Partnership and Corporate Accounting Solved Exam Questions
Course Introduction
Partnership and Corporate Accounting is designed to provide students with a comprehensive understanding of the accounting principles, procedures, and practices relevant to partnerships and corporate entities. The course covers topics such as the formation, operation, and dissolution of partnerships, including changes in partnership structure and the distribution of profits. It also explores corporate accounting issues such as the issuance and redemption of shares and debentures, preparation of final accounts, accounting for amalgamations, mergers, takeovers, and internal reconstruction. Through practical examples and case studies, students will develop the skills necessary to prepare and analyze financial statements for partnerships and corporations, ensuring compliance with regulatory standards and enhancing financial decision-making.
Recommended Textbook
Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle
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12 Chapters
1192 Verified Questions
1192 Flashcards
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) Renfroe, Inc. acquires 10% of Stanley Corporation on January 1, 2010, for $90,000 when the book value of Stanley was $1,000,000. During 2010, Stanley reported net income of $215,000 and paid dividends of $50,000. On January 1, 2011, Renfroe purchased an additional 30% of Stanley for $325,000. Any excess of cost over book value is attributable to goodwill with an indefinite life. During 2011, Renfroe reported net income of $320,000 and paid dividends of $50,000.
What is the balance in the Investment in Stanley Corporation on December 31, 2011?
A) $415,000.
B) $512,500.
C) $523,000.
D) $539,500.
E) $544,500.
Answer: D
Q2) How would a change be made from the fair value method to the equity method of accounting for investments?
Answer: According to GAAP, the investment account and retained earnings of the investor should be adjusted to retrospectively restate results of operations of prior periods.
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Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Which one of the following is a characteristic of a business combination accounted for as an acquisition?
A) The combination must involve the exchange of equity securities only.
B) The transaction establishes an acquisition fair value basis for the company being acquired.
C) The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company.
D) The transaction may be considered to be the uniting of the ownership interests of the companies involved.
E) The acquired subsidiary must be smaller in size than the acquiring parent.
Answer: B
Q2) How are direct combination costs accounted for in an acquisition transaction?
Answer: In an acquisition, direct combination costs are expensed in the period of the acquisition.
Q3) How are stock issuance costs accounted for in an acquisition business combination?
Answer: Stock issuance costs reduce the balance in the acquirer's Additional Paid-In Capital in an acquisition business combination.
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4
Chapter 3: Consolidationssubsequent to the Date of Acquisition
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Sample Questions
Q1) Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100.
Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
A) $400 increase.
B) $300 increase.
C) $380 increase.
D) $280 increase.
E) $480 increase.
Answer: C
Q2) For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?
Answer: The balance of the investment account is increased for the subsidiary's net income. It is decreased for subsidiary dividends and losses. The amortization of excess fair value allocations does not affect the account balance.
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) When a parent uses the equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet?
A) Parent company net income equals controlling interest in consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equals consolidated dividends.
E) Goodwill will not be recorded on the parent's books.
Q2) How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?
Q3) Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz's net assets was $600,000. For all of Martz's assets and liabilities, book value and fair value were approximately equal.
Required:
Using the acquisition method, what amount of goodwill should appear in a consolidated balance sheet prepared immediately after the combination?
Q4) Where should a non-controlling interest appear on a consolidated balance sheet?
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Chapter 5: Consolidated Financial Statementsintra-Entity
Asset Transactions
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Sample Questions
Q1) Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2010. One-third of the inventory is sold by Walsh uses the equity method to account for its investment in Fisher.
In the consolidation worksheet for 2010, which of the following choices would be a credit entry to eliminate unrealized intra-entity gross profit with regard to the 2010 intra-entity sales?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Fisher Company.
E) Sales.
Q2) What is meant by unrealized inventory gains, and how are they treated on a consolidation worksheet?
Q3) Why do intra-entity transfers between the component companies of a business combination occur so frequently?
Q4) What is the impact on the non-controlling interest of a subsidiary when there are downstream transfers of inventory between the parent and subsidiary companies?
Q5) How is the gain on an intra-entity transfer of a depreciable asset realized?
Page 7
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Chapter 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows,
and Other Issues
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Sample Questions
Q1) Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company. On January 2, 2009, Georgia sold 7 percent bonds payable with a $5,000,000 face value maturing January 2, 2029 at a premium of $500,000. On January 1, 2011, Franklin acquired 20 percent of these same bonds on the open market at 97.66. Both companies use the straight-line method of amortization. What adjustment should be made to Franklin's 2012 beginning Retained Earnings as a result of this bond acquisition?
A) $107,100.
B) $113,400.
C) $119,700.
D) $144,000.
E) $152,000.
Q2) Danbers Co. owned seventy-five percent of the common stock of Renz Corp. How does the issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process?
