Financial Reporting and Analysis Practice Questions
Course Introduction
Financial Reporting and Analysis explores the principles and practices of preparing, presenting, and interpreting financial statements. The course covers key accounting standards, the structure and contents of balance sheets, income statements, and cash flow statements, and the role of financial reporting in decision-making by various stakeholders. Students will learn to analyze financial reports to assess an organizations performance, profitability, liquidity, and solvency, and will engage with real-world cases to develop skills in recognizing accounting issues, regulatory compliance, and ethical considerations in financial reporting.
Recommended Textbook
Advanced Financial Accounting 9th Edition by Richard Baker
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Based on the preceding information,what would be the total amount of goodwill that Wilson should report at year-end?
A)$0
B)$69,000
C)$79,000
D)$94,000
Answer: B
Q2) Based on the preceding information,what number of shares of $7 par value stock did Spin issue to Conservative?
A)10,000
B)7,000
C)8,000
D)25,000
Answer: C
Q3) Which of the following observations refers to the term differential?
A)Excess of consideration exchanged over fair value of net identifiable assets.
B)Excess of fair value over book value of net identifiable assets.
C)Excess of consideration exchanged over book value of net identifiable assets.
D)Excess of fair value over historical cost of net identifiable assets.
Answer: C
Page 3
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
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Q1) Based on the preceding information,what amount would William Company receive as dividends from eGate for the year?
A)$62,000
B)$21,600
C)$18,600
D)$54,000
Answer: C
Q2) Based on the preceding information,what amount of investment income will William Company report from its investment in eGate for the year?
A)$45,000
B)$42,000
C)$62,000
D)$35,000
Answer: B
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4
Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) 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 parent company approach?
A)$350,000
B)$340,000
C)$280,000
D)$300,000
Answer: B
Q2) Under FASB 141R,consolidation follows largely which theory approach?
A)Proprietary
B)Parent company
C)Entity
D)Variable
Answer: C
Q3) Which of the following usually does not represent a variable interest?
A)Common stock,with no special features or provisions
B)Senior debt
C)Subordinated debt
D)Loan or asset guarantees
Answer: B
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Tanner Company,a subsidiary acquired for cash,owned equipment with a fair value higher than the book value as of the date of combination.A consolidated balance sheet prepared immediately after the acquisition would include this difference in:
A)goodwill.
B)retained earnings.
C)deferred charges.
D)equipment.
Q2) Based on the preceding information,what amount of goodwill will be reported if the acquisition price was $240,000?
A)$0
B)$40,000
C)$15,000
D)$35,000
Q3) Based on the preceding information,what is the differential associated with the acquisition?
A)$15,000
B)$21,000
C)$6,000
D)$10,000
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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 preceding information,what is the amount of comprehensive income attributable to the controlling interest for 20X9?
A)$138,750
B)$131,000
C)$128,750
D)$135,000
Q2) Based on the preceding information,what amount of consolidated retained earnings will be reported?
A)$205,000
B)$120,000
C)$325,000
D)$310,000
Q3) Based on the preceding information,what amount will be reported as investment in Silver Corporation stock in the consolidated balance sheet immediately following the acquisition?
A)$0
B)$210,000
C)$300,000
D)$400,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Consolidated net income may include the parent's separate operating income plus the parent's share of the subsidiary's reported net income:
A)plus the unrealized profit on upstream intercompany sales of inventory made during the current year.
B)plus the profit realized this year from upstream intercompany sales of inventory made last year.
C)plus unrealized profit on downstream intercompany sales of inventory made during the current year.
D)minus the parent's share of profit realized this year from upstream intercompany sales of inventory made last year.
Q2) Based on the information given above,what will be the income to noncontrolling interest for 20X8?
A)$39,750
B)$37,875
C)$71,275
D)$70,875
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:
A)Debited for $1,000 in the eliminating entries.
B)Credited for $1,000 in the eliminating entries.
C)Debited for $15,000 in the eliminating entries.
D)Credited for $15,000 in the eliminating entries.
Q2) A parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent assets during the past two years.The amount of income assigned to the noncontrolling interest for the second year should include the noncontrolling interest's share of gains:
A)unrealized in the second year from upstream sales made in the second year.
B)realized in the second year from downstream sales made in both years.
C)realized in the second year from upstream sales made in both years.
D)both realized and unrealized from upstream sales made in the second year.
Q3) PeopleMag sells a plot of land for $100,000 to Seven Star Company,its 100 percent owned subsidiary,on January 1,20X7.The cost of the land was $75,000,when it was purchased in 20X6.In 20X9,Seven Star sells the land to Hot Properties Inc. ,an unrelated entity,for $120,000.How is the land reported in the consolidated financial statements for 20X7,20X8 and 20X9?
