Financial Reporting and Analysis Exam Review
Course Introduction
Financial Reporting and Analysis provides a comprehensive overview of the principles and practices involved in preparing and interpreting financial statements. The course explores key concepts such as revenue recognition, asset and liability measurement, equity accounting, and the preparation of cash flow statements. Students develop a deep understanding of Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), and learn to critically analyze financial reports to assess an organizations performance and financial health. The course also covers ratio analysis, trend analysis, and the impact of accounting choices on financial results, equipping students with the skills necessary for effective decision-making in finance and business.
Recommended Textbook
Advanced Accounting 12th Edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) Under the provisions of FASB Statement No.141R,in a business combination,when the fair value of identifiable net assets acquired exceeds the investment cost,which of the following statements is correct?
A)A gain from a bargain purchase is recognized for the amount that the fair value of the identifiable net assets acquired exceeds the acquisition price.
B)The difference is allocated first to reduce proportionately (according to market value)non-current assets,then to non-monetary current assets,and any negative remainder is classified as a deferred credit.
C)The difference is allocated first to reduce proportionately (according to market value)non-current assets,and any negative remainder is classified as an extraordinary gain.
D)The difference is allocated first to reduce proportionately (according to market value)non-current,depreciable assets to zero,and any negative remainder is classified as a deferred credit.
Answer: A
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3
Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) Which one of the following statements is correct for an investor company?
A)The balance in the Investment in Osprey Co.account can be reduced to represent a decline in the fair market value of the investment,but will not be adjusted if the fair market value increases.
B)Under the equity method,the balance in the Investment in Osprey Co.account can be negative if the investee corporation operates at a loss.
C)Once the balance in the Investment in Osprey Co.is reduced to zero,it will not be reduced any further.
D)Under the equity method,the balance in the Investment in Osprey Co.account will increase when cash dividends are received.
Answer: C
Q2) The income from an equity method investee is reported on one line of the investor company's income statement except when
A)the cost method is used.
B)the investee has extraordinary items.
C)the investor company is amortizing cost-book value differentials.
D)the investor company changes from the cost to the equity method.
Answer: B
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Percy Inc.acquired 80% of the outstanding stock of Sillson Company in a business combination.The book values of Sillson's net assets are equal to the fair values except for the building,whose net book value and fair value are $500,000 and $800,000,respectively.At what amount is the building reported on the consolidated balance sheet?
A)$400,000
B)$500,000
C)$640,000
D)$800,000
Answer: D
Q2) On June 1,2014,Puell Company acquired 100% of the stock of Sorrell Inc.On this date,Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000.On December 31,2014,Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000.The amount of Retained Earnings that appeared in the December 31,2014 consolidated balance sheet was
A)$120,000.
B)$130,000.
C)$170,000.
D)$180,000.
Answer: A
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Chapter 4: Consolidated Techniques and Procedures
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Q1) A parent company uses the equity method to account for its wholly-owned subsidiary,but has applied it incorrectly.In each of the past four full years,the company adjusted the Investment account when it received dividends from the subsidiary but did not adjust the account for any of the subsidiary's profits.The subsidiary had four years of profits and paid yearly dividends in amounts that were less than reported net incomes.Which one of the following statements is correct if the parent company discovered its mistake at the end of the fourth year,and is now preparing consolidation working papers?
A)The parent company's Retained Earnings will be increased by the cumulative total of four years of subsidiary profits.
B)The parent company's Retained Earnings will be increased by the cumulative total of the first three years of subsidiary profit,and the Subsidiary Income account will be increased by the profit for the current year.
C)The parent company's Subsidiary Income account will be increased by the cumulative total of four years of subsidiary profits.
D)A prior period adjustment must be recorded for the cumulative effect of four years of accounting errors.
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Page 6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A)$512,000.
B)$526,000.
C)$522,500.
D)$528,000.
Q2) If the sale referred to above was a downstream sale,the total sales revenue reported in the consolidated income statement for 2014 would be
A)$870,000.
B)$880,000.
C)$920,000.
D)$970,000.
Q3) 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.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Which of the following is correct?
A)No consolidation working paper entry is required for this transaction in 2014.
B)A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2014.
C)A consolidation working paper entry is required each year that Sidd has the land.
D)A consolidated working paper entry was required only if the land was held for resale in 2014.
