Special Topics in Accounting Practice Exam
Course Introduction
This course explores advanced and emerging issues in the field of accounting, focusing on specialized topics that reflect current trends and challenges in the profession. Content may include international accounting standards, forensic accounting, sustainability reporting, advanced auditing techniques, accounting information systems, and regulatory changes. Through case studies, research projects, and guest lectures, students gain deeper insights into the evolving landscape of accounting practices, preparing them for complex decision-making and leadership roles in diverse organizational settings.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) Under the current GAAP, Goodwill arising from a business combination is
A) charged to Retained Earnings after the acquisition is completed.
B) amortized over 40 years or its useful life, whichever is longer.
C) amortized over 40 years or its useful life, whichever is shorter.
D) never amortized.
Answer: D
Q2) According to FASB Statement 141R, which one of the following items may not be accounted for as an intangible asset apart from goodwill?
A) A production backlog
B) A valuable employee workforce
C) Noncontractual customer relationships
D) Employment contracts
Answer: B
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Bart Company purchased a 30% interest in Simpson Corporation on January 1, 2013, and Bart accounted for its investment in Simpson under the equity method for the next 3 years. On January 1, 2016, Bart sold one-half of its interest in Simpson after which it could no longer exercise significant influence over Simpson. Bart should
A) continue to account for its remaining investment in Simpson under the equity method for the sake of consistency.
B) adjust the investment in Simpson account to one-half of its original amount and account for the remaining 15% interest using the equity method.
C) account for the remaining investment under the cost method, using the investment in Simpson account balance immediately after the sale as the new cost basis.
D) adjust the investment account to one-half of its original amount (one-half of the purchase price in 2013), and account for the remaining 15% investment under the cost method.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The unamortized excess account is
A) a contra-equity account.
B) used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values.
C) used in allocating the amounts paid for each asset and liability that are above or below their book values, especially when numerous assets or liabilities are involved.
D) the excess purchase cost that is attributable to goodwill.
Answer: C
Q2) From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements?
A) In substance the companies are separate, but in form the companies are one entity.
B) In substance the companies are one entity, but in form they are separate.
C) In substance and form the companies are one entity.
D) In substance and form the companies are separate entities.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Q1) What amount of Inventory will be reported?
A) $170,000
B) $169,000
C) $186,500
D) $192,000
Q2) A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary. The parent has control over the subsidiary. Which of the following statements is correct?
A) The parent corporation must prepare consolidated financial statements for the economic entity.
B) The parent corporation must use the fair value method.
C) The parent company may use the equity method but the subsidiary cannot be consolidated.
D) The parent company can use the equity method or the fair value/cost method.
Q3) Which of the following will be debited to the Investment account when the equity method is used?
A) Investee net losses
B) Investee net profits
C) Investee declaration of dividends
D) Depreciation of excess purchase cost attributable to investee equipment
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Chapter 5: Intercompany Profit Transactions Inventories
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Q1) Psalm Enterprises owns 90% of the outstanding voting stock of Solomon Siding, which was purchased at a cost equal to 90% of the book value of Solomon's net assets many years ago. (At the time of purchase, the fair value and book value of Solomon's net assets were equal.) Psalm purchases merchandise from Solomon at 110% above Solomon's cost. In 2014, intercompany sales from Solomon to Psalm amounted to $362,000. Unrealized profits in Psalm's December 31, 2013 inventory and December 31, 2014 inventory were $82,000 and $26,000, respectively. Solomon reported net income of $980,000 for 2014.
Required:
1. Determine Psalm's income from Solomon for 2014.
2. In General Journal format, prepare consolidation working paper entries at December 31, 2014 to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.
Q2) What is Pew's income from Sordid for 2014?
A) $32,000
B) $48,000
C) $60,000
D) $75,000
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Page 7
Chapter 6: Intercompany Profit Transactions Plant Assets
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Q1) The noncontrolling interest share for 2014 was
A) $18,000.
B) $22,000.
C) $23,000.
D) $27,000.
Q2) Several years ago, Pilot International purchased 70% of the outstanding stock of Skyway Incorporated, at a time when Skyway's book values were equal to its fair values. On January 1, 2011 Skyway purchased a truck for $80,000 which had no salvage value with a useful life of 8 years, depreciated on a straight-line basis. On January 1, 2014, Skyway sold the truck to Pilot Corporation for $28,000. The truck was estimated to have a five-year remaining life on this date, and no salvage value. All affiliates use the straight-line depreciation method.
Required:
Prepare all relevant entries with respect to the truck.
