Partnership and Intercompany Accounting Test Questions
Course Introduction
Partnership and Intercompany Accounting explores the financial reporting and accounting issues specific to partnerships and affiliated companies. The course covers the formation, operation, and dissolution of partnerships, including profit and loss sharing, admission or withdrawal of partners, and partnership liquidation procedures. Additionally, it addresses the complexities of accounting for business combinations, consolidations, and transactions between affiliated entities. Students learn how to prepare consolidated financial statements, eliminate intercompany transactions, and navigate relevant regulations and standards. Through case studies and exercises, learners develop practical skills in analyzing and recording partnership and intercompany transactions.
Recommended Textbook
Advanced Accounting 6th Edition by
Debra C. Jeter
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Page 2
Chapter 1: Introduction to Business Combinations and the
Conceptual
Framework
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Q1) The impairment standard as it relates to goodwill is an example of a:
A)consumption of benefit approach.
B)loss or lack of benefit approach.
C)component of other comprehensive income.
D)direct matching of expenses to revenues.
Answer: B
Q2) The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the: A)bonus.
B)goodwill.
C)implied offering price.
D)takeover premium.
Answer: D
Q3) The first step in estimating goodwill in the excess earnings approach is to:
A)determine normal earnings.
B)identify a normal rate of return for similar firms.
C)compute excess earnings.
D)estimate expected future earnings.
Answer: B
Page 3
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Chapter 2: Accounting for Business Combinations
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Q1) If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test,the loss should be treated as a(n):
A)loss from a change in accounting principles.
B)extraordinary loss
C)loss from continuing operations.
D)loss from discontinuing operations.
Answer: A
Q2) In a period in which an impairment loss occurs,SFAS No.142 requires each of the following note disclosures EXCEPT:
A)a description of the facts and circumstances leading to the impairment.
B)the amount of goodwill by reporting segment.
C)the method of determining the fair value of the reporting unit.
D)the amounts of any adjustments made to impairment estimates from earlier periods,if significant.
Answer: B
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4
Chapter 3: Consolidated Financial Statements Date of Acquisition
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Q1) A majority-owned subsidiary that is in legal reorganization should normally be accounted for using:
A)consolidated financial statements.
B)the equity method.
C)the market value method.
D)the cost method.
Answer: D
Q2) On January 1,2016,Prima Corporation acquired 80 percent of Sunder Corporation's voting common stock.Sunders's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition.At what amount will Sunder's buildings and equipment will be reported in the consolidated statements?
A)$350,000
B)$340,000
C)$280,000
D)$300,000
Answer: A
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Chapter 4: Consolidated Financial Statements After Acquisition
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Q1) A parent company uses the partial equity method to account for an investment in common stock of its subsidiary.A portion of the dividends received this year were in excess of the parent company's share of the subsidiary's earnings subsequent to the date of the investment.The amount of dividend income that should be reported in the parent company's separate income statement should be:
A)zero.
B)the total amount of dividends received this year.
C)the portion of the dividends received this year that were in excess of the parent's share of subsidiary's earnings subsequent to the date of investment.
D)the portion of the dividends received this year that were not in excess of the parent's share of subsidiary's earnings subsequent to the date of investment.
Q2) An investor adjusts the investment account for the amortization of any difference between cost and book value under the:
A)cost method.
B)complete equity method.
C)partial equity method.
D)complete and partial equity methods.
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Chapter 5: Allocation and Depreciation of Differences
Between Implied and Book Values
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Q1) Dividends declared by a subsidiary are eliminated against dividend income recorded by the parent under the:
A)partial equity method.
B)equity method.
C)cost method.
D)equity and partial equity methods.
Q2) When the value implied by the acquisition price is below the fair value of the identifiable net assets the residual amount will be negative (bargain acquisition).Explain the difference in accounting for bargain acquisition between past accounting and proposed accounting requirements.
Q3) Under which set of circumstances would it not be appropriate to assume the value the noncontrolling shares is the same as the controlling shares?
A)The acquisition is for less than 100% of the subsidiary.
B)The fair value of the noncontrolling shares can be inferred from the value implied by the acquisition price.
C)Active market prices for shares not obtained by the acquirer imply a different value.
D)The amount of the "control premium" cannot be determined .
