Special Topics in Accounting Exam Solutions
Course Introduction
This course explores current and emerging issues in the field of accounting, with topics varying each semester to reflect developments in professional practice, standards, technology, and regulation. Through lectures, case studies, and research projects, students engage with advanced concepts such as forensic accounting, international accounting standards, sustainability reporting, and accounting information systems. The course emphasizes critical analysis, problem-solving, and adaptability, preparing students to respond to the evolving landscape of the accounting profession.
Recommended Textbook
Advanced Accounting 6th Edition by Debra
C. Jeter
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19 Chapters
671 Verified Questions
671 Flashcards
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Chapter 1: Introduction to Business Combinations and the
Conceptual
Framework
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Sample Questions
Q1) The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called:
A)poison pill.
B)pac-man defense.
C)greenmail.
D)white knight.
Answer: C
Q2) A merger between a supplier and a customer is a(n):
A)friendly combination.
B)horizontal combination.
C)unfriendly combination.
D)vertical combination.
Answer: D
Q3) Under the economic unit concept,noncontrolling interest in net assets is treated as: A)a liability.
B)an asset.
C)stockholders' equity.
D)an expense.
Answer: C
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Chapter 2: Accounting for Business Combinations
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Q1) P Corporation issued 10,000 shares of common stock with a fair value of $25 per share for all the outstanding common stock of S Company in a business combination properly accounted for as an acquisition.The fair value of S Company's net assets on that date was $220,000.P Company also agreed to issue an additional 2,000 shares of common stock with a fair value of $50,000 to the former stockholders of S Company as an earnings contingency.Assuming that the contingency is expected to be met,the $50,000 fair value of the additional shares to be issued should be treated as a(n):
A)decrease in noncurrent liabilities of S Company that were assumed by P Company.
B)decrease in consolidated retained earnings.
C)increase in consolidated goodwill.
D)decrease in consolidated other contributed capital.
Answer: C
Q2) With an acquisition,direct and indirect expenses are:
A)expensed in the period incurred.
B)capitalized and amortized over a discretionary period.
C)considered a part of the total cost of the acquired company.
D)charged to retained earnings when incurred.
Answer: A
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Chapter 3: Consolidated Financial Statements Date of Acquisition
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Q1) Pina Corp.owns 60% of Simon Corp.'s outstanding common stock.On May 1,2016,Pina advanced Simon $90,000 in cash,which was still outstanding at December 31,2016.What portion of this advance should be eliminated in the preparation of the December 31,2016 consolidated balance sheet?
A)$90,000.
B)$54,000.
C)$36,000.
D)$-0-.
Answer: A
Q2) What is the method of presentation required by SFAS 160 of "non-controlling interest" on a consolidated balance sheet?
A)As a deduction from goodwill from consolidation.
B)As a separate item within the long-term liabilities section.
C)As a part of stockholders' equity.
D)As a separate item between liabilities and stockholders' equity.
Answer: C
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Chapter 4: Consolidated Financial Statements After Acquisition
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Q1) In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash flows from operating activities,the amount of the noncontrolling interest in consolidated income is:
A)combined with the controlling interest in consolidated net income.
B)deducted from the controlling interest in consolidated net income.
C)reported as a significant noncash investing and financing activity in the notes.
D)reported as a component of cash flows from financing activities.
Q2) On January 1,2017,Pruit Company purchased 85% of the outstanding common stock of Salty Company for $525,000.On that date,Salty Company's stockholders' equity consisted of common stock,$150,000; other contributed capital,$60,000; and retained earnings,$210,000.Pruit Company paid more than the book value of net assets acquired because the recorded cost of Salty Company's land was significantly less than its fair value.
During 2017 Salty Company earned $222,000 and declared and paid a $75,000 dividend.Pruit Company used the partial equity method to record its investment in Salty Company.
Required:
A.Prepare the investment related entries on Pruit Company's books for 2017.
B.Prepare the workpaper eliminating entries for a workpaper on December 31,2017.
