Professional Accounting Theory
Exam Materials
Course Introduction
Professional Accounting Theory explores the fundamental concepts, principles, and frameworks that underpin the practice and development of accounting. The course examines the evolution of accounting theory, its role in shaping accounting standards, and the impacts of regulatory, ethical, and economic considerations on the accounting profession. Students critically analyze theoretical approaches to measurement, disclosure, and the conceptual framework of accounting, gaining insights into how theory informs contemporary accounting practice and decision-making. Through the evaluation of current issues, debates, and research in accounting, students develop the ability to assess the implications of theoretical developments for the profession, stakeholders, and society at large.
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) ASC 805 requires that ongoing research and development projects be treated in all of the following ways except:
A) Recorded at acquisition-date fair values
B) Classified as intangible assets having indefinite lives
C) Expensed immediately
D) Tested for impairment periodically
Answer: C
Q2) Based on the preceding information,what number of shares of $7 par value stock did Spin issue to Conservative?
A) 10,000
B) 7,000
C) 8,000
D) 25,000
Answer: C
Q3) Based on the preceding information,for Delta:
A) no goodwill should be reported at year-end.
B) goodwill impairment of $15,000 should be recognized at year-end.
C) goodwill impairment of $20,000 should be recognized at year-end.
D) goodwill of $30,000 should be reported at year-end.
Answer: B
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) Based on the preceding information,what is the consolidated retained earnings balance on December 31,20X2?
A) $402,000
B) $410,000
C) $430,000
D) $562,000
Answer: C
Q2) Based on the preceding information,what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?
A) $220,000
B) $150,000
C) $370,000
D) $350,000
Answer: A
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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) Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31,20X9,consolidated balance sheet?
A) $90,000
B) $54,000
C) $36,000
D) $0
Answer: C
Q2) 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
Page 5
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Based on the information given above,goodwill will be reported at what amount in a consolidated balance sheet?
A) $170,000
B) $150,000
C) $95,000
D) $75,000
Q2) Based on the preceding information,what amount of liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $300,000
B) $320,000
C) $417,000
D) $745,000
Q3) Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $0
B) $21,000
C) $6,000
D) $15,000
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Chapter 5: Consolidation
of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Q1) Based on the preceding information,the increase in the fair value of patents held by Wisden is:
A) $20,000
B) $25,000
C) $15,000
D) $5,000
Q2) Based on the preceding information,the amount of goodwill reported is:
A) $0.
B) $10,000.
C) $15,000.
D) $20,000.
Q3) Current assets on the January 2,20X6,consolidated balance sheet should be:
A) $79,000
B) $120,000
C) $90,000
D) $96,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what will be the consolidated net income for 20X7?
A) $495,000
B) $317,750
C) $486,250
D) $690,000
Q2) Based on the information given above,what amount of inventory must be eliminated from the consolidated balance sheet for 20X8?
A) $2,400
B) $9,000
C) $12,000
D) $3,000
Q3) Based on the information given above,what amount of cost of goods must be eliminated from the consolidated income statement for 20X4?
A) $3,596,000
B) $3,379,000
C) $806,000
D) $589,000
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,in the preparation of consolidation entries related to the equipment transfer for the 20X9 consolidated financial statements,the net effect on accumulated depreciation will be:
A) a decrease of $160,000.
B) an increase of $160,000.
C) an increase of $135,000.
D) a decrease of $135,000.
Q2) Based on the preceding information,what amount of income should be assigned to the noncontrolling shareholders in the consolidated income statement for 20X8?
A) $47,700
B) $44,400
C) $55,600
D) $60,000
Q3) Peter Architectural Services owns 100 percent of Smith Manufacturing.During the course of 20X8 Peter provides $100,000 of architectural services associated with Smith's new manufacturing facility,which will open January 4,20X9,and has a 5 year useful life.Explain the impact providing this service has on Peter Architectural Services' 20X8 and 20X9 consolidated financial statements.
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,in the preparation of the 20X3 consolidated financial statements,interest income will be
A) credited for $15,982 in the consolidation entries.
B) debited for $15,982 in the consolidation entries.
C) debited for $21,000 in the consolidation entries.