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Chapter 6: Elimination of Unrealized Profit on Intercompany
Sales of Inventory
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Q1) Pruitt Company owns 80% of Stoney Company's common stock.During 2017,Stoney sold $400,000 of merchandise to Pruitt.At December 31,2017,one-fourth of the merchandise remained in Pruitt's inventory.In 2017,gross profit percentages were 25% for Pruitt and 30% for Stoney.The amount of unrealized intercompany profit that should be eliminated in the consolidated statements is:
A)$80,000.
B)$24,000.
C)$30,000.
D)$25,000.
Q2) Sales from one subsidiary to another are called:
A)downstream sales.
B)upstream sales.
C)intersubsidiary sales.
D)horizontal sales.
Q3) Noncontrolling interest in consolidated income is never affected by:
A)upstream sales.
B)downstream sales.
C)horizontal sales.
D)Noncontrolling interest is affected by all sales.
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Chapter 7: Elimination of Unrealized Gains or Losses on
Intercompany Sales of Property and Equipment
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Q1) Petunia Company owns 100% of Sage Corporation.On January 1,2017 Petunia sold equipment to Sage at a gain.Petunia had owned the equipment for four years and used a ten-year straight-line rate with no residual value.Sage is using an eight-year straight-line rate with no residual value.In the consolidated income statement,Sage's recorded depreciation expense on the equipment for 2017 will be reduced by:
A)10% of the gain on sale.
B)12 1/2% of the gain on sale.
C)80% of the gain on sale.
D)100% of the gain on sale.
Q2) Petunia Corporation owns 100% of Stone Company's common stock.On January 1,2017,Petunia sold equipment with a book value of $210,000 to Stone for $300,000.Stone is depreciating the equipment over a ten-year life by the straight-line method.The net adjustments to compute 2017 and 2018 consolidated income would be an increase (decrease)of:
A)2017,($90,000); 2018,$0
B)2017,($90,000); 2018,$9,000
C)2017,($81,000); 2018,$0
D)2017,($81,000); 2018,$9,000
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Chapter 8: Changes in Ownership Interest
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Q1) P Corporation purchased an 80% interest in S Corporation on January 1,2016,at book value for $300,000.S's net income for 2016 was $90,000 and no dividends were declared.On May 1,2016,P reduced its interest in S by selling a 20% interest,or one-fourth of its investment for $90,000.What will be the Consolidated Gain on Sale and Subsidiary Income Sold for 2016?
A)Consolidated Gain on Sale,$9,000; Subsidiary Income Sold,$6,000
B)Consolidated Gain on Sale,$9,000; Subsidiary Income Sold,$15,000
C)Consolidated Gain on Sale,$15,000; Subsidiary Income Sold,$6,000
D)Consolidated Gain on Sale,$15,000; Subsidiary Income Sold,$15,000
Q2) Which one of the following statements regarding IFRS and accounting for step acquisitions is most correct?
A)Under IFRS goodwill is identified and net assets remeasured to fair value for all subsequent transactions,both increasing and decreasing the ownership percentage,after control is achieved.
B)IFRS requires the recording of additional goodwill on subsequent increases in the parent's ownership percentage.
C)Under IFRS acquisition accounting is applied only at the date that control is achieved.
D)IFRS requires the non-controlling interest to be measured at fair value.
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10
Chapter 9: Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements
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Q1) From a consolidated entity point of view,the constructive gain or loss on the open market purchase of a parent company's bonds by a subsidiary company is:
A)considered realized at the date of the open market purchase.
B)realized in future periods through discount and premium amortization on the books of the individual companies.
C)realized only to the extent of the parent company's interest in the subsidiary.
D)deferred and recognized in the consolidated income statement when the bonds are retired.
Q2) On a consolidated balance sheet,subsidiary preferred stock will be shown:
A)as part of consolidated stockholder's equity.
B)combined with any preferred stock of the parent.
C)as part of the noncontrolling interest amount to the extent such balance represents preferred stock held by the parent.
D)as part of the noncontrolling interest amount to the extent such balance represents preferred stock held by outside interests.
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Chapter 10: Insolvency Liquidation and Reorganization
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Q1) When a bankruptcy court enters an "order for relief" it has:
A)accepted the petition.