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Chapter 5: Allocation and Depreciation of Differences
Between Implied and Book Values
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Q1) Simple Company,a 70%-owned subsidiary of Punter Corporation,reported net income of $240,000 and paid dividends totaling $90,000 during Year 3.Year 3 amortization of differences between current fair values and carrying amounts of Simple's identifiable net assets at the date of the business combination was $45,000.The noncontrolling interest in net income of Simple for Year 3 was:
A)$58,500.
B)$13,500.
C)$27,000.
D)$72,000.
Q2) When the value implied by the purchase price of a subsidiary is in excess of the fair value of identifiable net assets,the workpaper entry to allocate the difference between implied and book value includes a:
A)debit to Difference Between Implied and Book Value.
B)credit to Excess of Implied over Fair Value.
C)credit to Difference Between Implied and Book Value.
D)debit to Difference Between Implied and Book Value and credit to Excess of Implied over Fair Value.
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Page 7
Chapter 6: Elimination of Unrealized Profit on Intercompany
Sales of Inventory
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Q1) Determination of the noncontrolling interest in consolidated net income differs depending on whether intercompany sales are downstream or upstream.Explain the difference in calculating noncontrolling interest for downstream and upstream sales.
Q2) The workpaper entry in the year of sale to eliminate unrealized intercompany profit in ending inventory includes a:
A)credit to Ending Inventory (Cost of Sales).
B)credit to Sales.
C)debit to Ending Inventory (Cost of Sales).
D)debit to Inventory - Balance Sheet.
Q3) Sales from one subsidiary to another are called:
A)downstream sales.
B)upstream sales.
C)intersubsidiary sales.
D)horizontal sales.
Q4) Past and proposed GAAP agree that unrealized intercompany profit should not be included in consolidated net income or assets.Briefly explain the preferred approach of eliminating intercompany profit.
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Chapter 7: Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment
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Q1) Company S sells equipment to its parent company (P)at a gain.In years subsequent to the year of the intercompany sale,a workpaper entry is made under the cost method debiting:
A)Retained Earnings - P.
B)Noncontrolling interest.
C)Equipment.
D)all of these.
Q2) Pine Company,a computer manufacturer,owns 90% of the outstanding stock of Slider Company.On January 1,2017,Pine sold computers to Slider for $500,000.The computers,which are inventory to Pine,had a cost to Pine of $350,000.Slider Company estimated that the computers had a useful life of six years from the date of purchase. Slider Company reported net income of $310,000,and Pine Company reported net income of $870,000 from its independent operations (including sales to affiliates)for the year ended December 31,2017.
Required:
A.Prepare in general journal form the workpaper entries necessary because of the intercompany sales in the consolidated statements workpaper for both 2017 and 2018.
B.Calculate controlling interest in consolidated net income for 2017.
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Chapter 8: Changes in Ownership Interest
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Q1) On January 1 2016,Pounder Company purchased 75% of Sludge Company for $500,000.Sludge Company's stockholders' equity on that date was equal to $600,000 and Sludge Company had 60,000 shares issued and outstanding on that date.Sludge Company Corporation sold an additional 15,000 shares of previously unissued stock on December 31,2016. Assume Sludge Company sold the 15,000 shares to outside interests,Pounder Company's percent ownership would be:
A)33 1/3%
B)60%
C)75%
D)80%
Q2) The computation of noncontrolling interest in net assets is made by multiplying the noncontrolling interest percentage at the:
A)beginning of the year times subsidiary stockholders' equity amounts.
B)beginning of the year times consolidated stockholders' equity amounts.
C)end of the year times subsidiary stockholders' equity amounts.
D)end of the year times consolidated stockholders' equity amounts.
Q3) A parent's ownership percentage in a subsidiary may change for several reasons.Identify three reasons the ownership percentage may change.
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Chapter 9: Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements
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Q1) Pointe Company purchased bonds issued by Sentient Company on the open market at a premium.Sentient Company is a 100% owned subsidiary of Pointe Company.Pointe intends to hold the bonds until maturity.In a consolidated balance sheet,the difference between the bond carrying values in the two companies would be:
A)included as a decrease to retained earnings.
