Financial Reporting
Chapter Exam Questions
Course Introduction
Financial Reporting is a foundational course that introduces students to the principles and practices involved in preparing and interpreting external financial statements for corporate entities. Topics covered include the conceptual framework of accounting, recognition and measurement of assets, liabilities, equity, revenues, and expenses, and the regulatory environment governing financial reporting. Through the analysis of real-world financial statements and application of relevant accounting standards, students develop the skills to critically assess a company's financial health, ensure regulatory compliance, and communicate financial information effectively to investors, creditors, and other stakeholders.
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) Which of the following is not a reason for a company to expand through a combination,rather than by building new facilities?
A)A combination might provide cost advantages.
B)A combination might provide fewer operating delays.
C)A combination might provide easier access to intangible assets.
D)A combination might provide an opportunity to invest in a company without having to take responsibility for its financial results.
Answer: D
Q2) Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as A)an expense for the current year.
B)a prior period adjustment to retained earnings.
C)additional cost to investment of Slope on the consolidated balance sheet.
D)a reduction in additional paid-in capital.
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 items,originally recorded in the Investment in Falcon Co.account under the equity method,would not be systematically used to reduce investment income on a periodic basis?
A)Amortization expense of goodwill
B)Depreciation expense on the excess fair value attributed to machinery
C)Amortization expense on the excess fair value attributed to lease agreements
D)Interest expense on the excess fair value attributed to long-term bonds payable
Answer: A
Q2) Jacana Corporation paid $200,000 for a 25% interest in Lilypad Corporation's common stock on January 1,2013,but was not able to exercise significant influence over Lilypad.During 2014,Jacana reported income of $120,000,excluding its income from Lilypad,and paid dividends of $50,000.Lilypad reported net income of $40,000 during 2014 and paid dividends of $20,000.Jacana should report net income for 2014 in the amount of
A)$115,000.
B)$120,000.
C)$125,000.
D)$130,000.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) In the preparation of consolidated financial statements,which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?
A)All revenues,expenses,gains,losses,receivables,and payables
B)All revenues,expenses,gains,and losses but not receivables and payables
C)Receivables and payables but not revenues,expenses,gains,and losses
D)Only sales revenue and cost of goods sold
Answer: A
Q2) From the standpoint of accounting theory,which of the following statements is the best justification for the preparation of consolidated financial statements?
A)In substance the companies are separate,but in form the companies are one entity.
B)In substance the companies are one entity,but in form they are separate.
C)In substance and form the companies are one entity.
D)In substance and form the companies are separate entities.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Q1) On consolidated working papers,a subsidiary's net income is
A)deducted from beginning consolidated retained earnings.
B)deducted from ending consolidated retained earnings.
C)allocated between the noncontrolling interest share and the parent's share.
D)only an entry in the parent company's general ledger.
Q2) Which one of the following will increase consolidated retained earnings?
A)An increase in the value of goodwill associated with a subsidiary subsequent to the parent's date of acquisition
B)The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value
C)The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value
D)The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition
Q3) What amount of total liabilities will be reported?
A)$206,000
B)$278,400
C)$319,600
D)$348,000
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Page 6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) What amount of unrealized profit did Pelga Company have at the end of 2015?
A)$10,000
B)$12,500
C)$50,000
D)$62,500
Q2) A(n)________ sale is a sale by a parent company to a subsidiary.A(n)________ sale is a sale by a subsidiary to a parent company.
A)deferred;realized.
B)realized;deferred.
C)upstream;downstream
D)downstream;upstream
Q3) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A)$512,000.
B)$526,000.
C)$522,500.