Page 9
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X8 year-end consolidated financial statements?
A)$3,500
B)$2,800
C)$5,000
D)$2,500
Q2) When one company purchases the debt of an affiliate from an unrelated party,a gain or loss on the constructive retirement of debt is recognized by which of the following?
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Based on the information given above,what amount of interest expense should be reported in the 20X8 consolidated income statement?
A)$6,000
B)$6,500
C)$5,000
D)$10,000
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for:
A)$50,000.
B)$95,000.
C)$230,000.
D)$185,000.
Q2) Based on the preceding information,in the journal entry recorded by Vision for sale of shares,Additional Paid-in Capital will be credited for:
A)$0.
B)$15,000.
C)$9,000.
D)$45,000.
Q3) HYPERLINK "" ! Hyperlink reference not valid.1,20X9,before its sale of shares?
A)$225,000
B)$285,000
C)$245,000
D)$255,000
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash used in investing activities for 20X9?
A)$180,000
B)$100,000
C)$255,000
D)$110,000
Q2) Based on the preceding information,what journal entry would Fair Logic make to record equity method income for the year?
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Based on the information provided,what is the diluted earnings per share for the consolidated entity for 20X8?
A)4.53
B)4.33
C)4.00
D)3.80
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12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,the entries on January 30,20X9,include a:
A.Debit to Dollars Payable to Exchange Broker,$184,000.
B.Credit to Foreign Currency Transaction Gain,$4,000.
C.Credit to Foreign Currency Receivable from Exchange Broker,$180,000.
D.Debit to Foreign Currency Units (SFr),$184,000.
Q2) Detroit based Auto Corporation,purchased ancillaries from a Japanese firm on December 1,20X8,for 1,000,000 Yen,when the spot rate for Yen was $.0095.On December 31,20X8,the spot rate stood at $.0096.On January 10,20X9 Auto paid 1,000,000 Yen acquired at a rate of $.0094.Auto's income statements should report a foreign exchange gain or loss for the years ended December 31,20X8 and 20X9 of:
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Based on the preceding information,the entries on January 30,20X9,include a:
A)Credit to Foreign Currency Units (SFr),$184,000.
B)Credit to Cash,$180,000.
C)Debit to Foreign Currency Transaction Loss,$4,000.
D)Debit to Dollars Payable to Exchange Broker,$184,000.
Page 13
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Elan's Investment in Swiss subsidiary account at December 31,20X8,is:
A)$1,881,050.
B)$1,916,050.
C)$1,923,950.
D)$2,051,500.
Q2) Dividends of a foreign subsidiary are translated at:
A)the average exchange rate for the year.
B)the exchange rate on the date of declaration.
C)the current exchange rate on the date of preparation of the financial statement.
D)the exchange rate on the record date.
Q3) Based on the preceding information,in the stockholders' equity section of Leo's consolidated balance sheet at December 31,20X8,Leo should report the translation adjustment as a component of other comprehensive income of:
A)$19,440
B)$17,000
C)$18,786
D)$19,380
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Page 14
Chapter 13: Segment and Interim Reporting
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Q1) If a company changes the method it uses to compute the allowance for uncollectible accounts receivable because more recent information has become available,how is this change in method is accounted for?
A)The change is only reported in the current period in which the change is made
B)The change is reported in all future periods affected by the change
C)Previously issued financial statements are not adjusted by the change
D)All of the above are correct ways to account for the change
Q2) Frahm Company incurred a first quarter operating loss before income tax effect of $4,000,000.This is a normal occurrence for Frahm because of seasonal fluctuations.Experience has demonstrated the income earned during the remaining quarters far exceeds the first quarter losses each year.Frahm estimates its annual income tax rate will be 30 percent.What net loss should Frahm report for the first quarter?
A)$4,000,000
B)$2,800,000
C)$700,000
D)$0
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Page 15
Chapter 14: Sec Reporting
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Q1) Smithtown Distributors acquired Paul's Plumbing on January 15,2008.Violet Flowers acquired Frank's Farm on January 1,2007.In the 12/31/07 financial statements filed with the SEC,Smithtown included a Pro Forma disclosure and Violet did not.If both acquisitions account for 100% of the common stock of the company acquired and are considered to be material,then can both filings be considered proper?
Q2) 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.
Q3) Which of the following covers new or revised administrative practices and interpretations used by the SEC staff in reviewing financial statements?