Q3) Parent Corporation loaned money to its subsidiary with a five-year note at the market interest rate. How would the note be accounted for in the consolidation process?
Q4) What documents or other sources of information would be used to prepare a consolidated statement of cash flows?
Page 8
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) Alpha, Inc., a U.S. company, had a receivable from a customer that was denominated in Mexican pesos. On December 31, 2010, this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000. The receivable was collected on March 2, 2011, when the U.S. equivalent was $6,900. How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31, 2011?
A) $1,100 loss.
B) $1,100 gain.
C) $6,900 loss.
D) $6,900 gain.
E) $8,000 gain.
Q2) What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency depreciates?
Q3) How does a foreign currency forward contract differ from a foreign currency option?
Q4) What is meant by the spot rate?
Q5) What factors create a foreign exchange gain?
Q6) How is the fair value of a Forward Contract determined by U.S. GAAP?
Q7) What is the major assumption underlying the one-transaction perspective?
Q8) What is the purpose of a hedge of foreign exchange risk?
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Chapter 8: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) A net liability balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?
A) There is no translation adjustment.
B) There is a transaction loss.
C) There is a transaction gain.
D) There is a negative translation adjustment.
E) There is a positive translation adjustment.
Q2) Dilty Corp. owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar.
Which one of the following statements would justify this conclusion?
A) Most of the subsidiary's sales and purchases were with companies in the U.S.
B) Dilty's functional currency is the dollar and Dilty is the parent.
C) Dilty's other subsidiaries all had the dollar as their functional currency.
D) Generally accepted accounting principles require that the subsidiary's functional currency must be the dollar if consolidated financial statements are to be prepared.
E) Dilty is located in the U.S.
Q3) Contrast the purpose of remeasurement with the purpose of translation.
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Page 10
Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
What is the total partnership capital after Roberts retires receiving $160,000 and using the goodwill method?
A) $290,000.
B) $176,000.
C) $80,000.
D) $120,000.
E) $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among all partners.
40% of Goodwill = $60,000
)40 G = $60,000
G = $150,000
Total capital is $240,000 + goodwill $150,000 = $390,000. Roberts receives $160,000 and partnership capital is then $390,000-$160,000 = $230,000.
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Page 11
Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) Which of the following statements is false concerning the partnership Schedule of Liquidation?
A) Liquidations may take a considerable length of time to complete.
B) Frequent reporting by the accountant is rarely necessary.
C) The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances.
D) The Schedule of Liquidation provides a listing of property still held by the partnership as well as liabilities remaining unpaid.
E) The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution.
Q2) What is the role of the accountant during the liquidation process?
Q3) For a partnership, how should liquidation gains and losses be accounted for?
Q4) A partnership had the following account balances: Cash, $91,000; Other Assets, $702,000; Liabilities, $338,000; Polk, Capital (50% of profits and losses), $221,000; Garfield, Capital (30%), $143,000; Arthur, Capital (20%), $91,000. The company liquidated and $10,400 became available to the partners.
Required:
Who would have received the $10,400?
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Page 12
Chapter 11: Accounting for State and Local Governments
Part 1
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Sample Questions
Q1) Simple City has recorded the purchase order of two trucks for a total of $100,000. Prepare the journal entries to reflect that the two trucks have been received with a voucher price of $105,000. This amount has been approved but not yet paid. Identify the fund in which the entries are recorded.
Q2) Governmental funds are
A) Funds used to account for the activities of a government that are carried out primarily to provide services to citizens.
B) Funds used to account for a government's ongoing organizations and activities that are similar to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee capacity.
D) Funds used to account for all financial resources except those required to be accounted for in another fund.
E) Funds used to account for revenues that have been legally restricted as to expenditure.
Q3) Under modified accrual accounting, when are expenditures recorded?
Q4) What is the purpose of government-wide financial statements?
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Page 13
Chapter 12: Accounting for State and Local Governments
Part 2
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Sample Questions
Q1) Marie Todd works for the City of Rochester and volunteered to work the New Years Eve holiday in December, 2010. In exchange for working the holiday, the city will grant her 2 vacation days compensated at $500 per day. Marie decided to take these vacation days during January, 2011. For Government-wide financial statements, what are the journal entries to record these events in 2010 and in 2011?
Q2) The City of Kamen maintains a collection of paintings of a former citizen in its City Hall building. During the year, one painting was purchased by the city for $2,000 at an auction using appropriated funds in the General Fund. Also during the year, a donation of a painting valued at $3,000 was made to the city and the city has appropriately decided to record this painting as an asset.
Required:
Prepare the journal entry/entries for the two transactions for the purposes of preparing the government-wide financial statements.
Q3) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
Q4) What are the three broad sections of a state or local government's CAFR?
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