Graduate Financial Accounting
Review Questions
Course Introduction
Graduate Financial Accounting provides an in-depth exploration of advanced accounting principles and practices essential for the preparation and interpretation of financial statements. The course covers topics such as complex revenue recognition, accounting for mergers and acquisitions, international accounting standards, and analysis of corporate financial reports. Emphasis is placed on the application of accounting theories to real-world business scenarios and the development of critical thinking skills necessary for informed decision-making in financial management and reporting. This course is designed for students aiming to pursue professional careers in accounting, finance, or related fields at the graduate level.
Recommended Textbook
Advanced Financial Accounting 11th Edition by Theodore Christensen
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Based on the information provided,at the time of the transfer,Regan Company should record:
A) Building at $180,000 and no accumulated depreciation.
B) Building at $162,000 and no accumulated depreciation.
C) Building at $200,000 and accumulated depreciation of $24,000.
D) Building at $180,000 and accumulated depreciation of $18,000.
Answer: D
Q2) 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
Q3) Based on the preceding information,under the acquisition method
A) $22,000 of stock issue costs are treated as a reduction in the issue price.
B) $22,000 of stock issue costs are expensed.
C) $66,000 of stock issue costs are classified as goodwill.
D) $66,000 of stock issue costs are expensed.
Answer: A
Page 3
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) On July 1,20X4,Denver Corp.purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share.On December 15,20X4,Eagle paid $40,000 in dividends to its common stockholders.Eagle's net income for the year ended December 31,20X4,was $120,000,earned evenly throughout the year.In its 20X4 income statement,what amount of income from this investment should Denver report?
A) $12,000
B) $36,000
C) $18,000
D) $6,000
Answer: C
Q2) Based on the preceding information,what amount will be reported by Yang as balance in investment in Spiel on December 31,20X8,if it used the fair value option to account for its investment in Spiel?
A) $105,000
B) $118,750
C) $100,000
D) $122,500
Answer: A
Page 4
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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) Pepper Company acquired 60 percent of the common stock of Safton Corporation on December 31,20X9.On the date of acquisition,Pepper held land with a book value of $200,000 and a fair value of $350,000; Safton held land with a book value of $150,000 and fair value of $300,000.At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?
A) $290,000
B) $500,000
C) $590,000
D) $650,000
Answer: B
Q2) Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 2,20X2?
A) $1,120,000
B) $1,300,000
C) $1,480,000
D) $1,900,000
Answer: C
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) The Greenpath Corporation's (Greenpath)balance sheet shows assets of $800,000 and liabilities of $300,000.In addition,the company has an unrecorded intangible asset with a value of $100,000 and a 10-year useful life.On January 1,20X1,the Montana Corporation acquires 30% of Greenpath's outstanding stock for $290,000.In 20X1,Greenpath reported net income of $90,000 and paid dividends of $20,000.In 20X2,Greenpath reported net income of $110,000 and paid dividends of $50,000.If the equity method is being applied to this investment,what is the reported balance for the investment account at the end of 20X2?
A) $311,000
B) $302,000
C) $323,000 D $317,500
Q2) Based on the preceding information,the amount of differential associated with the acquisition is:
A) $0.
B) $58,000.
C) $22,000.
D) $36,000.
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Page 6
Chapter 5: Consolidation
of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Q1) Based on the information given,X Company and Y Company reported wages payable of
A) $50,000 and $28,000 respectively.
B) $60,000 and $32,000 respectively.
C) $40,000 and $35,000 respectively.
D) $28,000 and $60,000 respectively.
Q2) Based on the information given,what balance in accounts receivable did Y Company report at December 31,20X8?
A) $28,000
B) $48,000
C) $40,000
D) $38,000
Q3) Based on the preceding information,what amount will be reported as total stockholders' equity in the consolidated balance sheet prepared immediately after the business combination?
A) $445,000
B) $205,000
C) $565,000
D) $550,000
Page 7
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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 ABC record in 20X8?
A) $2,765,000
B) $1,620,000
C) $1,422,000
D) $2,963,000
Q2) At December 31,20X5,what was the amount of Shel's payable to Pare for intercompany sales?
A) $12,000
B) $6,000
C) $58,000
D) $64,000
Q3) Based on the information given above,what amount of cost of goods sold will be reported in the 20X8 consolidated income statement?
A) $62,000
B) $120,000
C) $90,000
D) $58,000
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,what amount of receivable/payable should be eliminated in the 20X8 consolidated financial statements?
A) $125,432
B) $7,900
C) $5,560
D) $140,000
Q2) Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5?
A) $110,000
B) $474,000
C) $525,000
D) $635,000
Q3) Based on the preceding information,in the preparation of the 20X9 consolidated financial statements,equipment will be:
A) debited for $1,000.
