Graduate Financial Accounting
Test Questions
Course Introduction
Graduate Financial Accounting provides an in-depth exploration of the principles, standards, and procedures underlying the preparation and analysis of corporate financial statements. The course emphasizes the application of accounting theory to real-world business scenarios, including complex issues such as revenue recognition, asset valuation, liabilities, and equity accounting. Students will develop advanced analytical skills to interpret financial data, assess corporate financial health, and make informed business decisions. The curriculum also addresses current developments in international accounting standards and regulatory frameworks, ensuring graduates are well-equipped to navigate the dynamic landscape of global financial reporting.
Recommended Textbook
Advanced Accounting 11th Edition by
Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?
A) Senior executive's estimates
B) Financial analyst forecasts
C) Market value
D) The present value of future cash flows discounted at the firm's cost of capital
Answer: C
Q2) Picasso Co.issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of Seurat Company in an all-stock transaction.Picasso paid the investment bankers $35,000 and will treat the investment banker fee as
A) an expense for the current year.
B) a prior period adjustment to Retained Earnings.
C) additional goodwill on the consolidated balance sheet.
D) a reduction to additional paid-in capital.
Answer: D
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3
Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) Shebing Corporation had $80,000 of $10 par value common stock outstanding on January 1, 2010, and retained earnings of $120,000 on the same date.During 2010 and 2011, Shebing earned net incomes of $30,000 and $45,000, respectively, and paid dividends of $8,000 and $10,000, respectively.
On January 1, 2010, Pentz Company purchased 25% of Shebing's outstanding common stock for $60,000.On January 1, 2011, Pentz purchased an additional 10% of Shebing's outstanding stock for $30,200.The payments made by Pentz in excess of the book value of net assets acquired were attributed to equipment, with each excess value amount depreciable over 8 years under the straight-line method.
Required:
1.What is the adjustment to Investment Income for depreciation expense relating to Pentz's Investment in Shebing in 2010 and 2011?
2.What will be the December 31, 2011 balance in the Investment in Shebing account after all adjustments have been made?
Answer: 11ea87ae_6166_ae8c_8726_43ee480d717b_TB2662_00
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) A newly acquired subsidiary had pre-existing goodwill on its books.The parent company's consolidated balance sheet will
A) not show any value for the subsidiary's pre-existing goodwill.
B) treat the goodwill similarly to other intangible assets of the acquired company.
C) not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value.
D) always show the pre-existing goodwill of the subsidiary at its book value.
Answer: A
Q2) Pregler Inc.has 70% ownership of Sach Company, but should exclude Sach from its consolidated financial statements if
A) Sach is in a regulated industry.
B) Pregler uses the equity method for Sach.
C) Sach is in legal reorganization.
D) Sach is in a foreign country and records its books in a foreign currency.
Answer: C
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Chapter 4: Consolidated Techniques and Procedures
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Q1) What is the amount of total assets?
A) $1,380,000
B) $1,402,000
C) $1,470,000
D) $1,875,000
Q2) Pigeon Corporation acquired an 80% interest in Statue Company on January 1, 2011, for $90,000 cash when Statue had Capital Stock of $60,000 and Retained Earnings of $40,000.The fair value/book value differential was attributable to equipment with a 10-year (straight-line)life.Statue suffered a $10,000 net loss in 2011 and paid no dividends.At year-end 2011, Statue owed Pigeon $18,000 on account.Pigeon's separate income for 2011 was $150,000.Controlling interest share of consolidated net income for 2011 was
A) $140,000.
B) $141,000.
C) $142,000.
D) $150,000.
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) On January 1, 2011, Plastam Industries acquired an 80% interest in Sparta Company to assure a steady supply of Sparta's inventory that Plastam uses in its own manufacturing businesses.Sparta sold 100% of its output to Plastam during 2011 and 2012 at a markup of 125% of Sparta's cost.Plastam had $12,000 of these items remaining in its inventory at December 31, 2012.If Plastam neglected to eliminate unrealized profits from all intercompany sales from Sparta, the inventory on the consolidated balance sheet at December 31, 2012 was
A) overstated by $1,920.
B) understated by $1,920.
C) overstated by $2,400.
D) understated by $2,400.