D)$528,000.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) After eliminating/adjusting entries are prepared,what was the intercompany sale impact on the consolidated financial statements for the year ended December 31,2014? \( \begin{array}{ll}\text {
A) Consolidated Net Income } & \text { Consolidated Net Assets } \\ \text { No effect } & \text { Noeffect } \\ \text {
B) Consolidated Net Income } & \text { Consolidated Net Asset } \\ \text { No effect } & \text { Increased } \\ \text {
C) Consolidated Net Income } & \text { Consolidated Net Asset } \\ \text { Decreased } & \text { Decreased } \\ \text {
D) Consolidated Net Income } & \text { Consolidated Net Asset } \\ \text { Decreased } & \text { Noeffect }\end{array} \)
Q2) The noncontrolling interest share for 2014 was
A)$18,000.
B)$22,000.
C)$23,000.
D)$27,000.
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) If the bonds were originally issued at 106,and 80% of them were purchased by Scrawn on January 2,2015 at 98,the gain or (loss)from the intercompany purchase was
A)$(384,000).
B)$(211,200).
C)$ 211,200.
D)$ 384,000.
Q2) What was the amount of gain or (loss)from the intercompany purchase of Plenty's bonds on January 2,2014?
A)$(56,250)
B)$(75,000)
C)$ 75,000
D)$ 56,250
Q3) 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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Q1) Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2,2014.Giant's percentage ownership immediately after the sale of additional stock would be
A)66-2/3%.
B)75%.
C)80%.
D)83-1/3%.
Q2) If SOS sold the additional shares to the general public,Great's Investment in SOS account after the sale would be ________.(Use four decimal places . )
A)$945,000
B)$1,157,100
C)$1,225,000
D)$1,245,000
Q3) A subsidiary split its stock 2 for 1.Which of the following statements is false?
A)A stock split does not affect the amount of net assets of the subsidiary.
B)A stock split does not affect parent and noncontrolling interest ownership percentages.
C)A stock split does not affect consolidation procedures.
D)A 2 for 1 stock split decreases the number of shares outstanding.
Page 10
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Chapter 9: Indirect and Mutual Holdings
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Q1) The controlling interest share of consolidated net income for the current year is
A)$341,000.
B)$348,400.
C)$351,000.
D)$355,000.
Q2) 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
Q3) The amount of noncontrolling interest share for the current year is A)$69,000.
B)$85,000.
C)$95,000.
D)$99,000.
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11
Chapter 10: Subsidiary Preferred Stock,consolidated
Earnings Per Share,and Consolidated Income Taxation
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Q1) Parker Corporation owns an 80% interest in Sample Corporation's common stock.Throughout 2014,Sample had 10,000 shares of common stock outstanding and Parker had 100,000 shares of common stock outstanding.Sample's only dilutive security consists of $50,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sample stock.Parker and Sample's separate incomes for the year are $100,000 and $75,000,respectively.Assume a 34% flat income tax rate. Required:
Compute the amount of basic and diluted earnings per share for Parker (Consolidated)and Sample Corporations.
Q2) Palm owns a 70% interest in Sable,a domestic subsidiary.Sable is not part of Palm's affiliated group.Palm will pay taxes on
A)none of the dividends it receives from Sable.
B)20% of the dividends it receives from Sable.
C)66% of the dividends it receives from Sable.
D)80% of the dividends it receives from Sable.
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Page 12
Chapter 11: Consolidation Theories,push-Down
Accounting,and Corporate Joint Ventures
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Q1) Under the entity theory,a consolidated balance sheet prepared immediately after the business combination will show noncontrolling interest of
A)$5,000.
B)$7,500.
C)$9,000.
D)$10,000.
Q2) Assume the parent company theory is used.On January 2,2014,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.
A)$27,000;$30,000
B)$27,000;$35,000
C)$30,000;$30,000
D)$45,000;$34,500
Q3) Entities other than the primary beneficiary account for their investment in a variable interest entity using the A)cost method.
B)equity method.
C)cost or equity methods.
D)consolidated method.
Page 13
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) What exchange gain or loss appeared on Sooty's 2015 income statement?
A)a loss of $15,000
B)a loss of $5,000
C)a gain of $15,000
D)a gain of $5,000
Q2) When the billing for a U.S.company's sale to a company in a foreign country is denominated in U.S.dollars,________ is required when preparing journal entries for the sale.