B)dismissed the petition.
C)appointed a trustee.
D)started legal action against the debtor by its creditors.
Q2) On January 2,2017 Cretin Co.,was indebted to Fourth National Bank under a $12 million,10% unsecured note.The note was signed January 2,2015,and was due December 31,2020.Annual interest was last paid on December 31,2015.Cretin Co.negotiated a restructuring of the terms of the debt agreement due to financial difficulties.
Required:
Prepare all journal entries for Cretin Co.,to record the restructuring and any remaining transactions relating to the debt under each independent assumption.
A.Fourth National Bank agreed to settle the debt in exchange for land which cost Cretin Co.$8,500,000 and has a fair market value of $10,000,000.
B.Fourth National Bank agreed to (1)forgive the accrued interest from last year (2)reduce the remaining four interest payments to $600,000 each,and (3)reduce the principal to $9,000,000.
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Chapter 11: International Financial Reporting Standards
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Q1) Bruges Electronics Inc.offers one model of laptop computer for £1000 and a two-year warranty for £250.The retailer,as part of a Boxing Day promotion,offers a limited-time offer for the laptop,including delivery and the two-year warranty for £1,180.The cost of the computer to Bruges is £700.Any warranty repairs are assumed to be done ratably over time.Bruges accounts for transactions using the customer consideration model. In the first twelve months following the sale,Bruges incurred £980 of costs servicing the computers under warranty.
In the first twelve months,Bruges would record warranty expense of A)£784.
B)£980
C)£1,180.
D)£1,380.
Q2) In accounting for liabilities,IFRS interprets "probable" as:
A)likely.
B)more likely than not.
C)somewhat possible.
D)possible and not remote.
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Chapter 12: Accounting for Foreign Currency Transactions and Hedging Foreign
Exchange Risk
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Q1) On October 1,2016,Kill Company shipped equipment to a foreign customer for a foreign currency (FC)price of FC 3,000,000 due on January 31,2017.All revenue realization criteria were satisfied and accordingly the sale was recorded by Kill Company on October 1.Simultaneously,Kill entered into a forward contract to sell 3,000,000 FCU on January 31,2017 for $1,200,000.Payment was received from the foreign customer on January 31,2017.Spot rates on October 1,December 31,and January 31 were $0.42,$0.425,and $0.435,respectively.Kill amortizes all premiums and discounts on forward contracts and closes its books on December 31.
Required:
Prepare all journal entries relative to the above to be made by Kill during 2016 and 2017.
Q2) A transaction gain is recorded when there is an:
A)importing transaction and the exchange rate increases.
B)exporting transaction and the exchange rate increases.
C)exporting transaction and the exchange rate decreases.
D)none of these.
Q3) Accounting for a foreign currency transaction involves the terms measured and denominated.Describe a foreign currency transaction and distinguish between the terms measured and denominated.
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Chapter 13: Translation of Financial Statements of Foreign
Affiliates
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Q1) When translating foreign currency financial statements for a company whose functional currency is the U.S.dollar,which of the following accounts is translated using historical exchange rates?
A)Notes Payable,Yes; Equipment,Yes
B)Notes Payable,Yes; Equipment,No
C)Notes Payable,No; Equipment,No
D)Notes Payable,No; Equipment,Yes
Q2) Average exchange rates are used to translate certain items from foreign financial statements into U.S.dollars.Such averages are used in order to:
A)smooth out large translation gains and losses.
B)eliminate temporary fluctuation in exchange rates that may be reversed in the next fiscal period.
C)avoid using different exchange rates for some revenue and expense accounts.
D)approximate the exchange rate in effect when the items were recognized.
Q3) The translation process can be done using either the current rate method or the temporal method.Explain under what circumstances each of the methods is appropriate.
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Page 15
Chapter 14: Reporting for Segments and for Interim
Financial Periods
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Q1) A component of an enterprise that may earn revenues and incur expenses,and about which management evaluates separate financial information in deciding how to allocate resources and assess performance is a(n):
A)identifiable segment.
B)operating segment.
C)reportable segment.
D)industry segment.
Q2) Which of the following statements most accurately describes interim period tax expense?
A)The best estimate of the annual tax rate times the ordinary income (loss)for the quarter.