Q2) If the sale referred to above was a downstream sale, by what amount must Inventory on the consolidated balance sheet be reduced to reflect the correct balance as of the end of 2011?
A) $3,000
B) $10,000
C) $14,000
D) $20,000
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Page 7
Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Pogo Corporation acquired a 75% interest in Sperry Corporation on January 1, 2009 at a cost equal to book value and fair value.In the same year Sperry sold land costing $25,000 to Pogo for $50,000.On July 1, 2012, Pogo sold the land to an unrelated party for $85,000.What was the gain on the sale of the land on the consolidated income statement for 2012?
A) $25,000
B) $35,000
C) $45,000
D) $60,000
Q2) In the eliminating/adjusting entries on consolidation working papers for 2012, the Truck account was
A) debited for $3,000.
B) credited for $3,000.
C) debited for $15,000.
D) credited for $15,000.
Q3) Controlling interest share in consolidated net income for 2012 was
A) $121,000.
B) $125,000.
C) $131,000.
D) $143,000.
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Chapter 7: Intercompany Profit Transactions - Bonds
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Sample Questions
Q1) The gain from the bond purchase that appeared on the December 31, 2010 consolidated income statement was
A) $4,320.
B) $4,800.
C) $5,400.
D) $6,000.
Q2) Popcorn Corporation owns 90% of the outstanding voting common stock of Salty Corporation.On January 1, 2005, Salty issued $1,000,000 face amount of 12%, $1,000 bonds payable at 119.20.The bonds pay interest on January 1 and July 1 of each year and mature on January 1, 2013.On July 2, 2010, Popcorn purchased all of the outstanding bonds at a price of 107.50.Both companies use straight-line amortization.
Required:
1.Prepare the journal entries for July 1, 2010 through December 31, 2010 for Popcorn Corporation.
2..Prepare the journal entries for July 1, 2010 through December 31, 2010 for Salty Corporation.
3.Prepare the elimination entries necessary on the consolidating working papers for the year ended December 31, 2010.
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Page 9
Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) 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.
Q2) If SOS sold the additional shares directly to Great, Great's Investment in SOS account after the sale would be
A) $1,350,000.
B) $1,395,000.
C) $1,425,000.
D) $1,500,000.
Q3) Consider a sale of stock by a subsidiary to parties outside the consolidated entity.This transaction requires an adjustment of the parent's investment and additional paid-in capital accounts except when
A) the shares are sold below book value per share.
B) the shares are sold above book value per share.
C) the shares are sold at book value per share.
D) All of the above are correct.
Page 10
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Chapter 9: Indirect and Mutual Holdings
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Q1) 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
Q2) Paco Corporation owns 90% of Aber Corporation, Aber Corporation owns 85% of Back Corporation, and Back Corporation owns 5% of Aber Corporation.The separate net incomes (excluding investment income)of Paco, Aber, and Back are $100,000, $40,000, and $55,000, respectively.Assume the investments were acquired at a cost equal to the book value of each investment, which also equals the fair value.
Required:
1.Calculate revised net incomes for Paco, Aber, and Back by using the conventional method.
2.Determine the controlling interest share of consolidated net income and the noncontrolling interest shares.
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Chapter 10: Subsidiary Preferred Stock, Consolidated
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Sample Questions
Q1) 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.
Q2) When a subsidiary has preferred stock that is convertible into subsidiary common stock, the parent's equity in the subsidiary's diluted earnings is calculated by the number of
A) subsidiary shares into which the subsidiary's dilutive securities can be converted times the subsidiary's basic EPS figure.
B) parent shares into which the subsidiary's dilutive securities can be converted times the parent's basic EPS figure.
C) subsidiary common shares held by the parent times the subsidiary's diluted EPS figure.
D) parent shares into which the subsidiary's dilutive securities can be converted times the subsidiary's basic EPS figure.
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Page 12
Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) On January 1, 2011, Parton Corporation acquired an 80% interest in Sandra Corporation for $184,000.Sandra's net assets on this date had a book value of $160,000 and a fair value of $210,000.The excess of fair value over book value at acquisition was attributable to $20,000 of understated plant assets with a remaining useful life of five years from January 1, 2011, and $30,000 to an understated patent with a remaining economic life of six years from January 1, 2011.Separate net incomes (excluding investment income)of Parton and Sandra for 2011 were $300,000 and $50,000, respectively.