1. Record the journal entries on Pilot's books for 2014.
2. Record the journal entries on Skyway's books for 2014.
3. Prepare the consolidation entries required for Pilot and subsidiary for 2014 as a result of this transaction.
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Chapter 7: Intercompany Profit Transactions Bonds
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Q1) Consolidated Interest Expense and consolidated Interest Income, respectively, that appeared on the consolidated income statement for the year ended December 31, 2013 was
A) $10,800 and $0.
B) $10,800 and $6,600.
C) $0 and $0.
D) $16,200 and $6,600.
Q2) Phauna paid $120,000 for its 80% interest in Schrub on January 1, 2011 when Schrub had $150,000 of total stockholders' equity.
On January 1, 2014, Phauna purchased $50,000 of Schrub Corporation's 8% bonds for $48,000. At that time, $100,000 of bonds had been issued by Schrub, and unamortized premium was $2,000. The bonds pay interest on June 30 and December 31 and mature on December 31, 2018. Both Phauna and Schrub use straight-line amortization. Phauna uses the equity method of accounting for its investment in Schrub.
Required:
Prepare eliminating/adjusting entries for the bonds on the consolidating work papers for the year ended December 31, 2014.
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Page 9
Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) On September 1, 2013, Beck Corporation acquired an 80% interest in Johnsen Corporation for $700,000. Johnsen's stockholders' equity at January 1, 2013 consisted of $200,000 of Common Stock and $600,000 of Retained Earnings. The book values of its assets and liabilities were equal to their respective fair values on this date. All excess purchase cost was attributed to goodwill.
During 2013, Johnsen uniformly earned $78,000 and paid dividends of $9,000 on each of four dates: February 1, June 1, August 1, and December 1.
Required: Compute the following:
1. Implied goodwill associated with Johnsen Corporation based on Beck's purchase price on September 1, 2013.
2. Beck's income from Johnsen for 2013.
3. Preacquisition income for Beck Corporation and Subsidiary for 2013.
4. Noncontrolling interest share for 2013.
5. What is the balance in Beck's Investment in Johnsen account at December 31, 2013?
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Chapter 9: Indirect and Mutual Holdings
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Q1) Ackroyd's noncontrolling interest share for 2014 is
A) $ 7,609.
B) $ 8,044.
C) $15,652.
D) $23,696.
Q2) Controlling interest share of consolidated net income for Paint Corporation and Subsidiaries is:
A) $234,800.
B) $244,800.
C) $260,000.
D) $270,000.
Q3) When mutually-held stock involves subsidiaries holding the stock of each other, the ________ method is not used.
A) equity
B) cost
C) conventional
D) treasury stock
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Chapter 10: Subsidiary Preferred Stock, Consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) In computing consolidated diluted EPS, the replacement calculation replaces the parent's equity in subsidiary earnings with the
A) parent's share of basic EPS of the subsidiary.
B) subsidiary's share of basic EPS of the parent.
C) parent's share of diluted EPS of the subsidiary.
D) subsidiary's share of diluted EPS of the parent.
Q2) For the year ending December 31, 2014, the amount of Pamplin's income from Sage (associated with the common stock investment in Sage) is
A) $32,400.
B) $36,000.
C) $60,000.
D) $90,000.
Q3) What should be the noncontrolling interest share, preferred in the consolidated financial statements of Parminter for the year ending December 31, 2014?
A) $1,000
B) $2,000
C) $4,000
D) $5,000
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Chapter
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Q1) Noncontrolling interest share is viewed as an expense under ________ theory.
A) parent company
B) entity
C) contemporary
D) joint venture
Q2) With regard to a variable interest entity (VIE), Ann Company may meet the following two conditions: Condition I
Ann Company has the power to direct VIE activities that significantly impact VIE's economic performance.
Condition II
Ann Company has an obligation to absorb losses and/or a right to receive significant benefits from the VIE.
Ann Company must consolidate a VIE if
A) Condition I is met only.
B) Condition II is met only.
C) either Condition I or Condition II is met.
D) both Condition I and Condition II are met.
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) On November 14, 2014, Scuby Company (a U.S. corporation) enters into a transaction which is denominated in the Canadian dollar. Assume the exchange rate at November 14 is $1.03, and at the December 31 year-end reporting date, the exchange rate is $1.07. On January 27, 2015, when the transaction is settled, the exchange rate is $1.05. At the date of settlement, which of the following is correct?
A) The historical rate = $1.05, and the spot rate at which it is settled is the same as the current rate at $1.07.
