Financial Reporting and Analysis
Study Guide Questions
Course Introduction
Financial Reporting and Analysis provides students with a comprehensive understanding of how organizations communicate financial information to external stakeholders. The course covers the fundamental principles and standards of financial accounting, including the preparation and interpretation of key financial statements such as the balance sheet, income statement, and cash flow statement. Students will learn to analyze financial reports to assess a company's performance, profitability, liquidity, and solvency, and explore the impact of various accounting choices on reported results. The course also explores the ethical considerations and regulatory environment surrounding financial reporting, equipping students with the analytical skills essential for informed decision-making in a business context.
Recommended Textbook
Fundamentals of Advanced Accounting 7th Edition by Joe Ben Hoyle
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Chapter 1: The Equity Method of Accounting for Investments
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Q1) Which statement is true concerning unrecognized profits in intra-entity inventory sales when an investor uses the equity method?
A)The investee must defer upstream ending inventory profits.
B)The investee must defer upstream beginning inventory profits.
C)The investor must defer downstream ending inventory profits.
D)The investor must defer downstream beginning inventory profits.
E)The investor must defer upstream beginning inventory profits.
Answer: C
Q2) An upstream sale of inventory is a sale:
A)Between subsidiaries owned by a common parent.
B)With the transfer of goods scheduled by contract to occur on a specified future date.
C)In which the goods are physically transported by boat from a subsidiary to its parent.
D)Made by the investor to the investee.
E)Made by the investee to the investor.
Answer: E
Q3) What was the balance in the Investment in Nicole Corp.account at December 31,2018?
Answer: [$503,000 + $36,660 - ($40,000 × .4)] = $523,660
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Chapter 2: Consolidation of Financial Information
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Q1) What amount will be reported for goodwill as a result of this acquisition?
A)$ 30,000.
B)$ 55,000.
C)$ 65,000.
D)$175,000.
E)$ 200,000.
Answer: B
Q2) What is the difference in consolidated results between a business combination whereby the acquired company is dissolved,and a business combination whereby separate incorporation is maintained?
Answer: There is no difference in consolidated results.
Q3) Compute the consolidated retained earnings at December 31,2018.
A)$2,800.
B)$2,825.
C)$2,850.
D)$3,425.
E)$3,450.
Answer: B
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?
A)Goodwill.
B)Equipment.
C)Investment in Subsidiary.
D)Common Stock.
E)Additional Paid-In Capital.
Answer: C
Q2) When is a goodwill impairment loss recognized?
A)Only after both a quantitative and qualitative assessment of the fair value of goodwill of a reporting unit.
B)After only definitive quantitative assessments of the fair value of goodwill is completed.
C)After only definitive qualitative assessments of the fair value of goodwill is completed.
D)If the fair value of a reporting unit falls to zero or below its original acquisition price.
E)Never.
Answer: B
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) Compute the noncontrolling interest in the net income of Demers at December 31,2020.
A)$18,400.
B)$14,000.
C)$22,600.
D)$24,000.
E)$12,600.
Q2) Compute the noncontrolling interest in Demers at December 31,2019.
A)$135,600.
B)$ 80,000.
C)$117,000.
D)$100,000.
E)$110,600.
Q3) Compute the noncontrolling interest in Demers at December 31,2021.
A)$107,800.
B)$140,000.
C)$165,200.
D)$160,800.
E)$146,800.
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Q4) Where should a noncontrolling interest appear on a consolidated balance sheet?
Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Q1) Compute the amortization of gain through a depreciation adjustment for 2017 for consolidation purposes.
A)$1,950.
B)$1,825.
C)$1,500.
D)$2,000.
E)$5,250.
Q2) Compute the gain or loss reported on Stark's books prior to consolidation from the intra-entity transfer of land in 2017.
A)$80,000 gain.
B)$80,000 loss.
C)$ 5,000 gain.
D)$ 5,000 loss.
E)$85,000 loss.
Q3) Prepare journal entries for Virginia and Stateside to record the sales/purchases during 2017.
Q4) How is the gain on an intra-entity transfer of a depreciable asset recognized?
Q5) Why do intra-entity transfers between the component companies of a business combination occur so frequently?
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Q1) A company had common stock with a total par value of $18,000,000 and fair value of $62,000,000;and 7% preferred stock with a total par value of $6,000,000 and a fair value of $8,000,000.The book value of the company was $85,000,000.Assuming ninety percent (90%)of the company's total equity is acquired,what amount must be attributed to the noncontrolling interest?
A)$8,500,000.
B)$7,000,000.
C)$6,200,000.
D)$2,400,000.
E)$6,929,400.
Q2) A subsidiary issues new shares of common stock at an amount below book value.Outsiders buy all of these shares.Which of the following statements is true?
A)The parent's additional paid-in capital will be increased.
B)The parent's investment in subsidiary will be increased.
C)The parent's retained earnings will be increased.
D)The parent's additional paid-in capital will be decreased.
