Governmental and Nonprofit Accounting Exam Questions
Course Introduction
This course provides an in-depth examination of the accounting principles and practices unique to governmental entities and nonprofit organizations. Emphasis is placed on understanding fund accounting, financial reporting standards, budgeting processes, and regulatory requirements as established by authoritative bodies such as the Governmental Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB). Students will explore concepts related to revenue recognition, expenditure classification, grant accounting, and the preparation and analysis of comprehensive annual financial reports (CAFRs). Through case studies and practical exercises, the course prepares students to address the financial management and accountability challenges faced by public sector and nonprofit organizations.
Recommended Textbook
Advanced Financial Accounting 11th Edition by Theodore Christensen
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Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Which of the following observations concerning "goodwill" is NOT correct?
A) Once written down, it may be written up for recoveries.
B) It must be tested for impairment at least annually.
C) Goodwill impairment losses are recognized in income from continuing operations or income before extraordinary gains and losses.
D) It must be reported as a separate line item in the balance sheet.
Answer: A
Q2) Based on the preceding information,what amount of amount of goodwill impairment will be recognized for this division if its fair value is determined to be $245,000?
A) $0
B) $5,000
C) $60,000
D) $55,000
Answer: B
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) Based on the preceding information,what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?
A) $200,000
B) $230,000
C) $380,000
D) $430,000
Answer: B
Q2) On January 2,20X5,Well Co.purchased 10 percent of Rea,Inc.'s outstanding common shares for $400,000.Well is the largest single shareholder in Rea,and Well's officers are a majority on Rea's board of directors.As a result,Well is able to exercise significant influence over Rea.Rea reported net income of $500,000 for 20X5,and paid dividends of $150,000.In its December 31,20X5,balance sheet,what amount should Well report as investment in Rea?
A) $385,000
B) $450,000
C) $400,000
D) $435,000
Answer: D
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differentials
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Q1) Based on the preceding information,what amount would be reported as total assets in the consolidated balance sheet at December 31,20X9?
A) $805,000
B) $712,000
C) $742,000
D) $1,102,000
Answer: C
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) For a less-than-wholly-owned subsidiary,goodwill under the parent theory:
A) exceeds goodwill under the proprietary theory.
B) exceeds goodwill under the entity theory.
C) is less than goodwill under the entity theory.
D) is less than goodwill under the proprietary theory.
Answer: C
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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 preceding information,what amount of total stockholder's equity will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $300,000
B) $479,000
C) $315,000
D) $350,000
Q2) Based on the information provided,the differential associated with this acquisition is:
A) $36,000.
B) $40,000.
C) $10,000.
D) $50,000.
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) Based on the preceding information,what amount of total assets will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $800,000
B) $830,000
C) $1,010,000
D) $1,040,000
Q2) Based on the information given,what was the fair value of Y Company as a whole at the date of acquisition?
A) $155,000
B) $110,000
C) $115,000
D) $135,000
Q3) Based on the preceding information,the increase in the fair value of patents held by Lilac is
A) $10,000
B) $18,000
C) $32,000
D) $50,000
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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 must be reported in the consolidated income statement for 20X8?
A) $2,765,000
B) $1,620,000
C) $1,422,000
D) $2,963,000
Q2) Based on the information given above,what amount of cost of goods sold will be reported in the 20X6 consolidated income statement?
A) $90,000
B) $108,000
C) $120,000
D) $135,000
Q3) Based on the information given above,what amount of cost of goods sold will be reported in the 20X1 consolidated income statement?
A) $13,000
B) $38,000
C) $45,000
D) $58,000
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Big Company acquired 75 percent of Little Company's stock at underlying book value on January 1,20X8.At that date,the fair value of the noncontrolling interest was equal to 25 percent of the book value of Little Company.Little Company reported shares outstanding of $350,000 and retained earnings of $100,000.During 20X8,Little Company reported net income of $60,000 and paid dividends of $3,000.In 20X9,Little Company reported net income of $90,000 and paid dividends of $15,000.The following transactions occurred between Big Company and Little Company in 20X8 and 20X9: Little Co.sold equipment to Big Co.for a $42,000 gain on December 31,20X8.Little Co.had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31,20X8.At the time of the purchase,Big Co.estimated that the equipment still had a seven-year remaining useful life. Big sold land costing $90,000 to Old Company on June 28,20X9,for $110,000.
Required:
Give all consolidating entries needed to prepare a consolidation worksheet for 20X9 assuming that Big Co.uses the modified equity method to account for its investment in Old Company.