B) The historical rate = $1.03, and the spot rate at which it is settled is the same as the current rate at $1.06.
C) The historical rate = $1.05, the current rate for reporting at December 31, 2014 is $1.07, and the spot rate at which it is settled is $1.03.
D) The historical rate = $1.03, the current rate for reporting at December 31, 2014 is $1.07, and the spot rate at which it is settled is $1.05.
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) The purchase price of an option contract is typically recorded as A) an expense.
B) an asset.
C) an amortized cost.
D) a component of shareholders equity.
Q2) A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using
A) Modified Cash Basis Accounting.
B) Critical Term Hedge Analysis.
C) Fair Value Hedge Accounting.
D) Hedge of Net Investment in Foreign Subsidiary.
Q3) A fair value hedge differs from a cash flow hedge because a fair value hedge
A) cannot be used for firm purchase or sales commitments.
B) is not recorded unless it is a highly-effective hedge.
C) records gains or losses in the value of the derivative directly to earnings of the company.
D) defers the gains or losses in the value of the derivative using Other Comprehensive Income.
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Chapter 14: Foreign Currency Financial Statements
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Q1) A U.S. parent corporation loans funds to a foreign subsidiary to be used to purchase equipment. The loan is denominated in U.S. dollars and the functional currency of the subsidiary is the euro. This intercompany transaction is a foreign currency transaction of A) neither the subsidiary nor the parent, as it is eliminated as part of the consolidation procedure.
B) the subsidiary but not the parent.
C) both the subsidiary and the parent.
D) the parent but not the subsidiary.
Q2) A foreign entity is a subsidiary of a U.S. parent company and has always used the current rate method to translate its foreign financial statements on behalf of its parent company. Which one of the following statements is false?
A) The U.S. dollar is the functional currency of this company.
B) Changes in exchange rates between the subsidiary's country and the parent's country are not expected to affect the foreign entity's cash flows.
C) Translation adjustments are shown in stockholders' equity as increases or decreases in other comprehensive income.
D) Translation adjustments are not shown on the income statement.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A) They have similar amounts of intersegment revenues or expenses.
B) They have a similar distribution method for products.
C) They have similar production processes.
D) They have similar products or services.
Q2) GAAP requires disclosures for each reportable operating segment for each of the following, except for
A) Revenues.
B) Depreciation expense.
C) R&D expenditures.
D) Extraordinary items.
Q3) Similar operating segments may be combined if the segments have similar economic characteristics. Which one of the following is a similar economic characteristic under GAAP?
A) The segments' management teams
B) The tax reporting law sections
C) The distribution method for products or services
D) The expected rates of return and risk for the segments' productive assets
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Page 17
Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) In a limited partnership, a general partner
A) is excluded from management of the business.
B) is not entitled to a bonus at the end of the year.
C) has limited liability for partnership debt.
D) has unlimited liability for partnership debt.
Q2) The profit and loss sharing agreement for the Mason, Nell, and Odell partnership provides for a $15,000 salary allowance to Nell. Residual profits and losses are allocated 5:3:2 to Mason, Nell, and Odell, respectively. In 2013, the partnership recorded $120,000 of net income that was properly allocated to the partners' capital accounts. On January 25, 2014, after the books were closed for 2013, Mason discovered that office equipment, purchased for $12,000 on December 29, 2013, was recorded as office expense by the company bookkeeper.
Required: Prepare the necessary correcting entry(s) for the partnership.
Q3) Drawings
A) are advances to a partnership.
B) are loans to a partnership.
C) are a function of interest on partnership average capital.
D) are the same nature as withdrawals.
Page 18
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Chapter 17: Partnership Liquidation
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Q1) Using a safe payments schedule, how much cash should Melvin receive in the first distribution?
A) $ 81,000
B) $165,000
C) $168,600
D) $202,500
Q2) If conditions produce a debit balance in a partner's capital account when liquidation losses are allocated, then
A) the partner receives further allocations of liquidation losses, but not gains.
B) the partner receives further allocations of liquidation gains, but not losses.
C) the partner is no longer obligated to partnership creditors.
D) the partner has an obligation of personal net assets to the other partners.
Q3) In a schedule of assumed loss absorptions
A) the partner with lowest loss absorption is eliminated last.
B) it is necessary to have a cash distribution plan first.
C) the least vulnerable partner is eliminated first.
D) the most vulnerable partner is eliminated first.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Chapter 7 bankruptcy cases differ from Chapter 11 bankruptcy cases because Chapter 7 bankruptcy
A) is involuntary.