Required:
1.Compute goodwill at January 1, 2011 under the parent company theory and the entity theory.
2.Determine consolidated net income and noncontrolling interest share for 2011 under the parent company theory and the entity theory.
Q2) Under the entity theory, a consolidated balance sheet prepared immediately after the business combination will show goodwill of
A) $15,000.
B) $22,500.
C) $25,000.
D) $32,500.
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Sample Questions
Q1) Ulysses Company purchases goods from China amounting to 372,372 Yuan (the transaction is denominated in the Chinese Yuan).Assume the Yuan is trading at $0.154 at the date the goods are ordered, and the Yuan is trading at $0.155 at the date the goods are received, and when the invoice is paid a month later, the Yuan is trading at $.156.Assume all three dates are in the same fiscal year.Which of the following is true?
A) The entry to record the payment will include a gain of $744.74.
B) The entry to record the payment will include a gain of $372.37.
C) The entry to record the purchase will include a credit to Accounts Payable of $57,345.29.
D) The entry to record the purchase will include a credit to Accounts Payable of $57,717.66.
Q2) What is the final amount of the loan payable that Sooty repaid?
A) $250,000
B) $287,500
C) $397,500
D) $402,500
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) On January 1, 2011, Bosna borrowed $100,000 from Lenda.The three-year term note carries a variable rate interest, based on LIBOR, and interest is payable at December 31 of each year, compounded annually.The first year's rate of interest is 7% and Bosna would like to assure that their rate does not increase.Bosna enters into a pay-fixed, receive-variable interest rate swap agreement with Swamp City Bank, under which Bosna will pay 7%, fixed.At December 31, 2011, it is determined that Bosna's interest rate to Lenda for 2012 will be 6%.At December 31, 2012, the interest rate for 2013 was determined to be 8%.Treat as a cash flow hedge.
Required:
Determine the estimated fair value of the hedge at December 31, 2011, and prepare the related journal entries required to document this hedge and the related interest payments at December 31, 2011, 2012, and 2013, including final repayment on 12/31/13.Assume a flat interest rate curve.
Q2) What is the fair value of the forward contract at December 31, 2011?
A) $400.00 liability
B) $400.00 asset
C) $396.04 liability
D) $396.04 asset
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Chapter 14: Foreign Currency Financial Statements
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Sample Questions
Q1) At the time of a business acquisition,
A) identifiable assets and liabilities are allocated the portion of the translation or remeasurement adjustment that existed on the date of acquisition.
B) a foreign entity's assets and liabilities are translated into U.S. dollars using the current exchange rate in effect on that date.
C) the difference between investment fair value and translated net assets acquired is treated as a remeasurement gain or loss on the income statement.
D) the difference between investment fair value and translated net assets acquired is recorded as a cumulative translation adjustment on the balance sheet.
Q2) If a U.S.company wants to hedge a prospective loss on its investment in a foreign entity that may result from a foreign currency fluctuation, the U.S.company should
A) purchase a forward to swap currency of the foreign entity's local country for U.S. currency.
B) purchase a call option to buy currency of the foreign entity's local country.
C) issue a loan in the foreign entity's local country.
D) borrow money in the foreign entity's local country.
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) How does GAAP view interim accounting periods?
A) As discrete units for which net income may be separately determined
B) As integral units of the entire year for which each interim period is an essential part of an annual period
C) As integral units of the entire year with each interim period as an independent accounting period
D) As discrete units of the entire year using the same principles that are applied to the annual period
Q2) 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.
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Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) What partnership capital will Robert have after Quincy retires?
A) $200,000
B) $280,000
C) $360,000
D) $440,000
Q2) Partnerships
A) are required to prepare annual reports.
B) are required to file income tax returns but do not pay Federal income taxes.
C) are required to file income tax returns and pay Federal income taxes.
D) are not required to file income tax returns or pay Federal income taxes.
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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18
Chapter 17: Partnership Liquidation
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Q1) How much cash would Able receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used.)
A) $ 0
B) $ 800
C) $2,400
D) $4,000
Q2) What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account?
A) The loan is ignored in liquidation.
B) The loan is offset against the debit balance in the capital account.
C) The loan is charged off to the capital accounts of all the partners in their profit and loss sharing ratios.