Problem 56 (continued):
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Chapter 8: Intercompany Indebtedness
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Q1) Culver owns 80 percent of the common stock of Fowler Company.Culver also purchases some of Fowler's bonds directly from Fowler and holds the bonds as a long-term investment.How is the acquisition of the bonds treated for consolidated reporting purposes?
A) As a retirement of bonds.
B) As an increase in the Bonds Payable account on Fowler's books.
C) Everything related to the intercompany bonds is eliminated in the consolidation worksheet, and nothing related to the bonds appears in the consolidated financial statements.
D) As an increase in noncurrent assets.
Q2) Based on the information given above,what amount of interest income will be eliminated in the preparation of the 20X9 consolidated financial statements?
A) $16,420
B) $11,494
C) $16,103
D) $11,291
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Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) Based on the information given above,what amount did Sun pay when it purchased the bonds on July 1,20X7?
A) $118,020
B) $118,920
C) $118,620
D) $117,220
Q2) Based on the information given above,in the preparation of the 20X8 consolidated financial statements,premium on bonds payable will be:
A) debited for $45,000 in the consolidating entries.
B) credited for $40,500 in the consolidating entries.
C) debited for $40,500 in the consolidating entries.
D) credited for $45,000 in the consolidating entries.
Q3) Based on the information given above,what percentage of the subsidiary's ownership does the parent company hold?
A) 75 percent
B) 65 percent
C) 80 percent
D) 95 percent
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,in the journal entry recorded by Autumn 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.
Q2) 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
Q3) Based on the preceding information,the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1,20X9,is:
A) $40,000
B) $42,000
C) $36,000
D) $48,000
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what is the consolidated earnings per share for 20X5?
A) $16.97
B) $17.42
C) $18.72
D) $19.17
Q2) Based on the information provided,what is the consolidated income to the controlling interest reported for the year 20X4?
A) $275,000
B) $280,000
C) $260,000
D) $200,000
Q3) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash used in financing activities for 20X9?
A) $40,000
B) $55,000
C) $90,000
D) $10,000
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,what is the market price of Linked Corporation stock on December 31,20X8?
A) $40
B) $37
C) $36
D) $38
Q2) All of the following are management tools available for a U.S.company to hedge its net investment in a foreign affiliate except for:
A) Forward exchange contracts
B) Foreign currency commitments
C) Intercompany financing arrangements including intercompany transactions
D) None of the above.
Q3) Based on the preceding information,in the entry made on December 2<sup>nd</sup> to revalue foreign currency receivable to current equivalent U.S.dollar value,
A) Accounts Payable will be debited for $18,350.
B) Foreign Currency Units will be debited for $18,500.
C) Foreign Currency Transaction Gain will be credited for $150.
D) Other Comprehensive Income will be credited for $300.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Briefly explain the following terms associated with accounting for foreign entities: a)Functional Currency
b)Translation
c)Remeasurement
Q2) Which combination of accounts and exchange rates is correct for the remeasurement of a foreign entity's financial statements from its local currency to U.S.dollars?
A) Option A
B) Option B
C) Option C
D) Option D
Q3) Refer to the above information.Assuming the U.S.dollar is the functional currency,what is Perth's net income for 20X8 in U.S.dollars (include the remeasurement gain or loss in Perth's net income)?
A) $238,000
B) $228,000
C) $219,500
D) $202,000
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Chapter 13: Segment and Interim Reporting
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Q1) ASC 280,Disclosure about Segments of an Enterprise and Related Information,has taken what has been referred to as a "management approach" to the definition of a segment and the allocation of costs to a segment.
Required:
a)What is meant by a management approach? How does this concept of a management approach impact the decision to disclose information?
b)How are decisions about cost allocation handled in segment disclosures?
Q2) 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?
Q3) Estimated gross profit rates may be used to estimate a company's cost of goods sold and its ending inventory for:
A) quarterly but not for annual financial statements.
B) both quarterly and annual financial statements.
C) neither quarterly nor annual financial statements.
D) annual but not for quarterly financial statements.
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Chapter 14: Sec Reporting
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Q1) What does an underwriter typically require from an accountant which indicates that the company has fulfilled all the accounting requirements in the registration process?
A) A comment letter
B) An audit opinion
C) A "red herring" prospectus
D) A comfort letter
Q2) Which of the following forms is the most comprehensive registration statement?
A) Form S-1
B) Form F-2
C) Form S-3
D) Form S-2
Q3) Which of the following observations is true of the shelf registration rule?
A) It is an option available to all listed companies.
