Accounting for Complex Entities
Exam Solutions
Course Introduction
Accounting for Complex Entities explores the principles and practices involved in the financial reporting and analysis of business structures beyond single-entity organizations. The course covers consolidations, mergers and acquisitions, joint ventures, international subsidiaries, and the treatment of special purpose and variable interest entities. Students will learn the regulatory requirements, accounting standards (such as IFRS and GAAP), and ethical considerations relevant to complex organizational forms. Through case studies and applied exercises, the course emphasizes the preparation and interpretation of consolidated financial statements, addressing issues like intercompany transactions, non-controlling interests, goodwill, and fair value measurement.
Recommended Textbook
Advanced Financial Accounting 9th Edition by Richard Baker
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Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Which of the following observations concerning "goodwill" is NOT correct?
A)Once written down,it may be written up for recoveries.
B)It must be tested for impairment at least annually.
C)Goodwill impairment losses are recognized in income from continuing operations or income before extraordinary gains and losses.
D)It must be reported as a separate line item in the balance sheet.
Answer: A
Q2) Based on the preceding information,what amount of goodwill will be reported for Beta at year-end?
A)$0
B)$14,000
C)$34,000
D)$50,000
Answer: C
Q3) Based on the preceding information,under the acquisition method:
A)$72,000 of stock issue costs are treated as goodwill.
B)$19,000 of stock issue costs are treated as a reduction in the issue price.
C)$19,000 of stock issue costs are expensed.
D)$72,000 of stock issue costs are expensed.
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 information provided,what amount of total liabilities will be reported in the consolidated balance sheet prepared on December 31,20X4?
A)$525,000
B)$115,000
C)$125,000
D)$190,000
Answer: D
Q2) Based on the information provided,what amount of total assets will be reported in the consolidated balance sheet prepared on December 31,20X4?
A)$425,000
B)$525,000
C)$650,000
D)$630,000
Answer: B
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) Based on the preceding information,what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9?
A)$168,000
B)$138,000
C)$164,000
D)$150,000
Answer: C
Q2) Based on the preceding information,what amount would be reported as total liabilities in the consolidated balance sheet at December 31,20X9?
A)$330,000
B)$712,000
C)$318,000
D)$130,000
Answer: A
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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 preceding information,the amount of differential associated with the acquisition is:
A)$0.
B)$58,000.
C)$22,000.
D)$36,000.
Q2) Based on the preceding information,what is the differential associated with the acquisition?
A)$15,000
B)$21,000
C)$6,000
D)$10,000
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,what is the amount of consolidated comprehensive income reported for 20X9?
A)$145,000
B)$135,000
C)$138,750
D)$128,750
Q2) Based on the preceding information,what is the amount of consolidated comprehensive income reported for 20X8?
A)$125,000
B)$123,750
C)$118,750
D)$130,000
Q3) Based on the information given,what is the amount of unpaid consulting services at December 31,20X8,on work done by X Company for Y Company?
A)$0
B)$10,000
C)$5,000
D)$15,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what will be the income to controlling interest for 20X8?
A)$615,375
B)$686,250
C)$690,000
D)$694,000
Q2) Based on the information given above,what amount of cost of goods sold will be reported in the 20X8 consolidated income statement?
A)$60,900
B)$90,000
C)$46,900
D)$67,000
Q3) Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X9?
A)$187,000
B)$221,000
C)$1,422,000
D)$2,963,000
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:
A)Debited for $40,000 in the eliminating entries.
B)Credited for $10,000 in the eliminating entries.
C)Debited for $10,000 in the eliminating entries.
D)Credited for $40,000 in the eliminating entries.
Q2) Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:
I.in the year of the downstream sale.
II.over the period of time the subsidiary uses the land.
III.in the year the subsidiary sells the land to an unrelated party.
A)I
B)II
C)III
D)I or II
Q3) Based on the preceding information,consolidated net income for 20X9 will be:
A)$150,000.
B)$100,000.
C)$148,000.
D)$130,000.