B) requires a reorganization plan that is approved by the court.
C) requires the debtor corporation to file a list of creditors, schedule of assets and liabilities, and work with a trustee.
D) leads to full liquidation of the bankrupt company.
Q2) When a corporation's total liabilities are greater than the fair value of total assets, the firm is
A) a distressed corporation.
B) a bankrupt corporation.
C) insolvent in the equity sense.
D) insolvent in the bankruptcy sense.
Q3) Finale Company is in bankruptcy and is being liquidated under the provisions of Chapter 7 of the bankruptcy code. The trustee has converted all assets into $180,000 cash and has prepared the following list of approved claims:
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) For each of the following transactions that could be introduced to fund the maintenance of the city park, state the type of fund(s) that would be affected. Assume that a capital project fund will be used to handle any long-term improvements or additions to the park.
1. Resources used to make 60 monthly installments on outstanding long-term debt.
2. Implemented a tax on alcohol purchases specifically designated for the park upkeep.
3. A local sports organization that uses the park raises funds and donates the money, stating that the principal may not be spent, but designating earnings to the park upkeep.
4. City council approves the funds from existing resources for the upkeep required in the upcoming year.
5. Resources used only to pay principal and interest of debt outstanding to finance park maintenance.
Q2) Which fund would most likely report depreciation expense?
A) A special revenue fund
B) An enterprise fund
C) A capital projects fund
D) A debt service fund
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Page 21
Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Which statement below is incorrect with respect to the Government-wide financial statements?
A) All governmental fund categories must convert to the modified accrual basis of accounting.
B) It is necessary to eliminate interfund balances within the governmental funds.
C) Capital lease liabilities associated with governmental funds must be included on the Government-wide financial statements.
D) All fixed assets and long-term debt for governmental funds must be included on the Government-wide financial statements.
Q2) The proper sequence of events is
A) purchase order, appropriation, encumbrance, expenditure.
B) purchase order, encumbrance, expenditure, appropriation.
C) appropriation, encumbrance, purchase order, expenditure.
D) appropriation, purchase order, encumbrance, expenditure.
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Journalize the following municipal zoo transactions in the Lackluster County Enterprise Fund:
1. The zoo issued $1,000,000 of 5% revenue bonds at 99 on July 1, 2014 (an interest payment date). The bond proceeds are to be used for a new polar bear exhibit and the issue will mature in 20 years. Interest is paid on January 1 and July 1.
2. Depreciation for the year-ended December 31, 2014 included $175,000 for buildings and $105,000 for outdoor exhibit areas.
3. The zoo paid $800,000 in construction costs for the new exhibit. The exhibit is still under construction.
4. Interest on the revenue bonds was accrued at year-end, December 31, 2014. Straight-line amortization is used for bond discounts and premiums.
Q2) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) On January 1, 2011, a Voluntary Health and Welfare Organization (VHWO) receives an unconditional promise to give $6,000. The money is not collectible until 2012. The VHWO estimates that 10% of pledges are uncollectible. On January 1, 2011, the VHWO will credit A) Unrestricted Support - Contribution, $6,000.
B) Allowance for Uncollectible Contributions $600, and Unrestricted SupportContribution, $5,400.
C) Allowance for Uncollectible Contributions $600, Temporarily Restricted SupportContribution, $5,400.
D) Allowance for Uncollectible Contributions $600, Contribution Revenue $5,400.
Q2) In a nonprofit, nongovernmental hospital, courtesy allowances are A) charity care services. B) revenue deductions. C) expenses.
D) revenues earned even if the standard charge is above or below the allowance.
Q3) Voluntary health and welfare organizations classify fund-raising costs as A) costs of services sold. B) program services.
C) auxiliary expenses.
D) supporting services.
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Chapter 23: Estates and Trusts
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Q1) Cindy Lou's parents passed away while she was still dependent on them, and their will designated that a trust should be established with their estate proceeds to care for her. The following transactions occurred in the first two months following their deaths.
1. The trust account was opened with the $2,000,000 in funds received from the estate. The funds were deposited into a non-interest bearing checking account to be used for expenses.
2. $1,500,000 was put into a multi-year certificate of deposit which earned 3% annually, with interest paid monthly back to the checking account.
3. One month's interest from the certificates of deposit was received.
4. The bank's trust administration fee was paid for $65.
5. Tuition was paid for the boarding school where Cindy Lou was living for $6,500. Required:
Prepare the journal entries for the listed transactions. Disregard the impact of estate and income taxes.
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