B) Shelf registration is limited to 25 percent of the company's currently outstanding stock.
C) It allows private placements of an unlimited amount of securities.
D) It allows large companies to select the optimal time to sell their stock.
Q4) "Tombstone ad"
Q5) Customary Review
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) When a partnership is formed,noncash assets contributed by partners should be recorded:
I.at their respective book values for income tax purposes.
II.at their respective fair values for financial accounting purposes.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q2) When a new partner is admitted into a partnership and the old partners' goodwill is recognized,the goodwill is allocated to:
I.all the partners in their profit-and-loss-sharing ratio.
II.the old partners in their profit and loss sharing ratio.
A) I only
B) II only
C) Either I or II
D) Neither I nor II
Q3) The ABC partnership had net income of $100,000 for 20X9.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/20X9 books they discovered that $30,000 was spent on a piece of land in December 20X9 and was expensed.What should happen?
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Chapter 16: Partnerships: Liquidation
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Q1) Refer to the information provided above.How much cash will be distributed to Goliath at the end of the second month?
A) $11,250
B) $13,750
C) $20,000
D) $25,000
Q2) Based on the preceding information,the journal entry on the partnership's books to record distribution of stock to prior partners will include a debit to Wilfred,Capital for:
A) $140,000.
B) $91,700.
C) $86,700.
D) $126,700.
Q3) Refer to the information provided above.Using a safe payment schedule,how much cash will be distributed to David at the end of the first month?
A) $22,500
B) $42,500
C) $75,000
D) $117,500
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Elm City issued a purchase order for supplies with an estimated cost of $5,000.When the supplies were received,the accompanying invoice indicated an actual price of $4,950.What amount should Elm debit (credit)to the budgetary fund balance account after the supplies and invoice were received?
A) $4,950
B) ($50)
C) $50
D) $5,000
Q2) Which of the following funds are classified as fiduciary funds?
A) Agency and Special revenue funds.
B) Internal service and Enterprise funds.
C) Private-purpose trust and Agency funds.
D) Capital projects and Debt service funds.
Q3) Which of the financial statements described below is prepared by the general fund of a state or local government?
A) A statement of cash flows.
B) An income statement.
C) A statement of revenues, expenses, and changes in retained earnings.
D) A statement of revenues, expenditures, and changes in fund balance.
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) Lisa County issued $5,000,000 of general obligation bonds at 101 to finance a capital project.The $50,000 premium was to be used for payment of principal and interest.This transaction should be accounted for in the:
A) debt service funds and the general long-term debt account group only.
B) capital projects funds, debt service funds, and the general long-term debt account group.
C) capital projects funds and debt service funds only.
D) debt service funds only.
Q2) Which of the following statement is true regarding permanent funds?
A) Permanent funds do not have any donor restrictions when they are established.
B) Permanent funds have a donor restriction on the fund principal but the income from the fund may be used to benefit the government's program.
C) Permanent funds have a donor restriction on the income generated from the fund principal but the principal may be used to benefit the government's program
D) The cash or accrual basis of accounting may be used to account for a permanent fund.
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Chapter 19: Not-For-Profit Entities
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Q1) A voluntary health and welfare organization developed and printed informational materials which 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.
Q2) A private,not-for-profit hospital received a donation of medicine from the Xengen Pharmaceutical Company on February 13,20X2.The cost of the medicine to the company was $34,000,and its market value was $76,000.Thirty percent of the medicine was used by the hospital during the year ended June 30,20X2.On the hospital's statement of operations for the year ended June 30,20X2,the contribution of medicine would increase operating revenues by
A) $23,800.
B) $34,000.
C) $53,200.
D) $76,000.
Q3) "Net asset classifications per FAC 6" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) A trustee has been appointed for Smith Company,which is being liquidated under Chapter 7 of the Bankruptcy Code.The following transactions occurred after the assets were transferred to the trustee:
1.Credit sales by the trustee were $100,000.Cost of goods sold were $72,000,consisting of all the inventory transferred from Smith.
2.The trustee sold all $20,000 worth of marketable securities for $15,000.
3.Receivables collected by the trustee:
Old: $28,000 of the $50,000 transferred New: $65,000
4.Disbursements by the trustee: Old current payables: $31,000 of the $65,000 transferred Trustee's expenses: $6,000
5.Recorded $24,000 depreciation on the plant assets of $120,000 transferred from Smith. Required:
Prepare a statement of realization and liquidation according to the traditional approach illustrated in the chapter. Problem 45 (continued):
Q2) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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