Page 9
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Chapter 8: Intercompany Indebtedness
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Q1) When one company purchases the debt of an affiliate from an unrelated party,a gain or loss on the constructive retirement of debt is recognized by which of the following?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Based on the information given above,what amount of interest expense will be eliminated in the preparation of the 20X8 consolidated financial statements?
A)$13,000
B)$13,500
C)$10,000
D)$15,000
Q3) Based on the information given above,in the preparation of the 20X8 consolidated financial statements,interest income will be:
A)debited for $11,500 in the eliminating entries.
B)credited for $11,500 in the eliminating entries.
C)debited for $16,000 in the eliminating entries.
D)credited for $16,000 in the eliminating entries.
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the information provided,what is the book value of the common stock on January 1,20X9?
A)$410,000
B)$360,000
C)$390,000
D)$350,000
Q2) The elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:
A)debit to common stock for $812,500
B)credit to additional paid-in capital for $187,500
C)credit to Investment in Siena Co.for $744,000
D)credit to retained earnings for $350,000
Q3) The elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:
A)credit to common stock for $625,000
B)debit to retained earnings for $37,500
C)credit to Investment in Siena Co.for $976,500
D)credit to NCI in the net assets of Siena Co.for $232,500
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the information provided,what was the consolidated cash balance at January 1,20X8?
A)$60,000
B)$85,000
C)$15,000
D)$380,000
Q2) Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?
A)$455,000
B)$475,000
C)$450,000
D)$425,000
Q3) Based on the preceding information,what is the consolidated earnings per share for 20X8?
A)4.46
B)4.14
C)4.35
D)4.55
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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 entry to revalue foreign currency payable to current U.S.dollar value on March 1 will have:
A)a credit to Foreign Currency Transaction Gain for $1,500.
B)a debit to Foreign Currency Transaction Loss for $2,500.
C)a debit to Foreign Currency Transaction Loss for $1,500.
D)a credit to Foreign Currency Transaction Gain for $1,000.
Q2) Based on the preceding information,the entries on December 31,20X8,include a:
A)Credit to Foreign Currency Payable to Exchange Broker,$4,000.
B)Debit to Foreign Currency Receivable from Exchange Broker,$6,000.
C)Debit to Foreign Currency Receivable from Exchange Broker,$186,000.
D)Debit to Foreign Currency Transaction Gain,$4,000.
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) The British subsidiary of a U.S.company reported cost of goods sold of 75,000 pounds (sterling)for the current year ended December 31.The beginning inventory was 10,000 pounds,and the ending inventory was 15,000 pounds.Spot rates for various dates are as follows:
Assuming the pound is the functional currency of the British subsidiary,the translated amount of cost of goods sold that should appear in the consolidated income statement is:
A)$108,750.
B)$112,500.
C)$114,300.
D)$125,700.
Q2) Dividends of a foreign subsidiary are translated at:
A)the average exchange rate for the year.
B)the exchange rate on the date of declaration.
C)the current exchange rate on the date of preparation of the financial statement.
D)the exchange rate on the record date.
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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Chapter 13: Segment and Interim Reporting
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Q1) How would a company report a change in an accounting principle made on the last day of the third quarter?
A)Retrospective application to all pre-change interim periods reported.
B)No change is required.
C)Apply to current and prospective interim periods only.
D)Apply to prospective interim periods only.
Q2) FASB 131 (ASC 280),Disclosure about Segments of an Enterprise and Related Information,has taken what has been referred to as a "management approach" to the definition of a segment and the allocation of costs to a segment.
Required:
a)What is meant by a management approach? How does this concept of a management approach impact the decision to disclose information?
b)How are decisions about cost allocation handled in segment disclosures?
Q3) APB Opinion 28 (ASC 270)uses which view of interim reporting?
A)Integral
B)Discrete
C)Segmental
D)Comprehensive
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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) Which of the following is defined as directly or indirectly having the power to vote the shares or investment power to sell the security?
A)Proxy
B)Significant influence
C)Control
D)Beneficial ownership
Q3) Both the FCPA (Foreign Corrupt Practices Act of 1977)and SOX (Sarbanes-Oxley Act of 2002)contain provisions related to Internal Control.Discuss some significant differences between how the two acts impact internal control practices for publicly held companies.