B) debited for $10,000.
C) credited for $15,000.
D) debited for $25,000.
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what was the carrying amount of the bonds on Junior's books on the date of purchase?
A) $533,769
B) $516,875
C) $500,000
D) $550,644
Q2) At the end of the year,a parent acquires a wholly owned subsidiary's bonds from unaffiliated parties at a cost less than the subsidiary's carrying value.The consolidated net income for the year of acquisition should include the parent's separate operating income plus:
A) the subsidiary's net income increased by the gain on constructive retirement of debt.
B) the subsidiary's net income decreased by the loss on constructive retirement of debt.
C) the subsidiary's net income increased by the gain on constructive retirement of debt, and decreased by the subsidiary's bond interest expense.
D) the subsidiary's net income decreased by the loss on constructive retirement of debt, and decreased by the subsidiary's bond interest expense.
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Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of gain or loss on bond retirement will be reported in the 20X8 consolidated financial statements?
A) $17,000
B) $12,800
C) $18,500
D) $22,200
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 premium on bonds payable will be eliminated in the preparation of the 20X9 year-end consolidated financial statements?
A) $3,500
B) $2,800
C) $5,000
D) $2,500
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Page 11
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:
A) credit to common stock for $625,000
B) debit to retained earnings for $37,500
C) credit to Investment in Siena Co. for $976,500
D) credit to NCI in the net assets of Siena Co. for $232,500
Q2) Based on the information provided,what amount of income will be assigned to the noncontrolling interest in the consolidated income statement for 20X9?
A) $55,000
B) $25,000
C) $30,000
D) $43,750
Q3) Based on the information provided,what is the book value of the common stock on January 1,20X6?
A) $390,000
B) $420,000
C) $446,000
D) $490,000
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what would Gulfstream report as income tax expense for the year?
A) $17,500
B) $18,760
C) $23,800
D) $22,540
Q2) Use the information given,but also assume that Company A holds the land at the end of 20X9.The consolidating entry relating to the intercorporate sale of land to be entered in the consolidation worksheet prepared at the end of 20X9 will include a debit to Investment in Company B for:
A) $4,500.
B) $7,500.
C) $15,000.
D) $10,500.
Q3) Based on the preceding information,income tax expense for Denver for the year 20X8 will be:
A) $67,000
B) $64,600
C) $64,000
D) $66,400
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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 overall effect on net income of Myway's use of the forward exchange contract?
A) Net loss of $1,000
B) Net gain of $1,500
C) Net loss of $500
D) No effect
Q2) Based on the information given above,how many Swiss francs are required to purchase goods costing $5,000 U.S.?
A) 32,785
B) 5,186
C) 4,821
D) 763
Q3) Based on the preceding information,what is the net gain or loss on the euro speculative contract?
A) $8,000 gain
B) $6,000 gain
C) $3,000 loss
D) $1,000 loss
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Based on the preceding information and assuming the U.S.dollar is the functional currency,what is the amount of South's costs of goods sold remeasured in U.S.dollars?
A) $28,480
B) $28,510
C) $28, 540
D) $28,570
Q2) Parisian Co.is a French company located in Paris.Yankee Corp.,located in New York City,acquires Parisian Co.Parisian has the Euro as its local currency and the Swiss Franc as its functional currency.Yankee has the U.S.dollar as its local currency and the U.S.dollar as its functional currency.
Required:
a)The year-end consolidated financial statements will be prepared in which currency?
b)Explain which method is appropriate to use to use at year-end: Translation or Remeasurement?
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15
Chapter 13: Segment and Interim Reporting
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Q1) Dragon Company has two reportable segments,A and B. Segment A made $3,000,000 of sales to external customers and $200,000 of sales to other operating segments. Segment B made sales of $5,000,000 to external customers and $1,200,000 of sales to other operating segments. Dragon Company reported $9,600,000 of revenues on its consolidated income statement. What calculation below correctly determines whether Dragon Company's reportable segments satisfy the 75% revenue test?
A) $8,000,000/$9,600,000
B) $8,000,000/$11,000,000
C) $9,400,000/$9,600,000
D) $9,400,000/$11,000,000
Q2) Which of the following are established by ASC 280 as "enterprisewide disclosure" standards to provide more information about the risks to a company?
I.Information about dominant industry segments.
II.Information about major customers.
III.Information about geographic areas
A) Both II and III
B) Both I and III
C) Both I and II
D) I, II, and II
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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) Staff Accounting Bulletins
Q3) Proxy statements are:
A) filed by an entity that acquires a beneficial ownership of more than 5 percent in a company.
B) interim financial statements need not be audited.
