills found to be valid, but not to wills found to be invalid in probate court.
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