B)The best estimate of the annual tax rate times income (loss)for the year to date less tax expense (benefit)recognized in previous interim periods.
C)Average tax rate for each quarter,including the current quarter,times the current income (loss).
D)The previous year's actual effective tax rate times the current quarter's income.
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16
Chapter 15: Partnerships: Formation, operation and Ownership Changes
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Q1) A partnership in which one or more of the partners are general partners and one or more are not is called a(n):
A)joint venture.
B)general partnership.
C)limited partnership.
D)unlimited partnership.
Q2) The principal types of partnerships are general partnerships,limited partnerships,and joint ventures.Describe the characteristics of each type of partnership.
Q3) The bonus and goodwill methods of recording the admission of a new partner will produce the same result if the:
A)new partner's profit-sharing ratio equals his capital interest
B)old partners' profit-sharing ratio in the new partnership is the same relatively as it was in the old partnership.
C)both new partner's profit-sharing ratio equals his capital interest and old partners' profit-sharing ratio in the new partnership is the same relatively as it was in the old partnership are met
D)none of these.
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Chapter 16: Partnership Liquidation
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Q1) In an advance plan for installment distributions of cash to partners of a liquidating partnership,each partner's loss absorption potential is computed by:
A)dividing each partner's capital account balance by the percentage of that partner's capital account balance to total partners' capital.
B)multiplying each partner's capital account balance by the percentage of that partner's capital account balance to total partners' capital.
C)dividing the total of each partner's capital account less receivables from the partner plus payables to the partner by the partner's profit and loss percentage.
D)some other method.
Q2) The first step in the liquidation process is to:
A)convert noncash assets into cash.
B)pay partnership creditors
C)compute any net income (loss)up to the date of dissolution.
D)allocate any gains or losses to the partners.
Q3) The Uniform Partnership Act specifies specific steps in distributing available partnership assets in liquidation.Describe the steps used to distribute partnership assets during the liquidation process.
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Chapter 17: Introduction to Fund Accounting
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Q1) In accounting for and reporting inventory in the financial statements,the "Reserve for Inventory" account is used under:
A)the consumption method.
B)the purchase method.
C)both the consumption and purchase methods.
D)none of these.
Q2) If a credit was made to the fund balance in the process of recording a budget for a governmental unit,it can be assumed that:
A)estimated expenses exceed actual revenues.
B)actual expenses exceed estimated expenses.
C)estimated revenues exceed appropriations.
D)appropriations exceed estimated revenues.
Q3) Which of the following requires the use of the encumbrance system?
A)Capital projects fund
B)Debt service fund
C)Internal service fund
D)Enterprise fund
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Chapter 18: Introduction to Accounting for State and Local
Governmental Units
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Q1) Which of the following funds would account for operations that are financed and operated in a manner similar to private business enterprises?
A)Debt Service Fund
B)Enterprise Fund
C)Internal Service Fund
D)Special Revenue Fund
Q2) When a truck is received by a governmental unit,it should be recorded in the General Fund as a(n):
A)appropriation.
B)encumbrance.
C)expenditure.
D)fixed asset.
Q3) Which type of fund can be either expendable or nonexpendable?
A)Debt service
B)Enterprise
C)Trust
D)Special revenues
Q4) GASB Statement No.34 specifies how governments report capital assets.Describe where capital assets are reported in government financial statements.
20
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Chapter 19: Accounting for Nongovernment Nonbusiness
Organizations: Colleges and Universities, hospitals, and
Other Health Care Organizations
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Q1) Under Southdale Hospital's established rate structure,the hospital would have earned patient service revenue of $7,000,000 for the year ended December 31,2017.However,Southdale did not expect to collect this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third party payers.In May 2017,Southdale purchased bandages from Ace Supply Co.at a cost of $5,000.However,Ace notified Southdale that the invoice was being cancelled and that the bandages were being donated to Southdale. For the year ended December 31,2017,how much should Southdale record as patient service revenue?
A)$7,000,000
B)$6,500,000
C)$6,000,000
D)$5,500,000
Q2) Most property,plant and equipment transactions of hospitals are accounted for in the:
A)fund for renewals and replacements.
B)general fund.
C)plant replacement and expansion fund.
D)unexpended plant fund.
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