Q2) Pigeon Corporation purchased land from its 60%-owned subsidiary,Seed Inc. ,in 2012 at a cost $50,000 greater than Seed's book value.In 2014,Pigeon sold the land to an outside entity for $20,000 more than Pigeon's book value.The 2014 consolidated income statement should report a gain on the sale of land of
A)$12,000.
B)$20,000.
C)$42,000.
D)$70,000.
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Popcorn Corporation owns 90% of the outstanding voting common stock of Salty Corporation.On January 1,2009,Salty issued $1,000,000 face amount of 12%,$1,000 bonds payable at 119.20.The bonds pay interest on January 1 and July 1 of each year and mature on January 1,2017.On July 2,2014,Popcorn purchased all of the outstanding bonds at a price of 107.50.Both companies use straight-line amortization.
Required:
1.Prepare the journal entries for July 1,2014 through December 31,2014 for Popcorn Corporation.
2.Prepare the journal entries for July 1,2014 through December 31,2014 for Salty Corporation.
3.Prepare the elimination entries necessary on the consolidating working papers for the year ended December 31,2014.
Q2) Controlling interest share of consolidated net income for 2013 was
A)$443,600.
B)$444,000.
C)$444,400.
D)$448,000.
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Page 9
Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Jersey Company acquired 90% of York Company on April 1,2014.Both Jersey Company and York Company have December 31 fiscal year ends.Under current GAAP,which of the following statements is false?
A)The consolidated income statement in 2014 should not include York's revenues and expenses prior to April 1,2014.
B)When preparing consolidating work papers in 2014,York's revenues prior to April 1,2014 are eliminated.
C)York's earnings prior to April 1,2014 should appear as a deduction on the consolidated income statement in 2014.
D)The consolidated income statement in 2014 should include York's revenues and expenses after April 1,2014.
Q2) A 15% stock dividend by a subsidiary causes
A)the parent company investment account to decrease.
B)the parent company investment account to remain the same.
C)the parent company investment account to increase.
D)the noncontrolling interest equity to increase.
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Page 10
Chapter 9: Indirect and Mutual Holdings
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Q1) The amount of income for the current year assigned to the noncontrolling shareholders of Abussi Corporation is
A)$48,000.
B)$53,200.
C)$74,000.
D)$79,200.
Q2) Paglia Corporation owns 80% of Aburn Corporation and has separate net income of $200,000 for 2013.Aburn Corporation has separate net income of $100,000 and owns 70% of the outstanding stock of Badley Corporation.Badley Corporation has separate net income of $80,000.(Separate net incomes exclude investment income . )The cost of each investment was equal to book value and fair value.The controlling interest share of consolidated net income for 2013 is
A)$324,800.
B)$328,800.
C)$344,800.
D)$348,800.
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11
Chapter 10: Subsidiary Preferred Stock,consolidated
Earnings Per Share,and Consolidated Income Taxation
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Q1) When a parent acquires the preferred stock of a subsidiary,there will be a constructive retirement and
A)any difference paid above the book value of the preferred stock reduces the parent's additional paid-in capital.
B)any difference paid above the book value of the preferred stock reduces the subsidiary's retained earnings.
C)any difference paid above the book value of the preferred stock increases the parent's additional paid-in capital.
D)any difference paid above the book value of the preferred stock increases the parent's retained earnings.
Q2) How much should the Parminter's Investment in Sanchez-Common Stock,change during 2014?
A)$5,000
B)$20,000
C)$25,000
D)$30,000
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Chapter 11: Consolidation Theories,push-Down
Accounting,and Corporate Joint Ventures
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Q1) Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg's stockholders' equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings.The fair values of Sandberg's net assets were equal to their recorded book values.At the time of acquisition,on Paroz's books,Paroz will record
A)goodwill for $60,000 under the parent company theory.
B)goodwill for $85,714 under the entity theory.
C)investment in Sandberg for $1,285,714 under the entity theory.
D)investment in Sandberg for $900,000 under the entity and parent company theories.
Q2) Under GAAP,the ________ will include the variable interest entity in consolidated financial statements.
A)special purpose entity
B)limited liability company
C)trust
D)primary beneficiary
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13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) On May 1,2014,Deerfield Corporation purchased merchandise from a German firm for 78,000 euros when the spot rate for the euro was 1.48 euro per dollar.The account payable was denominated in the euro.Deerfield settled the account on August 1 when the spot rate for the euro was 1.39 euro per dollar.How much cash will Deerfield have to disburse to settle the account?
