Partnership and Consolidation Accounting Final
Test Solutions
Course Introduction
This course delves into the principles and practices of partnership accounting and the consolidation of financial statements. Students will explore the formation, operation, and dissolution of partnerships, including profit and loss distribution, admission and retirement of partners, and revaluation of assets. The course also covers the preparation of consolidated financial statements for groups of companies, focusing on methods for eliminating intercompany transactions, minority interests, and goodwill. Through practical examples and case studies, students will develop a comprehensive understanding of advanced accounting techniques required for accurate financial reporting in complex business structures.
Recommended Textbook
Advanced Accounting 12th Edition by
Paul M. Fischer
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Page 2
Chapter 1: Business Combinations: New Rules for a
Long-Standing Business Practice
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Q1) Larry's Liquor acquired the net assets of Drake's Drinks in exchange for cash.The acquisition price exceeds the fair value of the net assets acquired.How should Larry's Liquor determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Drake's Drinks? \(\quad \)Plant and Equipment \(\quad \)Long-Term Debt
A)\(\quad \)Fair value\(\quad \)\(\quad \)\(\quad \)\(\quad \) \(\quad \)Drake's carrying amount
B)\(\quad \)?Fair value \(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad
\)\(\quad \)Fair value
C)\(\quad \)?Drake's carrying amount\(\quad \) Fair value
D)\(\quad \)?Drake's carrying amount \(\quad \)Drake's carrying amount
Answer: B
Q2) A contingent liability of an acquiree
A)refers to future consideration due that is part of the acquisition agreement. B)is recorded when it is probable that future events will confirm its existence. C)may be recorded beyond the measurement period under certain circumstances. D)should be recorded even if the amount cannot be reasonably estimated.
Answer: B
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Chapter 2: Consolidated Statements: Date of Acquisition
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Q1) Which of the following is not true of the consolidation process for a stock acquisition?
A)Journal entries for the elimination process are made to the parent's or subsidiary's books.
B)The investment account balance on the parent's books will be eliminated.
C)The balance sheets of two companies are combined into a single balance sheet.
D)The shareholder equity accounts of the subsidiary are eliminated.
Answer: A
Q2) An investor prepares a single set of financial statements which encompasses the financial results for both it and its investee because:
A)The investor has a controlling interest in its investee.
B)The investor has a passive interest in its investee.
C)The investor has an influential interest in its investee.
D)The investor has an active interest in its investee.
Answer: A
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4
Chapter 3: Consolidated Statements: Subsequent to Acquisition
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Q1) On January 1, 2016, Rabb Corp.purchased 80% of Sunny Corp.'s $10 par common stock for $975,000.On this date, the carrying amount of Sunny's net assets was $1,000,000.The fair values of Sunny's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were $100,000 in excess of the carrying amount.
In the January 1, 2016, consolidated balance sheet, goodwill should be reported at ____.
A)$0
B)$75,750
C)$95,000
D)$118,750
Answer: D
Q2) The method of accounting for subsidiaries that is required for influential investments is the
A)cost method.
B)simple equity method.
C)investment method.
D)sophisticated equity method.
Answer: D
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Chapter 4: Intercompany Transactions: Merchandise, Plant
Assets, and Notes
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Q1) Emron Company owns a 100% interest in the common stock of the Dietz Company.On January 1, 2017, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period.The asset was sold at a $5,000 profit.In the consolidated statements, this profit will
A)not be recorded.
B)be recognized over 5 years.
C)be recognized in the year of sale.
D)be recognized when the asset is resold to outside parties at the end of its period of use.
Q2) Schiff Company owns 100% of the outstanding common stock of the Viel Company.During 2016, Schiff sold merchandise to Viel that Viel, in turn, sold to unrelated firms.There were no such goods in Viel's ending inventory.However, some of the intercompany purchases from Schiff had not yet been paid.Which of the following amounts will be incorrect in the consolidated statements if no adjustments are made?
A)inventory, accounts payable, net income
B)inventory, sales, cost of goods sold, accounts receivable
C)sales, cost of goods sold, accounts receivable, accounts payable.