B)included as an increase to retained earnings.
C)reported as a deferred debit to be amortized over the remaining life of the bonds.
D)reported as a deferred credit to be amortized over the remaining life of the bonds.
Q2) If a subsidiary has both common and preferred stock outstanding,a parent must own a controlling interest in:
A)both the subsidiary's common and preferred stock to justify consolidation.
B)the subsidiary's common stock to justify consolidation.
C)the subsidiary's common stock and at least 20% of the subsidiary's preferred stock to justify consolidation.
D)the subsidiary's common stock and more than 50% of the subsidiary's preferred stock to justify consolidation.
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Chapter 10: Insolvency Liquidation and Reorganization
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Q1) An involuntary petition filed by a firm's creditors whereby there are twelve or more creditors must be signed by at least:
A)two creditors.
B)three creditors.
C)five creditors.
D)six creditors.
Q2) Tangent Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims.Unsecured claims will be paid at the rate of thirty cents on the dollar.Arrow holds a note receivable from Tangent for $90,000 collateralized by an asset with a book value of $60,000 and a liquidation value of $30,000.The amount to be realized by Arrow on this note is:
A)$30,000.
B)$48,000.
C)$60,000.
D)$90,000.
Q3) Creditors are classified by law as either secured or unsecured.Distinguish among fully secured,partially secured,and unsecured creditors.
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Page 12
Chapter 11: International Financial Reporting Standards
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Q1) IFRS and US GAAP differ with regard to financial statement presentation in all of the following EXCEPT:
A)IFRS generally requires that assets be listed in order of increasing liquidity while US GAAP requires that assets be listed in order of decreasing liquidity.
B)US GAAP requires expenses to be listed by function while IFRS requires expenses to be listed by nature.
C)IFRS prohibits extraordinary items which are allowed by US GAAP.
D)IFRS requires two years of comparative income statements while under US GAAP,three years of income statements are required.
Q2) Benefits of the FASB Accounting Standards Codification (ASC)include all of the following EXCEPT:
A)increases the independence of the FASB.
B)aids in the convergence of US GAAP with IFRS.
C)reduces time and effort required to research accounting issues.
D)clearly distinguishes between authoritative and non-authoritative guidance.
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Chapter 12: Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk
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Sample Questions
Q1) The discount or premium on a forward contract entered into as a hedge of an exposed asset or liability position should be:
A)included as a separate component of stockholders' equity.
B)amortized over the life of the forward contract.
C)deferred and included in the measurement of related foreign currency transaction.
D)none of these.
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) The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract:
A)extends beyond one year or the current operating cycle.
B)is a hedge of an identifiable foreign currency commitment.
C)is a hedge of an exposed net liability position.
D)was acquired to speculate in foreign currency.
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Page 14
Chapter 13: Translation of Financial Statements of Foreign
Affiliates
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Q1) The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called:
A)verification.
B)translation.
C)remeasurement.
D)None of these.
Q2) P Company acquired 90% of the outstanding common stock of S Company which is a foreign company.The acquisition was accounted for using the purchase method.In preparing consolidated statements,the paid-in capital of S Company should be converted at the:
A)exchange rate effective when S Company was organized.
B)exchange rate effective on the date of purchase of the stock of S Company by P Company.
C)average exchange rate for the period S Company stock has been upheld by P Company.
D)current exchange rate.
Q3) To accomplish the objectives of translation,two translation methods are used depending on the functional currency of the foreign entity.Describe the two translation methods.
Page 15
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Chapter 14: Reporting for Segments and for Interim
Financial Periods
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Q1) In considering interim financial reporting,how did the Accounting Principles Board conclude that each reporting should be viewed?
A)As a "special" type of reporting that need not follow generally accepted accounting principles.
B)As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.
C)As reporting for a basic accounting period.
D)As reporting for an integral part of an annual period.