A)$ 52,702.72
B)$ 56,115.11
C)$108,420.00
D)$115,440.00
Q2) If the sale of the merchandise was denominated in Swiss francs,the November 30 entry to record the receipt of payment from Watchem included a A)credit to Accounts Receivable for $104,040.
B)credit to Exchange Gain for $3,060.
C)debit to Cash for $107,100.
D)debit to Exchange Loss for $3,060.
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) Which of the following is not an approach appropriate for hedge accounting?
A)Cash Flow Hedge Accounting
B)Critical Term Hedge Accounting
C)Fair Value Hedge Accounting
D)Hedge of Net Investment in Foreign Subsidiary
Q2) If a financial instrument is classified as a cash flow hedge,then
A)its gains or losses are reported in the income statement if a fiscal year-end occurs before the settlement date.
B)it is classified as a held-to-maturity asset.
C)it does not require a notional amount.
D)its gains or losses are reported in the balance sheet if a fiscal year-end occurs before the settlement date.
Q3) What is the fair value of the forward contract at February 29?
A)$-0-
B)$1,654.97 asset
C)$1,654.97 liability
D)$1,680 asset
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Page 15
Chapter 14: Foreign Currency Financial Statements
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Q1) All of the following factors would be used to define a foreign entity's functional currency,except
A)high volume of intercompany transactions.
B)expenses for foreign entity primarily driven by local factors.
C)financing for foreign entity denominated in local currency.
D)foreign entity's status as a local tax haven for transfer pricing purposes.
Q2) 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
Q3) 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.
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A)They have similar amounts of intersegment revenues or expenses.
B)They have a similar distribution method for products.
C)They have similar production processes.
D)They have similar products or services.
Q2) Which of the following is not a quantitative threshold for determining a reportable segment?
A)Segment assets are 10% or more of the combined assets of all operating segments.
B)The absolute value of a segment's profit or loss is 10% or more of the greater of (1)the combined reported profit of all operating segments that reported a profit or (2)the absolute value of the combined reported loss of all operating segments that reported a loss.
C)Segment reported revenue,including intersegment revenues,is 10% or more of the combined revenue (both internal and external)of all operating segments.
D)Segment residual profit after the cost of equity is 10% or more of the combined residual profit of all operating segments.
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) On February 1,2014,George,Hamm,and Ishmael began a partnership in which George and Ishmael each contributed cash of $25,000;and Hamm contributed property with a fair value of $50,000 and a tax basis $40,000.Hamm receives a 5% bonus of partnership income.George and Ishmael receive salaries of $10,000 each.The partnership agreement of George,Hamm,and Ishmael provides that all partners receive 5% interest on capital,and that profits and losses of the remaining income be distributed to George,Hamm,and Ishmael by a 1:3:1 ratio.
Required:
Prepare a schedule to distribute $25,000 of partnership net income to the partners.
Q2) On July 1,2014,Joe,Kline,and Lama began a partnership in which Joe and Kline each contributed cash of $200,000;and Lama contributed property with a fair value of $100,000 and a tax basis $150,000.Joe receives a 10% bonus of partnership income.Kline and Lama receive salaries of $40,000 each.The partnership agreement of Joe,Kline,and Lama provides that all partners receive 5% interest on capital and that profits and losses of the remaining income be distributed to Joe,Kline,and Lama by a 1:1:3 ratio.
Required:
Prepare a schedule to distribute $225,000 of partnership net income to the partners.
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Chapter 17: Partnership Liquidation
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Q1) In partnership liquidation,how are partner salary allocations treated?
A)Salary allocations take precedence over creditor payments.
B)Salary allocations take precedence over amounts due to partners with respect to their capital interests,but not profits.
C)Salary allocations take precedence over amounts due to partners with respect to their capital profits,but not capital interests.
D)Salary allocations are disregarded.
Q2) In partnership liquidations,what are safe payments?
A)The amounts of distributions that can be made to the partners,after all creditors have been paid in full.
B)The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
C)The amounts of distributions that can be made to the partners,after all non-cash assets have been adjusted to fair market value.
D)The amounts of distributions that can be made to the partners during the liquidation based on the partner's contributed capital return.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) When a corporation's total liabilities are greater than the fair value of total assets,the firm is
A)a distressed corporation.
B)a bankrupt corporation.
C)insolvent in the equity sense.
D)insolvent in the bankruptcy sense.