D)accounts receivable, accounts payable
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Chapter 5: Intercompany Transactions: Bonds and Leases
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Q1) Consolidation procedures for sales-type leases:
A)allow for the recognition of the profit or loss from the lease by the lessee at the inception of the lease.
B)allow for the recognition of the profit or loss from the lease by the lessor at the inception of the lease.
C)defer the profit or loss and then amortize it over the lessee's period of usage.
D)defer the profit or loss and then amortize it over the lessor's period of usage.
Q2) Powell Company owns an 80% interest in Sauter, Inc.On January 1, 2016, Sauter issued $400,000 of 10-year, 12% bonds at a premium of $50,000.On December 31, 2021, 5 years after original issuance, Powell purchased all of the outstanding bonds for $390,000.Both firms use the straight-line method of amortization.
What is the gain on retirement on the 2021 consolidated income statement?
A)$12,500
B)$22,500
C)$10,000
D)$35,000
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Chapter 6: Cash Flow, Eps, and Taxation
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Q1) Ponti Company purchased the net assets of the Sorri Company for $800,000.The book value of the net assets of Sorri Company were as follows on the acquisition date:
\[\begin{array} { l r }
\text { Cash } & \$ 50,000 \\
\text { Inventory } & 150,000 \\
\text { Land } & 150,000 \\
\text { Building (net) } & 400,000 \\
\text { Liabilities } & ( 200,000 ) \\
\quad \text { Net assets } & \$ 550,000 \\
\end{array}\] The market values were as follows: Inventory, $160,000; Land, $170,000; Building, $450,000.The excess purchase price is allocated to goodwill.On the consolidated statement of cash flows, what is the amount that will appear as cash applied to investing as a result of this purchase?
A)$800,000
B)$720,000
C)$750,000
D)$670,000
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Chapter 7: Special Issues in Accounting for an Investment
in a Subsidiary
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Q1) Which of the following is not true of an investor's investment in the preferred stock of an investee?
A)Because preferred stock normally does not carry voting rights, an investor many not have controlling interest if owning 100% of the preferred stock.
B)The investor's purchase of investee's outstanding preferred stock viewed of a retirement of the stock.
C)Preferred stock is included in the Determination and Distribution of Excess Schedule to calculate goodwill.
D)Preferred stock dividends reduce the income available to the NCI.
Q2) In the year a parent sells its entire subsidiary investment, the results of subsidiary operations prior to the sale date are
A)consolidated to the point of sale.
B)shown on the balance sheet in the stockholders' equity section as an adjustment to retained earnings.
C)not reflected on any of the parent's statements.
D)not consolidated.
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Chapter 8: Subsidiary Equity Transactions, Indirect
Subsidiary Ownership, and Subsidiary Ownership of Parent Shares
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Q1) Two types of intercompany stock purchases significantly complicate the consolidation process.The first occurs when the subsidiary issues added shares of stock in a public issue and the parent buys a portion of the shares.The second occurs when the subsidiary purchases outstanding shares of the parent company.
? Required:
?
a.Discuss the current theoretical consolidation procedure for situations in which the parent buys a portion of the newly issued subsidiary shares that is (1) equal to its existing ownership percentage, (2) greater than its existing ownership percentage, and (3) less than its existing ownership percentage.?
?
b.Discuss the most widely supported, current theoretical consolidation procedures used when the subsidiary purchases outstanding common stock shares of the parent.?
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Chapter 9: The International Accounting Environment
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Q1) Which of the following is not a responsibility of the International Accounting Standards Board (IASB)?
A)To advise political bodies to enact legislation regulating international business.
B)To establish a single set of international financial reporting standards.
C)To achieve convergence of national accounting standards and IFRS.
D)All are objectives of the IASB.
Q2) RWB Corporation, a U.S.based company, sold inventory to a German company on June 5 for 12,000 euros, when $1 was equal to 1.20 euros.The company received 12,000 euros in payment on August 4 when $1 was equal to 1.25 euros.RWB's measurement currency is the U.S.dollar.RWB Corporation:
A)should record the sale for $9,600.
B)is exposed to an economic loss on the transaction.
C)has an economic gain on the transaction.
D)should record the sale for 12,000 euros.