E)The parent's retained earnings will be decreased.
Q3) What consolidation entry would be recorded in connection with these intra-entity bonds on December 31,2021?
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) What journal entry should Eagle prepare on December 31,2018? \(\begin{array}{|l|l|r|r|}
\hline \text { A) } & \text { Foreign Currency Option } & 200 & \\
\hline & \text { Cash } & & 200 \\
\hline \text { B) } & \text { Foreign Currency Option } & 200 & \\
\hline & \text { Option Revenue } & & 200 \\
\hline \text { C) } & \text { Foreign Currency Option } & 400 & \\
\hline & \text { Option Revenue } & & 400 \\
\hline \text { D) } & \text { Option Expense } & 200 \\
\hline & \text { Foreign Currency Option } & & 200\\
\hline \text { E) } & \text { Option Expense } & 400 \\
\hline & \text { Foreign Currency Option } & & 400 \\
\hline \end{array}\)
Q2) What amount will Coyote Corp.report in its 2018 balance sheet for Accounts receivable?
Q3) What are the two separate transactions that require recording under the two-transaction perspective?
Q4) Assuming this is a cash flow hedge;prepare journal entries for this sales transaction and forward contract.
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Chapter 8: Translation of Foreign Currency Financial
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Q1) In translating a foreign subsidiary's financial statements,which exchange rate does the current method require for the subsidiary's assets and liabilities?
A)The exchange rate in effect when each asset or liability was acquired.
B)The average exchange rate for the current year.
C)A calculated exchange rate based on market value.
D)The exchange rate in effect as of the balance sheet date.
E)The exchange rate in effect at the start of the current year.
Q2) Assume the functional currency is the Euro;compute the U.S.income statement amount for depreciation expense for 2018.
A)$8,190.
B)$8,370.
C)$8,820.
D)$9,090.
E)$8,550.
Q3) A foreign subsidiary of a U.S.corporation purchased equipment on January 4,2015.
(A. )How would depreciation expense on the equipment be translated for 2018?
(B. )How would depreciation expense on the equipment be remeasured for 2018?
Q4) Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S.dollars.
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Chapter 9: Partnerships: Formation and Operation
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Q1) What was the balance in Thurman's Capital account at the end of the first year?
A)$120,900.
B)$118,300.
C)$126,100.
D)$ 80,600.
E)$111,500.
Q2) What was Eaton's total share of net loss for the first year?
A)$ 3,900 loss.
B)$11,700 loss.
C)$10,400 loss.
D)$24,700 loss.
E)$ 9,100 loss.
Q3) What was Wasser's total share of net income for 2018?
A)$34,420.
B)$75,540.
C)$65,540.
D)$70,040.
E)$61,420.
Q4) What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of a partnership?
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Chapter 10: Partnerships: Termination and Liquidation
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Q1) If the building is sold for $50,000 and there are no liquidation expenses what amount should Harry receive in the final settlement?
A)$ 5,000.
B)$ 9,000.
C)$18,000.
D)$28,000.
E)$55,000.
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) Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of February.
Q4) Prepare the schedule to compute the cash payments to the partners.
Q5) Record the journal entry for the cash distribution to the partners.
Q6) Why is a preliminary distribution of partnership assets prepared?
Q7) What should occur when a solvent partner has a deficit balance?
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Chapter 11: Accounting for State and Local Governments,
part I
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Q1) Under modified accrual accounting,when should revenues be recognized by a governmental-type fund?
Q2) A city received a grant of $5,000,000 from a private agency.The money was to be used to build a new city library.In which fund should the money be recorded for the governmental fund financial statements?
A)The General Fund.
B)An Expendable Trust Fund.
C)A Capital Projects Fund.
D)An Agency Fund.
E)A Permanent Fund.
Q3) A $5,000,000 bond is issued by Northern City to build a new hospital and the proceeds of the bond are received directly by the fund that will be disbursing the monies for the hospital construction.
Required:
Prepare the journal entry and identify the fund in which it is recorded to reflect the bond issue.
Q4) A county enacted a special tax levy and the money must be used to buy unused farmland for environmental preservation.What kind of fund should be used to record the revenues generated by the tax?
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Chapter
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Q1) A method of accounting for infrastructure assets that allows the expensing of all maintenance costs each year instead of computing depreciation is called
A)Government-wide depreciation.
B)Proprietary depreciation.
C)GASB depreciation.
D)Modified approach.
E)Alternative depreciation.
Q2) What is meant by the term legally independent?
Q3) The city operates a public swimming pool where each person is assessed a $2 entrance fee.Which financial statement is most appropriate to report these revenues?
A)Statement of Net Position.
B)Statement of Revenue,Expenditures,and Other Changes in Fund Balance.
C)Statement of Revenue,Expenses,and Other Changes in Fund Balance.
D)Statement of Net Revenue and Expenses.
E)Statement of Revenue,Expenses,and Other Changes in Net Position.
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 for the year ended December 31,2018.
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