D) credited for $21,000 in the consolidation entries.
Q2) Based on the information given above,what amount of interest expense does Hunter record on its individual books in 20X8?
A) $10,950
B) $8,760
C) $10,301
D) $10,002
Q3) Based on the information given above,what amount of gain or loss on constructive bond retirement will be reported in the December 31,20X8 consolidated financial statements?
A) $8,892 loss
B) $81,108 loss
C) $19,276 gain
D) $81,108 gain
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Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) A subsidiary issues bonds.The parent can then acquire the bonds either directly from the subsidiary or from a nonaffiliate that had originally acquired the subsidiary's bonds.
Required:
a)Discuss the parent's accounting as it relates to the preparation of consolidated financial statements,for their acquisition of the bonds:
1.from the nonaffiliate.
2.directly from the subsidiary.
b)Why does it matter who the bonds are acquired from?
Q2) Based on the information given above,what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?
A) $240,500
B) $200,000
C) $245,000
D) $211,500
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the consolidating entry to prepare the consolidated financial statements for Company A as of December 31,20X9 will include a credit to noncontrolling interest in net income of Company B for:
A) 140,000
B) 154,000
C) 152,000
D) 150,000
Q2) Based on the information provided,what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1,20X9?
A) $70,000
B) $130,000
C) $118,000
D) $142,000
Q3) Based on the preceding information,the ending balance in Additional Paid-In Capital would be:
A) $0
B) $187,500
C) $312,500
D) $125,000
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Page 12
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash used in investing activities for 20X9?
A) $200,000
B) $142,000
C) $155,000
D) $130,000
Q2) Based on the preceding information,what amount would Gulfstream report as net income (after taxes)for the year?
A) $49,240
B) $68,000
C) $64,000
D) $67,500
Q3) Based on the information provided,what amount of income tax expense should be assigned to Company A?
A) $72,000
B) $66,000
C) $112,000
D) $62,000
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,the call option:
A) has no intrinsic value currently.
B) is at the money.
C) is out of the money.
D) is in the money.
Q2) Based on the preceding information,what is the effect of the British pound speculative contract on 20X8 net income?
A) $10,000 gain
B) $6,000 gain
C) $8,000 gain
D) $2,000 loss
Q3) An investor purchases a put option with a strike price of $100 for $3.This option is considered "in the money" if the underlying is trading:
A) below $100.
B) at $100.
C) above $100.
D) above $103.
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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,at what dollar amount is the ending inventory shown in the subsidiary's trial balance column of the consolidation worksheet?
A) $3,250
B) $3,500
C) $3,750
D) $4,000
Q2) All of the following describe the International Accounting Standard Board (IASB)except for:
A) The IASB is a privately funded accounting standards-setting body based in London.
B) The mission of the IASB is to develop a single set of high-quality, understandable and enforceable global accounting standards.
C) Board members of the IASB come from diverse geographical countries that have adopted IFRS.
D) IASB members serve a five-year term subject to one reappointment.
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Chapter 13: Segment and Interim Reporting
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Q1) Based on the preceding information,the cost of goods sold for the second quarter is:
A) $416,000
B) $364,000
C) $304,000
D) $424,000
Q2) Interim income statements are required for Smith Orchards.Smith does most of its sales in the fall quarter of the year.These sales are both to individual and commercial customers.How do you recommend Smith report sales during the spring quarter of the year?
Q3) On March 15,20X7,Barrel Company paid property taxes of $120,000 on its factory building for calendar year 20X7.On July 1,20X7,Barrel made $20,000 in unanticipated repairs to its machinery.The repairs will benefit operations for the remainder of the calendar year.What total amount of these expenses should be included in Barrel's quarterly income statement for the three months ended September 30,20X7?
A) $30,000
B) $35,000
C) $40,000
D) $50,000
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Chapter 14: Sec Reporting
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Q1) The SEC administers many laws and regulations governing the information made in files reports.
Required:
a)What is the difference in issues covered by Regulation S-X and Regulation S-K?
b)How do the issues covered by these regulations differ from the AAERs and SABs?