Q3) Describe the concept of convergence as it pertains to the FASB and IASB and describe the ways in which this may be accomplished.
Q4) Explain the goal of harmonization of accounting standards.Why is this so important to multinational companies?
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Chapter 10: Foreign Currency Transactions
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Q1) Which of the following statements is true concerning forward contracts classified as hedges of an identifiable foreign currency commitment?
A)Forward contracts used as hedges cannot exceed the foreign currency commitment.
B)Forward contracts cannot extend for a time period after the transaction date of the commitment.
C)The gain or loss traceable to the time period after the transaction date of the commitment are treated as a hedge of a receivable or payable.
D)None of these statements is true.
Q2) Describe the risks and uncertainty a U.S.company faces when purchasing goods from a foreign corporation and settling the transaction in the foreign currency.
Q3) When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a
A)domestic rate.
B)hedge rate.
C)rate of currency change.
D)rate of exchange.
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Chapter 11: Translation of Foreign Financial Statements
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Q1) Assuming that a foreign entity is deemed to be operating in an environment dominated by the local currency, the entity's assets are translated using
A)the current rate.
B)a simple average rate.
C)a weighted average rate.
D)a historical rate.
Q2) The adjustment resulting from the re-measurere-measurement of an entity operating in a highly inflationary environment would appear
A)in the stockholders' equity section of the balance sheet.
B)as a component of other comprehensive income.
C)as an ordinary income statement item.
D)as an extraordinary item on the income statement.
Q3) In most cases, which of the following is not a component of translated retained earnings?
A)Translated retained earnings at the end of the prior period
B)Income from the period translated at the historical rate
C)The value of dividends translated at the exchange rate on the date of declaration
D)All are components of translated retained earnings
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13
Chapter 12: Interim Reporting and Disclosures About
Segments of an Enterprise
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Q1) Discuss the criteria emphasized in the "management approach" that is used to define operating segments.
Q2) The management of Trident, Inc.is trying to determine if three of the company's non-reportable segments should be combined into one single segment for reporting purposes.In what five ways must these segments be similar in order to be reported as one?
Q3) Allee Co.has pretax, ordinary income of $7,000 and $38,000 in the first and second quarters, respectively.The projected ordinary income for the third and fourth quarters is $60,000 and $30,000.Occurring in the second quarter is a pretax, non-ordinary loss of $50,000 and pretax non-ordinary income of $35,000.The statutory tax rate is 15% on the first $50,000, 22% on the next $50,000, and 28% on income over $100,000.
Required:
Determine the tax impact traceable to the non-ordinary income and non-ordinary loss.
Q4) In addition to disclosures about reportable segments, companies are required to provide enterprise-wide disclosures.Describe the information included in enterprise-wide disclosures.
Page 14
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Chapter 13: Partnerships: Characteristics, Formation, and
Accounting for Activities
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Q1) In the absence of a partnership agreement, RUPA would indicate profit and losses are to be:
A)Divided in a ratio according to capital
B)Divided in a ration according to initial investment
C)Divided in a ratio according to ending capital investment
D)Dividend equally
Q2) D & E are equal partners and are closing their drawing accounts on December 31.Each partner had withdrawn $75,000.The correct entry to close their drawing accounts would be a credit to D Drawing and E drawing for $75,000 and debit to:
A)D & E Capital for $75,000
B)D & E Cash for $150,000.00
C)D & E Capital for $150,000
D)D & E Assets for $75,000
Q3) Partners H & I share profit and loss in an agreed ratio of 90/10.In the case of a net loss of $10,000, Partner I's capital account would be:
A)Credited for $1,000
B)Debited for $9,000
C)Debited for $1,000
D)Would not be affected
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Chapter 14: Partnerships: Ownership Changes and Liquidations
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Q1) A, B and C have capital of $120,000, $70,000, and $60,000 respectively.The partners share profit and loss in the agreed ratio of 40/30/30.D joins the partnership with $80,000 in exchange for 20% interest in capital and 20% interest in profit and loss.The existing assets of the original partnership are undervalued by $40,000.The original partners share balance of profit and loss in proportion to the original percent. ?