A)translation to a foreign currency
B)conversion to a foreign currency
C)translation to U.S.dollars
D)no translation
Q3) Which of the following is a true statement regarding the recording of a transaction which involves foreign currency?
A)A transaction is always settled in the currency in which it is denominated.
B)A transaction is always measured in the currency in which it is denominated.
C)A transaction is always settled in the currency in which it is measured.
D)A transaction is always recorded in the currency in which it is denominated.
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) A forward contract used as a cash flow hedge will be recorded as an asset if
A)the holder is expecting to receive a payment as a result of the contract.
B)the holder is accounting for the hedged instrument as a fair value hedge.
C)the holder is hedging the net investment in a foreign entity.
D)the holder is using the alternate accounting method and deferring all gains or losses from the hedge.
Q2) What is the fair value of the forward contract at February 29?
A)$-0-
B)$1,654.97 asset
C)$1,654.97 liability
D)$1,680 asset
Q3) 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.
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Chapter 14: Foreign Currency Financial Statements
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Q1) Paskin Corporation's wholly-owned Canadian subsidiary has a Canadian dollar functional currency.In translating the subsidiary's account balances into U.S.dollars for reporting purposes,which one of the following accounts would be translated at historical exchange rates?
A)Accounts Receivable
B)Notes Payable
C)Capital Stock
D)Retained Earnings
Q2) Assume the functional currency of a foreign entity is the U.S.dollar,but the books are kept in euros.The objective of remeasurement of a foreign entity's accounts is to
A)produce the same results as if the foreign entity's books were maintained in the currency of the largest customer.
B)produce the same results as if the foreign entity's books were maintained solely in the local currency.
C)produce the same results as if the foreign entity's books were maintained solely in the U.S.dollar.
D)produce the results reflective of the foreign entity's economics in the local currency.
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) Jacana Company uses the LIFO inventory method.During the second quarter,Jacana experienced a 100-unit liquidation in its LIFO inventory at a LIFO cost of $430 per unit.Jacana considered the liquidation temporary and expects to replace the units in the third quarter at an estimated replacement cost of $460 a unit.The cost of goods sold computation in the interim report for the second quarter will
A)include the 100 liquidated units at the $460 estimated replacement unit cost.
B)include the 100 liquidated units at the $430 LIFO unit cost.
C)be understated by $3,000.
D)be overstated by $3,000.
Q2) The estimated taxable income for Shebill Corporation on January 1,2014,was $80,000,$100,000,$100,000,and $120,000,respectively,for each of the four quarters of 2014.Shebill's estimated annual effective tax rate was 30%.During the second quarter of 2014,the estimated annual effective tax rate was increased to 34%.Given only this information,Shebill's second quarter income tax expense was
A)$30,000.
B)$34,000.
C)$37,200.
D)$61,200.
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2014?
A)$100,000 and $140,000
B)$108,000 and $132,000
C)$120,000 and $120,000
D)$140,000 and $100,000
Q2) Required:
1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $250,000.
2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).
Q3) In the Uniform Partnership Act,partners have
I.mutual agency.
II.unlimited liability.
A)I only
B)II only
C)I and II
D)Neither I nor II
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Chapter 17: Partnership Liquidation
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Q1) 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.
Q2) 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.
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Which of the following does not occur for a trustee in a Chapter 7 bankruptcy case?
A)Gains and losses on the sale of assets are debited to the estate equity account.
B)Unrecorded liabilities discovered by the trustee are debited to the estate equity account and credited to the liability account.
C)Liquidation expenses are debited to the estate equity account.
D)An income statement is prepared showing gains and losses on sale of assets.
Q2) The duties of a debtor in possession in a Chapter 11 bankruptcy case do not include
A)filing a list of creditors and schedules of assets and liabilities with the bankruptcy court.
B)operating the business during the reorganization period.