Q2) Which of the following statements is correct concerning companies emerging from reorganization under Chapter 11 when they do not qualify for fresh start accounting? The forgiveness of debt is reported as
A)an operating gain.
B)a non-operating gain.
C)an extraordinary item.
D)an increase in contributed capital.
Q3) Which of the following must approve a Chapter 11 plan?
A)The organization's management and the assigned trustee
B)The assigned trustee and creditors
C)The assigned trustee and entity's stockholders
D)The bankruptcy court and the creditors
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20
Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) The following are transactions for the city of Salem.
a.Incurred salaries of $44,000 to be paid next month.
b.Tax bills totaling $500,000 mailed to city residents.
c.Paid salaries above.
d.Computer equipment received in the amount of $11,000,to be paid in 30 days.
Required:
Analyze the above transactions by using the accounting equation for a governmental fund.
Q2) The following are transactions for the city of Greenville.
a.Issued $50,000 10-year bonds.
b.Used $30,000 of the cash to buy a truck.
c.Sold the truck that was replaced which had cost $28,000,for $2,000.The old truck was fully depreciated.Residual value is zero.
d.Computed depreciation on the new truck for the year of $6,000.
Required:
Analyze the above transactions by using the accounting equation for a governmental fund.
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Page 21
Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) The proceeds from a bond issuance for the construction of a new public school should be recorded in the ________ fund at the time the bonds are sold.At the time of the bond issue,the debit is to cash and the credit is to ________.
A)capital projects;revenues
B)general;bonds payable
C)general;other financing sources
D)capital projects;other financing sources
Q2) Carson County had the following transactions for their General Fund relating to the levy and collection of property taxes.
1.Property tax bills for $1,000,000 are sent to property tax owners.Taxes are due in 45 days.History shows that Carson County should expect 1.5% of the property taxes to be uncollectible.
2.$850,000 in property taxes is collected.The remaining receivables are past due.
3.An additional $80,000 of the delinquent taxes is collected.
4.Wrote off $10,000 of delinquent taxes determined to be uncollectible.
Required:
Prepare the journal entries in the General Fund for the transactions.
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Page 22
Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Thoroughgood County has a municipal golf course and tennis club which is funded by the membership fees it charges.The club also has 6% bonds outstanding amounting to $20,000,000 on which it pays interest semi-annually.The club had the following transactions.
1.An addition to the golf clubhouse was added for $2,000,000,funded out of operations.
2.The following expenses were incurred and paid: $80,000 wages;$10,000 payroll taxes;$45,000 water bill;and $12,000 equipment repair.
3.Interest on the bonds was paid amounting to $600,000.
4.$5,000,000 of operating cash excess was repaid to the general fund for a previous loan.
5.Depreciation of $500,000 was recorded for the buildings.
Required:
Prepare the necessary journal entries for each of the above transactions for the Enterprise Fund.
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Not-for-profit,private colleges classify student unions,dining halls,and residence halls as
A)educational and general services.
B)auxiliary enterprises.
C)independent operations.
D)restricted enterprises.
Q2) Record the following transactions for Porter Hospital,a private,nonprofit hospital:
1.Gross patient services revenues: $25,000,000.Billed to patients.
2.Included in the above revenues are: charity services,$500,000;contractual adjustments,$11,000,000;and estimated uncollectible amounts,$250,000.
3.Purchased equipment by issuing a 5-year note for $200,000.
4.Received cash donations restricted for a capital building addition program,$5,100,000.
5.Incurred and paid $1,700,000 of contractor billings for the capital building program.
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Chapter 23: Estates and Trusts
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Q1) In reference to estates,which of the following statements is correct?
A)An estate comes into existence at the death of an individual.
B)If the deceased person had a valid will at the time of death,he or she is said to have died intestate.
C)The heir receiving the largest portion of the estate is typically appointed the executor.
D)Claims may be made for up to seven years against an estate.
Q2) Philiam Benedict dies on October 1,2014,leaving his entire estate to his sole surviving niece,Muriel Finster.After all devise distributions and payments for estate expenses and liabilities,the fair value of Philiam's estate is $6,350,000.
Required:
Calculate the federal estate tax on Philiam's estate,assuming that federal estate taxes are paid at the 45% rate.
Q3) Which of the following phrases is frequently used to refer to estate or trust accounting?
A)Non-profit accounting
B)Testamentary accounting
C)Fiduciary accounting
D)All of the above phrases are used to refer to estate or trust accounting.
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