Instructions: Calculate the capital balances for each individual in the new partnership assuming bonus and good will method:
Q2) When an incoming partner's contribution is different from that indicated by the book values of the original partnership, the admission of the partner, which method may be used to record the admission:
A)RUPA
B)Straight Line
C)Acceptance
D)Goodwill
Q3) Describe the order in which assets must be distributed upon liquidation of a partnership
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Page 16
Chapter 15: Government and Not for Profit Accounting
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Q1) Assume a budget for City has been approved and the following information is available:
Estimated inflow from revenue $900,000
Estimated inflow from general long term debt $100,000
Transfer from other funds $250,000
Sales of fixed Assets $300,000
Estimated outflows expenditures$1,200,000
Transfer to other funds $ 370,000
Record the above events in a general journal
Q2) What type of entries would close the budgetary and actual accounts?
A)Budgetary
B)Operating
C)Nominal
D)Closing
Q3) Taxes that are levied in one year but not available until the following year are recognized as:
A)Deferred Expenses
B)Accrued Expense
C)Deferred Inflows of resources
D)Accrued inflows of resources
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Chapter 16: Governmental Accounting: Other
Governmental Funds, Proprietary Funds, and Fiduciary Funds
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Q1) If general obligation debt is refunded to lower the interest rate and the proceeds are irrevocably placed with an escrow agent or trustee to pay off the old debt as it comes due, the government must
A)provide a general description of the transaction in the newspaper.
B)calculate the economic gain or Balance--Employer Contributions.
C)adjust the GLTDAG for the increase or decrease in the amount of long-term debt.
D)Both b and c are correct.
Q2) Which of the following is not a classification of net assets of proprietary funds?
A)Unrestricted
B)Restricted
C)Assigned
D)Invested in capital assets, net of related debt
Q3) The financial statements of fiduciary funds include Fund Balances, and Net Assets.
A)True
B)False
Q4) What reporting is required for the accounting for employee Pension Trust Funds.
Q5) What is escheat property and how do we account for it?
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Chapter 17: Financial Reporting Issues
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Q1) Which of the following is not a category included in the statistical section of government's audit report?
A)Revenue capacity information.
B)Asset capacity information.
C)Demographic and economic information.
D)Financial trends information.
Q2) The Single Audit Act requires that a governmental unit have a single audit if they programs receiving more than $300,000 annually, or 3% of all federal assistance expenditures, must be audited unless they are considered low risk.
A)True
B)False
Q3) Briefly discuss the minimum requirements of the Management Discussion and Analysis section in the comprehensive annual financial report.
Q4) General purpose financial statements are part of the financial section of a comprehensive annual financial report
A)True
B)False
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19
Chapter 18: Accounting for Private Not-For-Profit Organizations
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Q1) a.Describe the basic accounting for private not-for-profit groups promoted by the FASB including a brief description of the three net asset classes.
b.Indicate in which of the net asset classes the following transactions belong:
1.Donor makes a cash gift to not-for profit which must be invested and maintained in perpetuity
2.Income Earned on donation noted in item #1 is restricted to certain program expenditures
3.Gains/Losses, both realized and unrealized, on donation noted in item #1.Not stipulated in donor agreement or by the law
4.Expenses paid out for programs stipulated in donor agreement relating to donation made in item #1.
Q2) Which of the following organizations would be classified as a voluntary health and welfare organization?
A)the local ballet company
B)the Sierra Foundation, an environmental organization
C)a private elementary school
D)a synagogue
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Chapter 19: Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations
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Q1) Al Alumni donates $5,000,000 to Great University for a new Women's Studies program.Al wants the principal to remain intact but the investment earnings can be expended to support the Women's Studies Program.This donation would be accounted for in the
A)Quasi-Endowment Fund.
B)Endowment Fund.
C)Term Endowment Fund.
D)Agency Fund.
Q2) Which of the following financial statements is required for the annual financial reports of public colleges and universities?
A)statement of revenues, expenses, and changes in net assets
B)statement of activities
C)single audit report
D)statement of changes in fund balances
Q3) The loan fund would account for loans
A)to hospital patients.
B)to purchase assets.
C)to university students.