C)filing a reorganization plan.
D)issuing an order of relief.
Q3) What is an advantage of filing a Chapter 11 petition?
A)The continuation of interest accrual on liabilities
B)Restrictions imposed by the bankruptcy court on day-to-day transactions
C)It is less costly than filing Chapter 7.
D)The opportunity to cancel unfavorable contracts
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Page 20
Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) The modified accrual basis of accounting is used for A)governmental funds.
B)proprietary funds.
C)internal service funds.
D)both A and C.
Q2) The accounting equation for an agency fund is
A)Current assets - Current liabilities = Fund Balance.
B)Assets - Liabilities = Equity.
C)Assets = Equity + Liabilities.
D)Assets = Liabilities.
Q3) The following are transactions for the city of Clinton.
a.Borrowed $100,000 by issuing a one-year,5% note,three months before year-end.
b.Accrued interest at year end,but did not pay the interest at year end.
c.Charges for services rendered of $2,500 were billed and collected immediately.
d.Incurred salary costs of $5,000,unpaid.
Required:
Analyze the above transactions by using the accounting equation for a governmental fund.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) For each of the following transactions relating to the startup of a community pool,determine the fund(s)being affected and prepare the appropriate journal entry for each.Be sure to note the fund type with each journal entry prepared.
1.General obligation bonds are issued at face value of $500,000 to construct a new community pool.
2.Cash of $100,000 is received from a state grant.Grant is set up to support the construction of the community pool.
3.A community fund-raiser by a citizens' group raises $50,000 which is donated to the pool fund,with the restriction placed on it that only earnings are to be used for lifeguard wages,and the principal may not be used until such time as the pool ceases to operate,at which time the principal will revert to the general fund.
4.Construction is completed and the contractors invoices received,totaling $578,000.The invoices are paid within 60 days.
5.The balance of funds from the general obligation bonds and state grant that was not used is transferred to the General Fund.
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Page 22
Chapter 21: Accounting for
State and Local Governmental Units - Proprietary and Fiduciary Funds
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Q1) Proprietary funds are required to prepare financial statements that include:
A.Statement of Activities
B.Statement of Revenues,Expenditures and Changes in Fund Balance
C.Balance Sheet
D.Statement of Cash Flows
E.Statement of Net Positions
F.Statement of Revenues,Expenses and Changes in Net Position
A)C,D,F
B)A,B,D
C)B,C,D
D)D,E,F
Q2) What basis of accounting is used by fiduciary funds?
A)Modified accrual accounting
B)Accrual accounting
C)Cash basis accounting
D)Present value accounting
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Voluntary health and welfare organizations (VHWO)measure contributions at fair value unless
A)fair value is less than the original cost of the item.
B)the contributed item is not intended to be re-sold by the VHWO.
C)fair value cannot be reasonably determined.
D)the contributions are not in cash or cash equivalents.
Q2) A gift-in-kind,for which the not-for-profit entity has no discretion on disposition,should be accounted for by the not-for-profit,nongovernmental entity as
A)a special purpose contribution.
B)an exchange transaction.
C)an agency transaction.
D)a conditional promise to give.
Q3) 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.
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Chapter 23: Estates and Trusts
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Q1) Which of the following is a gift of an object to a devisee?
A)A general devise
B)A specific devise
C)A testamentary allocation
D)An administrative devise
Q2) In reference to the potential taxation of an estate,which of the following statements is correct?
A)An estate may be subject to taxation at both the state and federal level.
B)The taxable amount of an estate is based on the book values of all estate assets at the date of death.
C)The estate value is not reduced by such expenses as funeral expenses,bequests to qualified charities,or state-level taxes.
D)Taxable estate assets do not include proceeds from life insurance policies.
Q3) The executor or administrator of a will is required to prepare and file an inventory of property owned by the deceased within what time period?
A)One month of appointment
B)Two months of appointment
C)Three months of appointment
D)45 days of appointment
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