D) The loan is held for payment after all other capital accounts are covered.
Q3) In a schedule of assumed loss absorptions
A) the partner with lowest loss absorption is eliminated last.
B) it is necessary to have a cash distribution plan first.
C) the least vulnerable partner is eliminated first.
D) the most vulnerable partner is eliminated first.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Fresh-start reporting results in
A) a new reporting entity with no retained earnings/deficit balance.
B) a new reporting entity with a retained earnings/deficit balance equal to the reorganization value.
C) a continuation of the reorganized organization with no retained earnings/deficit balance.
D) a continuation of the reorganized organization with a retained earnings/deficit balance equal to the reorganization value.
Q2) When the bankruptcy court grants an order for relief under Chapter 7,
A) creditors may not seek payment for their claims directly from the debtor corporation.
B) the reorganization plan was accepted by creditors having at least one-half of the total number of claims and the claims represent at least two-thirds of the total amount owed.
C) the bankruptcy court confirms that the reorganization plan is fair and equitable to creditors.
D) the court discharges the debtor except for those claims provided for in the reorganization plan.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Governmental accounting differs from corporate financial accounting primarily because
A) the size of the government and the various levels would make it unreasonable to use corporate GAAP.
B) governments lack a profit motive and must focus on accountability to the public they serve.
C) the government has no stakeholders who require financial reporting.
D) the government has too many types of organizations to use one type of corporate GAAP.
Q2) Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to as A) appropriations.
B) allotments.
C) allocations.
D) encumbrances
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Page 21
Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Carson County had the following transactions for their General Fund relating to the levy and collection of property taxes.
1.Property tax bills for $1,000,000 are sent to property tax owners.Taxes are due in 45 days.History shows that Carson County should expect 1.5% of the property taxes to be uncollectible.
2.$850,000 in property taxes is collected.The remaining receivables are past due.
3.An additional $80,000 of the delinquent taxes is collected.
4.Wrote off $10,000 of delinquent taxes determined to be uncollectible.
Required:
Prepare the journal entries in the General Fund for the transactions.
Q2) When a city enters into a capital lease for a fixed asset for the general government, A) government-wide statements will report an Encumbrance for the leased asset.
B) government-wide statements will report the liability, Capital Lease Obligation.
C) governmental fund statements will report a fixed asset.
D) governmental fund statements will report a liability, Capital Lease Obligation.
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Page 22
Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
Q2) What is a significant difference for agency funds when compared to governmental funds?
A) An agency fund has a separate ledger.
B) An agency fund does not report revenues.
C) Agency funds are not associated with any governmental unit.
D) An agency fund will not balance because there is no fund balance account.
Q3) GASB requires ________ method(s)for the cash flow statement for proprietary funds.
A) the reconciliation
B) the indirect
C) the direct
D) either the direct or indirect
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) 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.
Q2) Record the following transactions for Porter Hospital, a private, nonprofit hospital:
1.Gross patient services revenues: $25,000,000.Billed to patients.
2.Included in the above revenues are: charity services, $500,000; contractual adjustments, $11,000,000; and estimated uncollectible amounts, $250,000.
3.Purchased equipment by issuing a 5-year note for $200,000.
4.Received cash donations restricted for a capital building addition program, $5,100,000.
5.Incurred and paid $1,700,000 of contractor billings for the capital building program.
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Chapter 23: Estates and Trusts
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Q1) Rusty Nail died in the summer of 2011.The following transactions occurred relating to Rusty's estate.
1.Rusty's estate included a $50,000 Certificate of Deposit.When Rusty died, there was $250 accrued but unpaid interest.When the check was received for the normal semiannual interest payment, it was in the amount of $1,250.
2.Rusty's will requested a specific transfer to the local playhouse in the amount of $20,000.Avery's estate should be adequate to cover all obligations and devises, and the amount is paid.
3.A fee for probate court is paid amounting to $1,400.
4.Funeral expenses are paid amounting to $13,000.
5.A bill is received from the anesthesiologist relating to Rusty's last hospital stay for $22,000.The bill is not covered by insurance, and was not included in the estate inventory.The bill is verified and paid.
Required:
Prepare the journal entries for the listed transactions.Disregard the impact of estate and income taxes.
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Page 25