C) materials submitted to shareholders for votes on corporate matters.
D) used to disclose unscheduled material events.
Q4) Accounting and Auditing Enforcement Releases
Q5) Companies issuing stock to the public have to aware of certain terms.Using complete sentences define the following:
a)Comment Letter
b)Preliminary Prospectus.
c)Shelf Registration.
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Based on the preceding information,what amount of goodwill will be recorded if Daniel invests $450,000 for a one-third interest?
A) $0
B) $10,000
C) $50,000
D) $100,000
Q2) Refer to the above information.Tiffany is paid $60,000,and no goodwill is recorded.What is the Ron's capital balance after Tiffany withdraws from the partnership?
A) $74,000
B) $71,000
C) $75,000
D) $86,000
Q3) Refer to the above information.Which statement below is correct if goodwill of the old partners is recognized upon the contribution of assets into the partnership by a new partner?
A) B = A and D < C + A
B) B = A and D > C + A
C) B < A and D = C + A
D) B > A and D < C + A
Page 18
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Chapter 16: Partnerships: Liquidation
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Q1) Based on the preceding information,what amount will be paid out to Bill upon liquidation of the partnership?
A) $0
B) $25,000
C) $11,667
D) $2,500
Q2) Which of the following statements is (are)true?
I.In the calculation of the loss absorption power 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
Q3) A partnership may be involved in "Dissociation" or "Dissolution."
Required:
Describe "Dissociation" and "Dissolution."
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Which of the following statements best describes the reporting process for profit seeking and governmental entities?
A) In profit-seeking enterprises the measurement focus is on the flow of all economic resources of the firm, whereas the focus for governmental funds is on current financial resources
B) In profit-seeking enterprises the measurement focus is on the flow of current financial resources, whereas the focus for government funds is on all economic resources.
C) Both Profit-seeking enterprises and governmental entities have an objective to measure profitability.
D) Both Profit-seeking enterprises and governmental entities use the accrual or cash basis of accounting to record and report transactions.
Q2) Assuming there is a budget surplus,which of the following accounts are credited when the general fund records its operating budget at the beginning of the year?
A) Appropriations Control and Budgetary Fund Balance-Unassigned.
B) Estimated Revenues Control and Estimated Residual Equity Transfer Out.
C) Budgetary Fund Balance-Assigned For Encumbrances and Expenditures.
D) Estimated Residual Equity Transfer Out and Estimated Transfer In.
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Page 20
Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) The City of Fargo issued general obligation bonds to finance construction of a new fire station.The bonds were issued at a discount.Which of the following is true?
I.The amount expended for the improvement must be decreased.
II.The general fund must make up the difference to the face value of the bonds.
III.A debt service fund must make up the difference to the face value of the bonds.
A) I only
B) Either I or III
C) Either II or III
D) Either I or II
Q2) For which of the following long-term debt obligations would payments not be accounted for in a debt service fund?
A) Notes and warrants secured by specific tax revenues.
B) Special assessment bonds sold to acquire enterprise fund assets.
C) Notes and warrants.
D) Special assessment bonds may be used to finance capital projects.
Q3) GASB 34 requires a Reconciliation schedule for the Statement of Net Assets.What does this schedule document?
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Page 21
Chapter 19: Not-For-Profit Entities
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Q1) For the year ended June 30,20X9,a private college received contributions from alumni which were restricted for faculty research stipends to be awarded during the next fiscal year.For the year ended June 30,20X9,these contributions should be disclosed on the statement of activities of the private college as an increase in:
A) the fund balance of the restricted current fund.
B) temporarily restricted net assets.
C) deferred revenues.
D) temporarily restricted fund balance.
Q2) On the statement of functional expenses prepared for a voluntary health and welfare organization,depreciation expense is allocated to I.expenses for program services.
II.expenses for supporting services.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q3) "Classification of contributions restricted by purpose" describes which term listed above?
Q4) "Financial statement of a private NFP entity" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) Which of the following observations concerning claims by general unsecured creditors is NOT true?
A) They are paid only after secured creditors and unsecured creditors with priority are satisfied to the extent of any legal limits.
B) They often receive less than the full amount of their claim.
C) They are entitled to "preference payments" at the discretion of the debtor's management.
D) The amounts to be paid to them are usually stated as a percentage of the total claim.
Q2) Under the Bankruptcy Code,an insolvent corporation may be:
I.Reorganized.
II.Liquidated.
A) I
B) II
C) Either I or II
D) Neither I nor II
Q3) To obtain cash quickly,DebCo.sold $750,000 of its receivables to Finco.,with recourse.As the accountant for DebCo.,what issues do you need to resolve in order to determine the appropriate accounting treatment?
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