A)Securities Exchange Act releases
B)Exchange Act industry guides
C)Accounting and Auditing Enforcement Releases
D)Staff Accounting Bulletins
Q4) Customary Review
Q5) Accounting and Auditing Enforcement Releases
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Page 16
Chapter 15: Partnerships: Formation, operation, and
Changes in Membership
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Q1) When the old partners receive a bonus upon admission of a new partner into a partnership,the bonus is allocated to:
I.all the partners in their profit and loss sharing ratio.
II.the existing partners in their profit and loss sharing ratio.
A)I only
B)II only
C)Either I or II
D)Neither I nor II
Q2) Refer to the above information.Tiffany is paid $56,000,and all implied goodwill is recorded.What is the total amount of goodwill recorded?
A)$0
B)$6,000
C)$30,000
D)$36,000
Q3) Transferable interest of a partner includes all of the following except:
A)the partner's share of the profits and losses of the partnership.
B)the right to receive distributions.
C)the right to receive any liquidating distribution.
D)the authority to transact any of the partnership's business operations.
Page 17
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Chapter 16: Partnerships: Liquidation
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Q1) According to UPA 1997,during partnership liquidation,loans the partners have made to the partnership have the same status as loans from third-party creditors.As a practical matter,most loans from partners:
A)are subordinated to third-party creditors.
B)have the same status as loans from third-party creditors.
C)are paid prior to third-party creditors.
D)None of the above.
Q2) The personal financial statements of a partner include which of the following?
I.Statement of financial condition.
II.Statement of changes in net worth.
III.Statement of cash flows.
A)I and II
B)I and III
C)II and III
D)I,II,and III
Q3) On a partner's personal statement of financial condition,how are assets valued?
A)Historical cost
B)Book value
C)Discounted value
D)Estimated current value
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Which organization has the authority to establish generally accepted accounting principles for state and local government entities?
A)The National Council on Governmental Accounting
B)The Governmental Accounting Standards Board
C)The Financial Accounting Standards Board
D)The Municipal Officers Finance Organization
Q2) The general fund of the City of Atlanta received a check for $10,000 from an Atlanta resident on July 1,20X8.Of the amount received,$4,800 represented full payment of property taxes for 20X8,and the remaining $5,200 represented an advance payment for property taxes of 20X9.On July 1,20X8,the general fund should record the receipt by debiting Cash for $10,000 and by crediting
A)Revenue-Property Tax for $10,000.
B)Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200.
C)Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200.
D)Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200.
Q3) Discuss major differences between a governmental entity's uses of the modified accrual method and a for-profit corporation's use of the accrual method.
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Page 19
Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) GASB 34 specifies two criteria for determining major governmental funds to be reported separately in the Governmental Fund Balance Sheet and Statement of Revenues,Expenditures,and Changes in Fund Balances.To be considered a major governmental fund,a fund must:
A)meet at least one criterion.
B)be the general fund or meet at least one criterion.
C)be the general fund or meet two criteria.
D)either A or C
Q2) Fixed assets and investments are reported in which of the following funds?
A)I,II,III
B)II,IV,V
C)I,II,V
D)II,III,IV
Q3) Which of the following items would not be reported on the financial statements of a special revenue fund?
A)Long-term productive assets.
B)Expenditures and revenues.
C)Vouchers payable and unreserved fund balance.
D)Fund balance reserved for encumbrances and expenditures.
Page 20
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Chapter 19: Not-For-Profit Entities
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Q1) Good Faith Hospital,operated by a religious organization,billed patients $4,000,000 for services rendered during the year ended June 30,20X9.The hospital realized cash of $3,500,000 from the patient billings because of the following reductions: (1)contractual adjustments of $140,000 granted to private insurance companies and to the federal government;and (2)uncollectible accounts receivable of $360,000. On the statement of operations prepared for the year ended June 30,20X9,Good Faith Hospital should report net patient service revenue of:
A)$3,500,000.
B)$3,860,000.
C)$4,000,000.
D)$3,640,000.
Q2) Received cash contributions restricted by donors for research.
Q3) "Classification of investment income from endowment investments if there are no donor restrictions as to income" describes which term listed above?
Q4) "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) On a debtor-in-possession income statement,which of the following items should be reported under the heading "Reorganization Items"?
A)Sales
B)Selling expenses
C)Income tax benefit
D)Loss on disposal of assets
Q2) Based on the preceding information,what is the total amount of unsecured claims?
A)$113,000
B)$126,000
C)$93,000
D)$121,000
Q3) What is defined as a condition in which a company is unable to meet debts as the debts mature?
A)Deficit
B)Liability
C)Insolvency
D)Credit squeeze
Q4) What are the conditions necessary for using fresh start reporting in reorganization?
Q5) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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