Government and Nonprofit Accounting
Midterm Exam
Course Introduction
Government and Nonprofit Accounting explores the unique principles, standards, and practices involved in the financial management and reporting of public sector and nonprofit organizations. The course covers fund accounting, budgetary controls, and regulatory requirements specific to government entities and not-for-profit organizations.
Students learn how to prepare and analyze financial statements in accordance with Governmental Accounting Standards Board (GASB) and Financial Accounting Standards Board (FASB) guidelines, understand issues related to grants, donations, and restricted funds, and evaluate the accountability and transparency mechanisms crucial to these sectors. This course provides essential skills for careers in public administration, nonprofit management, and governmental finance.
Recommended Textbook
Advanced Financial Accounting 12th Edition by Theodore E. Christensen
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21 Chapters
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Assuming no impairment in value prior to transfer,assets transferred by a parent company to another entity it has created should be recorded by the newly created entity at the assets':
A)cost to the parent company.
B)book value on the parent company's books at the date of transfer.
C)fair value at the date of transfer.
D)fair value of consideration exchanged by the newly created entity.
Answer: B
Q2) Based on the preceding information,what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $500,000 for the acquisition?
A)$0
B)$50,000
C)$150,000
D)$40,000
Answer: A
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No Differential
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Q1) Pocket Corporation acquired 100 percent of the voting shares of Sleeve Inc.by issuing 10,000 new shares of $5 par value common stock with a $30 market value.
Required:
1.Which company is the parent and which is the subsidiary?
2.Define a subsidiary corporation.
3.Define a parent corporation.
4.Which entity prepares the consolidated worksheet?
5.Why are consolidation entries used?
Answer: 1.Pocket is the parent and Sleeve is the subsidiary.
2.A subsidiary is an entity in which another entity,the parent company,holds a controlling financial interest.
3.A parent company holds a controlling financial interest in another company.
4.The parent,Pocket,prepares the consolidated worksheet.
5.Consolidation entries are used to adjust the amounts reported by the parent and all of the subsidiaries to reflect the amounts that would be reported if the separate legal entities were a single company.
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Page 4
Chapter 3: The Reporting Entity and the Consolidation of
Less-Than-Wholly- Owned Subsidiaries With No Differential
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Q1) Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Power Company's December 31,20X6,consolidated balance sheet?
A)$35,200
B)$48,200
C)$76,800
D)$112,800
Answer: A
Q2) 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
Q3) Consolidated financial statements tend to be most useful for:
A)Creditors of a consolidated subsidiary.
B)Investors and long-term creditors of the parent company.
C)Short-term creditors of the parent company.
D)Stockholders of a consolidated subsidiary.
Answer: B
Page 5
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Based on the information provided,what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition?
A)$60,000
B)$75,000
C)$15,000
D)$45,000
Q2) Based on the preceding information,what amount of differential is implicit in the acquisition if the acquisition price was $280,000?
A)$10,000
B)$20,000
C)$25,000
D)$30,000
Q3) Based on the preceding information,what amount of retained earnings will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$300,000
B)$409,000
C)$259,000
D)$191,000
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Chapter 5: Consolidation of Less-Than-Wholly- Owned
Subsidiaries Acquired at More Than Book Value
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Q1) Which of the following stockholders' equity accounts are eliminated during the consolidation process?
A)Common Stock of the subsidiary
B)Preferred Stock of the subsidiary
C)Additional Paid-in Capital of the subsidiary
D)All of the choices.
Q2) Based on the preceding information,what amount of Stamp's buildings and equipment (net)will be included in the consolidated balance sheet immediately following the acquisition?
A)$0
B)$50,000
C)$250,000
D)$300,000
Q3) Based on the preceding information,what amount of total liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$395,000
B)$280,000
C)$275,000
D)$195,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what amount of cost of goods sold did Pink record in 20X4?
A)$1,612,000
B)$2,418,000
C)$2,790,000
D)$3,596,000
Q2) Based on the information given above,what amount of sales will be reported in the consolidated income statement for 20X3?
A)$725,000
B)$750,000
C)$875,000
D)$950,000
Q3) Based on the information given above,what amount of cost of goods sold should be eliminated in the consolidation worksheet for 20X8?
A)$82,000
B)$70,000
C)$95,000
D)$60,000
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8
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 consolidating entries.
B)Credited for $1,000 in the consolidating entries.
C)Debited for $15,000 in the consolidating entries.
D)Credited for $15,000 in the consolidating entries.
Q2) Based on the preceding information,in the preparation of consolidation entries related to the equipment transfer for the 20X9 consolidated financial statements,the net effect on accumulated depreciation will be:
A)a decrease of $160,000.
B)an increase of $160,000.
C)an increase of $135,000.
D)a decrease of $135,000.
Q3) Based on the information provided,while preparing the 20X8 consolidated income statement,depreciation expense will be:
A)debited for $750 in the consolidating entries.