Q2) 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
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) Comment Letter
Q5) "Tombstone ad"
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Based on the preceding information,if no goodwill or bonus is recorded,how much should Daniel invest for a 20 percent interest?
A) $400,000
B) $200,000
C) $300,000
D) $250,000
Q2) 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
Q3) A partnership is a(n):
I.accounting entity.
II.taxable entity.
A) I only
B) II only
C) Neither I nor II
D) Both I and II
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Chapter 16: Partnerships: Liquidation
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Q1) Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Lilly at the end of the first month?
A) $24,000
B) $40,000
C) $16,000
D) $64,000
Q2) When is a partnership considered to be insolvent?
I.When the total of all partners' capital accounts results in a debit balance.
II.When at least one of the partners is personally insolvent.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q3) Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Dennis at the end of the first month?
A) $64,000
B) $60,000
C) $24,000
D) $36,000
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Identify the legal term that allows the general fund to make expenditures.
A) Exceptions
B) Appropriations
C) Encumbrances
D) Consumption
Q2) Which of the following funds are classified as governmental funds?
A) Internal service and capital projects funds.
B) Internal service and debt service funds.
C) Enterprise and agency funds.
D) The general and special revenue funds.
Q3) In a town's general fund operating budget for the year,the amount of its estimated revenues exceeded the amount of its appropriations.This excess should be:
A) credited to Budgetary Fund Balance-Unassigned.
B) debited to Budgetary Fund Balance-Unassigned.
C) credited to Fund Balance-Unassigned.
D) debited to Fund Balance-Unassigned.
Q4) Accounting processes differ between a for-profit entity and a governmental entity.Discuss three differences between a governmental entity and a for-profit entity.
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Q5) Briefly discuss the various types of governmental funds and proprietary funds.
Chapter 18: Governmental Entities: Special Funds and Government-Wide Financial Statements
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Q1) Based on the preceding information,on the statement of net assets prepared at June 30,20X9,what amount should be reported for net assets invested in capital assets,net of related debt?
A) $4,200,000
B) $2,900,000
C) $2,825,000
D) $3,300,000
Q2) Lisa County issued $5,000,000 of general obligation bonds at 101 to finance a capital project.The $50,000 premium was to be used for payment of principal and interest.This transaction should be accounted for in the:
A) debt service funds and the general long-term debt account group only.
B) capital projects funds, debt service funds, and the general long-term debt account group.
C) capital projects funds and debt service funds only.
D) debt service funds only.
Q3) GASB 34 requires a Reconciliation schedule for the Statement of Net Assets.What does this schedule document?
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Chapter 19: Not-For-Profit Entities
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Q1) Which of the following transactions of a private voluntary health and welfare organization would increase temporarily restricted net assets in the statement of activities for the current year?
A) I only
B) Both I and II
C) II only
D) Neither I nor II
Q2) Based on the preceding information,the increase in present value of the contributions receivable recognized at the end of the first year equals:
A) $5,000.
B) $1,264.
C) $4,212.
D) $787.
Q3) "Financial statement of a private NFP entity" describes which term listed above?
Q4) "Basis of accounting for private NFPs" describes which term listed above?
Q5) "Net asset classifications per FAC 6" describes which term listed above?
Q6) "Classification of contributions restricted by purpose" describes which term listed above?
Q7) "Classification of an endowment contribution" describes which term listed above?
Page 22
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Chapter 20: Corporations in Financial Difficulty
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Q1) A trustee has been appointed for Smith Company,which is being liquidated under Chapter 7 of the Bankruptcy Code.The following transactions occurred after the assets were transferred to the trustee:
1.Credit sales by the trustee were $100,000.Cost of goods sold were $72,000,consisting of all the inventory transferred from Smith.
2.The trustee sold all $20,000 worth of marketable securities for $15,000.
3.Receivables collected by the trustee:
Old: $28,000 of the $50,000 transferred New: $65,000
4.Disbursements by the trustee: Old current payables: $31,000 of the $65,000 transferred Trustee's expenses: $6,000
5.Recorded $24,000 depreciation on the plant assets of $120,000 transferred from Smith. Required:
Prepare a statement of realization and liquidation according to the traditional approach illustrated in the chapter. Problem 45 (continued):
Q2) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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