Q4) Accounting and Auditing Enforcement Releases
Q5) Customary Review
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Chapter 15: Partnerships: Formation, operation, and
Changes in Membership
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Q1) Shue,a partner in the Financial Brokers Partnership,has a 30 percent share in partnership profits and losses.Shue's capital account had a net decrease of $100,000 during 20X8.During 20X8,Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the partnership.What was the net income of the Financial Brokers Partnership for 20X8?
A)$633,334
B)$466,666
C)$300,000
D)$190,000
Q2) Refer to the above information.Which statement below is correct if the old partners receive a bonus upon the contribution of assets into the partnership by a new partner?
A)B < A and D = C - A
B)B + A and D > C + A
C)B < A and D = C + A
D)B > A and D = C + A
Q3) The ABC partnership had net income of $100,000 for 2009.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/2009 books they discovered that $30,000 was spent on a piece of land in December 2009 and was expensed.What should happen?
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Chapter 16: Partnerships: Liquidation
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Q1) Refer to the information given above.What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 65,000 dollars?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) On December 31,20X8,Mr.and Mrs.Williams owned a parcel of land held as an investment.The land was purchased for $40,000 in 20X6,and was encumbered by a mortgage with a principal balance of $30,000 at December 31,20X8.On this date the fair value of the land was $75,000.In the Williams' December 31,20X8,personal statement of financial condition,at what amount should the land investment and mortgage payable be reported?
A)Option A
B)Option B
C)Option C
D)Option D
Q3) A partnership may be involved in "Dissociation" or "Dissolution."
Required:
Describe "Dissociation" and "Dissolution."
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Chapter 17: Governmental Entities: Introduction and General
Fund Accounting
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Q1) GASB 34 established four types of interfund activities.Interfund activities are recognized as revenue in a governmental fund for an:
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Under the modified accrual basis of accounting for the general fund,expenditures should be recognized in the period in which the related liability is:
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q3) The City of Ames uses the consumption method to report its inventory of supplies on its general fund balance sheet.What account is debited in the general fund when Ames acquires supplies?
A)Expenditures
B)Inventory of Supplies
C)Supplies Expense
D)Fund Balance-Nonspendable
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Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) The following information pertains to Auburn's water and sewer fund,an enterprise fund,for the year ended June 30,20X9: Based upon the information presented,what was the increase in the enterprise funds unrestricted net assets for the fiscal year ended June 30,20X9?
A)$200,000
B)$240,000
C)$300,000
D)$320,000
Q2) The costs of a building being constructed by a capital projects fund should be debited,or charged,to which of the following accounts in the capital projects fund?
A)Expenditures.
B)Building.
C)Construction in Progress.
D)Other Financing Uses.
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) Transaction: Acquired investments with cash received in the previous item. Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.
Q2) Received pledges from donors who placed no time or use restrictions on how the pledges were to be spent.
Q3) A private,not-for-profit hospital received the following restricted contributions and other receipts during the year ended December 31,20X8: None of the contributions or other receipts were expended during the ended December 31,20X8.For the year ended December 31,20X8,what amount would be reported on the hospital's statement of changes in net assets as an increase in temporarily restricted net assets?
A)$1,500,000
B)$1,200,000
C)$500,000
D)$300,000
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Chapter 20: Corporations in Financial Difficulty
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Q1) Which of the following could be true of the proceedings under Chapter 11 of the Bankruptcy Code?
A)Always administered by the bankruptcy courts.
B)The debtor's assets are sold and its liabilities extinguished.
C)The company does not operate during this period.
D)The debtor continues as a business after the reorganization.
Q2) A reorganization value in excess of amounts assignable to identifiable assets is:
A)not reported.
B)reported as an intangible asset called Reorganization Value in Excess of Amounts Allocable to Identifiable Assets.
C)reported as Goodwill Associated with Exit or Disposal Activities.
D)passed on to prior shareholders of the company.
Q3) In a statement of realization and liquidation,unusual revenue items are reported under:
A)assets.
B)extraordinary items.
C)supplementary items.
D)These are never reported.
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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