Q2) For interim financial reporting,the effective tax rate should reflect:
A)Anticipated Tax Credits,Yes; Extraordinary Items,Yes
B)Anticipated Tax Credits,Yes; Extraordinary Items,No
C)Anticipated Tax Credits,No; Extraordinary Items,Yes
D)Anticipated Tax Credits,No; Extraordinary Items,No
Q3) An entity is permitted to aggregate operating segments if the segments are similar regarding the:
A)nature of the production processes.
B)types or class of customers.
C)methods used to distribute products or provide services.
D)all of these.
Page 16
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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) Agler,Bates and Colter are partners who share income in a 5:3:2 ratio.Colter,whose capital balance is $150,000,retires from the partnership. Required:
Determine the amount paid to Colter under each of the following cases:
(1)$50,000 is debited to Agler capital account; the bonus approach is used.
(2)Goodwill of $60,000 is recorded; the partial goodwill approach is used.
(3)$66,000 is credited to Bates' capital account; the total goodwill approach is used.
Q3) There are two methods of recording changes in the membership of a partnershipthe bonus method and the goodwill method.Describe these two methods of recording changes in partnership membership.
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Chapter 16: Partnership Liquidation
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Q1) Which of the following statements is correct?
A)Personal creditors have first claim on partnership assets.
B)Partnership creditors have first claim on partnership assets.
C)Partnership creditors have first claim on personal assets.
D)Partnership creditors have first claim on partnership assets; and partnership creditors have first claim on personal assets.
Q2) Offsetting a partner's loan balance against his debit capital balance is referred to as the:
A)marshaling of assets.
B)right of offset.
C)allocation of assets.
D)liquidation of assets.
Q3) In a partnership liquidation the final cash distribution to the partners should be made in accordance with the:
A)partners' profit and loss sharing ratio.
B)balances of the partners' capital accounts.
C)ratio of the capital contributions by the partners.
D)ratio of capital contributions less withdrawals by the partners.
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Chapter 17: Introduction to Fund Accounting
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Q1) 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
Q2) Under GASB Statement No.34,a government-wide financial statement should include a:
A)statement of revenues & and expenses.
B)statement of activities.
C)statement of financial position.
D)notes to the financial statements.
Q3) The two basic statements prepared for expendable fund entities are a balance sheet and a(n):
A)income statement.
B)statement of revenue.
C)statement of expenditures and encumbrances.
D)none of these.
Q4) Expendable fund entities prepare closing entries at the end of each period just as business enterprises do.Describe the necessary closing entries for expendable funds.
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Chapter 18: Introduction to Accounting for State and Local
Governmental Units
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Q1) What is the underlying reason a governmental unit uses separate funds to account for its transactions?
A)Governmental units are so large that it would be unduly cumbersome to account for all transactions as a single unit.
B)Because of the diverse nature of the services offered and legal provisions regarding activities of a governmental unit,it is necessary to segregate activities by functional nature.
C)Generally accepted accounting principles require that nonbusiness entities report on a funds basis.
D)Many activities carried on by governmental units are short-lived and their inclusion in a general set of accounts could cause undue probability of error and omission.
Q2) Internal Service Fund billings to government departments for services rendered is an example of interfund:
A)reimbursements.
B)transfers.
C)services provided and used.
D)loans.
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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) Special entities are not-for-profit organizations that are:
A)government owned.
B)privately owned.
C)publicly owned.
D)either government owned or privately owned.
Q2) Which one of the following statements is NOT required for NNOs?
A)statement of financial position
B)statement of cash flows
C)statement of changes in net assets
D)statement of activities
Q3) Cindy Duncan is a social worker on the staff of Military Family Center,a voluntary welfare organization.She earns $42,000 annually for a normal workload of 2,000 hours.During 2017 she contributed an additional 800 hours of her time to Military Family Center at no extra charge.How much should Military Family Center record in 2017 as contributed service expense?
A)$0
B)$1,680
C)$8,400
D)$16,800
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