B)credited for $750 in the consolidating entries.
C)credited for $1,500 in the consolidating entries.
D)debited for $1,500 in the consolidating entries.
Page 9
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Chapter 8: Intercompany Indebtedness
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Q1) On January 1,20X6,Pepper Corporation issued 10-year bonds at par to unrelated parties.The bonds have a 10% stated rate,face value of $300,000,and pay interest every June 30 and December 31.On December 31,20X9,Salt Corporation purchased all of Pepper's bonds in the open market at a $6,000 discount.Salt is Pepper's 80 percent owned subsidiary.Salt uses the effective interest method of amortization.The consolidated income statement for the year 20X9 should report with respect to the bonds:
I.interest expense of $30,000.
II.a gain of $6,000.
A)I
B)II
C)Either I or II
D)Neither I nor II
Q2) Based on the information given above,what amount of gain or loss on bond retirement is included in the 20X7 consolidated income statement?
A)$8,000 gain
B)$5,200 gain
C)$8,000 loss
D)$5,200 loss
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Page 10
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the information provided,what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1,20X9?
A)$70,000
B)$130,000
C)$118,000
D)$142,000
Q2) Based on the preceding information,in the journal entry recorded by Petunia for the sale of shares
A)Cash will be credited for $90,000.
B)Investment in Spring Stock will be credited for $90,000.
C)Investment in Spring Stock will be credited for $75,000.
D)Additional Paid-in Capital will be credited for $9,000.
Q3) Based on the preceding information,Storm Company's net income for 20X9 and 20X0 are:
A)$10,000 and $20,000 respectively.
B)$25,000 and $35,000 respectively.
C)$35,000 and $45,000 respectively.
D)$25,000 and $45,000 respectively.
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,assuming that Pure Life uses the direct method of computing cash flows from operating activities,what amount will be reported by the company as cash received from customers during the year?
A)$815,000
B)$785,000
C)$800,000
D)$835,000
Q2) Based on the information provided,what was the consolidated cash balance at January 1,20X2?
A)$300,000
B)$100,000
C)$60,000
D)$40,000
Q3) 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)$200,000
B)$142,000
C)$155,000
D)$130,000
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Page 12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,had Robert not used the forward exchange contract,what would have been the foreign currency transaction gain or loss for the year?
A)Gain of $200
B)Gain of $150
C)Loss of $350
D)Loss of $200
Q2) Mint Corporation has several transactions with foreign entities.Each transaction is denominated in the local currency unit of the country in which the foreign entity is located.On November 2,20X8,Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08.The account has not been settled as of December 31,20X8,when the exchange rate has increased to 1 LCU = $1.10.The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A)$460 loss
B)$387 loss
C)$387 gain
D)$460 gain
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Refer to the above information.Assuming the U.S.dollar is the functional currency,what is the balance in Polaris's investment in foreign subsidiary account at December 31,2008?
A)$3,303,400
B)$3,294,500
C)$3,323,400
D)$3,314,500
Q2) Based on the preceding information,on Leo's consolidated balance sheet at December 31,20X8,what amount should be reported for the goodwill acquired on January 1,20X8?
A)$36,845
B)$39,286
C)$36,905
D)$36,607
Q3) 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.
Page 14
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Chapter 13: Segment and Interim Reporting
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Q1) During the third quarter of 20X4,Ripley Company sold a piece of equipment at a $10,000 gain.What portion of the gain should Ripley report in its income statement for the third quarter of 20X4?
A)$10,000
B)$7,500
C)$2,500
D)$0
Q2) Based on the preceding information,the cost of goods sold for the second quarter is:
A)$416,000
B)$364,000
C)$304,000
D)$424,000
Q3) Interim income statements are required for Smith Orchards.Smith does most of its sales in the fall quarter of the year.These sales are both to individual and commercial customers.How do you recommend Smith report sales during the spring quarter of the year?
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15
Chapter 14: Sec Reporting
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Q1) Customary Review
A)Provides preliminary information to investors about an upcoming issue.
B)Informs investors of an upcoming offering.
C)Required annual filing to the SEC.
D)Discloses unscheduled material events.
E)Includes amendments to the Securities Act,additional disclosure requirements,and other current issues regarding accounting and auditing principles and standards.
F)Results in a thorough examination by the SEC of a registration statement.
G)Issued by the staff of the SEC and contains differences that must be corrected in a registration statement before the securities may be offered or sale.
H)Quarterly report to SEC.
I)Includes new or revised administrative practices and interpretations used in reviewing financial statements.
J)Includes the results of actions taken against accountants or other participants because false or misleading statements were filed.
K)Includes Regulations S-X and S-K.
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16
Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Which of the following accounts is not maintained for each partner in its accounting records?
A)Capital account
B)Drawing account
C)Earnings account
D)Loan account
Q2) Which of the following accounts could be found in the PQ partnership's general ledger?