D)due to another fund.
Q4) Are not-for-profit universities required to use fund accounting?
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Chapter 20: Estates and Trusts: Their Nature and the
Accountants Role
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Q1) Define what makes up the corpus or principal of an estate and list several examples.Also, list the potential claims or deductions from the principal.
Q2) The primary purpose of an estate's charge and discharge statement is to detail
A)cash flow as to principal and as to income.
B)income and expenses of the estate.
C)transactions affecting principal and income.
D)the profit or loss during the period of stewardship.
Q3) Which of the following items are chargeable against the income of an estate?
A)Costs incurred in probating the will
B)A loss on the sale of estate assets
C)Legal fees incurred to protect income flow
D)All of the above
Q4) Which of the following statements is not true?
A)Medical payments made on someone else's behalf are considered taxable gifts.
B)Gifts between spouses are not subject to gift tax.
C)Making gifts throughout one's lifetime may reduce estate taxes.
D)The annual maximum allowable exclusion for gifts is adjusted for inflation.
Q5) What are some of the tax planning strategies which may be employed to reduce the tax on the decedent's gross estate?
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Chapter 21: Debt Restructuring, Corporate Reorganizations, and Liquidations
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Q1) In the accounting statement of affairs, the book value of the assets should equal the assets' estimated realizable value plus (minus) the estimated loss (gain) on liquidation.
A)True
B)False
Q2) The ratio called "dividend to general unsecured creditors" is calculated by which of the following formulas?
A)Estimated amount available for unsecured creditors with/without priority divided by Total claims of all unsecured creditors with/without priority
B)Estimated realizable value of all debtor assets divided by Book value of debtor assets
C)Estimated gain/loss on liquidation divided by Total estimated net realizable value of debtor assets
D)Net estimated proceeds available to unsecured creditors without priority divided by Total claims of unsecured creditors without priority.
Q3) Describe the options that are available to a corporation that is unable to service its debts on a timely basis but that does NOT require court action.
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Chapter 22: Derivatives and Related Accounting Issues
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Q1) An option
A)is not traded on an organized exchange and is customized to meet the needs of the parties.
B)is not traded on an organized exchange and is subject to formal regulations which results in standardized contracts
C)is traded on an organized exchange or may be negotiated on a case-by-case basis between counterparties.
D)is traded on an organized exchange and is customized to meet the needs of the parties.
Q2) A critical characteristic of a derivative is that the instrument
A)derives its value from a related asset or liability.
B)derives its value from changes in value of a related asset or liability.
C)requires that the related asset or liability be sold or bought at settlement.
D)requires the holder of the derivative instrument to make a significant investment.
Q3) Identify the various types of information that should be included in disclosures regarding derivative instruments and hedging.
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Chapter 23: Equity Method for Unconsolidated Investments
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Q1) Company P uses the sophisticated equity method of accounting for its 30% investment in Company S's common stock.During 20X9, Company S reported net earnings of $650,000 and paid dividends of $150,000.Assume that all the undistributed earnings of Company S will be distributed as dividends in future periods.The dividends received from Company S are eligible for the 80% dividends received deduction.Company P's 20X9, tax rate is 30%.In its December 31, 20X9, balance sheet, the increase in the deferred tax liability from these transactions would be ____.
A)$7,500
B)$9,000
C)$150,000
D)$30,000
Q2) All but the following are required disclosures for equity method investors:
A)Percentage of ownership in the investment.
B)Underlying book value of the investment.
C)The market value of the investment, if available.
D)All of these items are required disclosures.
Q3) Land is depreciated typically on a ten-year life.
A)True
B)False
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Chapter 24: Variable Interest Entities
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Q1) The primary beneficiary does not consolidate its interest in a VIE into their consolidated financial statements.
A)True
B)False
Q2) Income of the consolidated company is distributed based on contractual terms, not the Primary Company ownership of VIE common stock.
A)True B)False
Q3) Consolidation procedures are applied to controlling ownership interests in Variable Interest Entities.
A)True
B)False
Q4) The consolidation process for VIE's includes the elimination of all inter-entity transactions as would be the case for control based on stock ownership
A)True B)False
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