I.Due from P
II.P,Drawing
III.Loan Payable to Q
A)I,II
B)I,III
C)II,III
D)I,II,and III
Q3) Apple and Betty are planning on beginning a new business.They plan on forming a partnership.Apple will contribute $300,000 and will not be working.Betty will be working full time.They plan on splitting profits equally.They approach you,as an accounting major,to confirm their thoughts.What do you recommend?
Page 17
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Chapter 16: Partnerships: Liquidation
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Q1) During the liquidation of the FGH partnership,a cash distribution was made to all the partners,who share profits and losses 60 percent,20 percent,and 20 percent,respectively.Assuming that the cash distribution referred to was made properly,how much would G receive if an additional $60,000 was distributed?
A)$60,000
B)$20,000
C)$17,000
D)$12,000
Q2) Which of the following statements is (are)true?
I.In the calculation of the loss absorption potential for a partner,a partner's loan balance (an amount that is owed by the partnership)should be added to the partner's capital balance.
II.In liquidation,a partner's loan balance (an amount that is owed by the partnership)should be paid to the partner as a creditor of the partnership after the outside creditors.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) The Town of Pasco has no supplies inventory in its general fund on January 1,20X8.During 20X8,Pasco incurred expenditures of $200,000 for the acquisition of supplies.On December 31,20X8,Pasco's inventory of supplies amounted to $30,000.Assume Pasco uses the purchase method of accounting for supplies in its general fund and that the village reports on the calendar year.On December 31,20X8,the general fund of Pasco should credit:
A)Expenditures for $170,000.
B)Fund Balance-Unassigned for $170,000.
C)Fund Balance-Nonspendable for $30,000.
D)Expenditures for $30,000.
Q2) At the end of the fiscal year,uncollected property taxes in the general fund should be:
A)reclassified from current to delinquent.
B)written off as uncollectible.
C)charged against unassigned fund balance.
D)reclassified from current to noncurrent.
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.
Q4) Briefly discuss the various types of governmental funds and proprietary funds.
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Chapter 18: Governmental Entities: Special Funds and Governmentwide Financial Statements
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Q1) Which of the following financial statements would not be prepared for an enterprise fund?
A)A statement of cash flows.
B)A statement of revenues,expenses,and changes in fund net assets.
C)A balance sheet.
D)A statement of revenues,expenditures,and changes in fund balance.
Q2) A debt service fund of Clifton received $100,000 from its general fund during the fiscal year ended June 30,20X9.The cash was used to pay matured interest on Clifton's general obligation bonds,which were issued to finance construction of a new municipal building.On the statement of revenues,expenditures,and changes in fund balance prepared for the debt service fund for the year ended June 30,20X9,the amount received from the general fund should be reported as:
A)revenue.
B)a reduction of expenditures.
C)an other financing source.
D)matured interest payments.
Q3) GASB 34 requires a reconciliation schedule for the Statement of Net Assets.What does this schedule document?
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Chapter 19: Not-For-Profit Entities
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Q1) Transaction: A gain was realized from the sale of endowment investments.The gain is not expendable.
Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.
Q2) A voluntary health and welfare organization developed and printed informational materials that were intended to both educate the public about how its resources are used to help people in need and to also appeal to the public for much needed support.In this situation,the cost of the informational materials should be:
A)accounted for as fund-raising expense.
B)allocated to expenses for program services.
C)allocated between expenses for program services and fund-raising expense.
D)accounted for as management and general expense.
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Chapter 20: Corporations in Financial Difficulty
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Q1) Under Chapter 11 proceedings,what represents the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the entity's assets?
A)Reorganization value
B)Fire sale value
C)Fresh start value
D)Excess value
Q2) Based on the preceding information,what is the estimated dividend percentage?
A)23 percent
B)93 percent
C)77 percent
D)68 percent
Q3) Which of the following could be true of the proceedings under Chapter 11 of the Bankruptcy Code?
A)They are always administered by the bankruptcy courts.
B)The debtor's assets are sold and its liabilities extinguished.
C)The company does not operate during this period.
D)The debtor continues as a business after the reorganization.
Q4) What are the conditions necessary for using fresh start reporting in reorganization?
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Chapter 21: Intercompany Indebtednessfully Adjusted
Method Using Straight-Line Interest Amortization
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Q1) Based on the information given above,what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?
A)$240,500
B)$200,000
C)$245,000
D)$211,500
Q2) Based on the information given above,in the preparation of the 20X8 consolidated financial statements,interest income will be:
A)debited for $11,500 in the consolidating entries.
B)credited for $11,500 in the consolidating entries.
C)debited for $16,000 in the consolidating entries.
D)credited for $16,000 in the consolidating entries.
Q3) Based on the information given above,what amount of consolidated net income should be reported for 20X8?
A)$163,750
B)$161,250
C)$146,250
D)$148,750
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