Accounting Theory Practice Questions
Course Introduction
Accounting Theory explores the fundamental principles and concepts that underpin the practice of accounting, examining both classical and contemporary frameworks. The course delves into the development of accounting standards, the regulatory environment, and the roles that economic, social, and ethical factors play in shaping accounting policies. Students will analyze key theoretical approaches, such as positivism, normative theory, and behavioral accounting, and consider their implications for financial reporting and decision-making. By critically evaluating current issues and debates in the field, this course equips learners with a deeper understanding of the rationale behind accounting practices and prepares them to engage with ongoing changes in the profession.
Recommended Textbook
Fundamentals of Advanced Accounting 7th Edition by Joe Ben Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) What argument could be made against the equity method?
Answer: An argument could be made against the recognition of income under the equity method.The investor is required to recognize its share of the investee's income even when it is unlikely that the investor will ever receive the entire amount in cash dividends.
Q2) What amount of gross profit on 2017 intra-entity sales should Steven defer at December 31,2017?
Answer: [($50,000 - $35,000)× .25 × .40] = $1,500
Q3) Yaro Company owns 30% of the common stock of Dew Co.and uses the equity method to account for the investment.During 2018,Dew reported income of $250,000 and paid dividends of $80,000.There is no amortization associated with the investment.During 2018,how much income should Yaro recognize related to this investment?
A)$24,000.
B)$75,000.
C)$99,000.
D)$51,000.
E)$80,000.
Answer: B
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Page 3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) At the date of an acquisition which is not a bargain purchase,the acquisition method
A)Consolidates the subsidiary's assets at fair value and the liabilities at book value.
B)Consolidates all subsidiary assets and liabilities at book value.
C)Consolidates all subsidiary assets and liabilities at fair value.
D)Consolidates current assets and liabilities at book value,and long-term assets and liabilities at fair value.
E)Consolidates the subsidiary's assets at book value and the liabilities at fair value.
Answer: C
Q2) Compute consolidated expenses immediately following the acquisition.
A)$2,760.
B)$2,770.
C)$2,785.
D)$3,380.
E)$3,390.
Answer: B
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4
Chapter 3: Consolidations -
Subsequent to the Date of Acquisition
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Sample Questions
Q1) Compute the consideration transferred in excess of book value acquired at January 1,2017.
A)$ 150.
B)$ 700.
C)$2,200.
D)$ 550.
E)$2,900.
Answer: B
Q2) Compute the December 31,2020,consolidated additional paid-in capital.
A)$210,000.
B)$75,000.
C)$1,102,500.
D)$942,500.
E)$525,000.
Answer: B
Q3) If the parent's net income reflected use of the initial value method,what were the consolidated retained earnings on December 31,2018?
Answer: 11ea86f8_4aa6_10e3_8084_f9d43053c89a_TB4173_00
Q4) What was consolidated net income for the year ended December 31,2018?
Answer: 11ea86f8_4aa6_8616_8084_993cdf66b9a1_TB4173_00
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) Compute Pell's investment in Demers at December 31,2020.
A)$676,000.
B)$629,000.
C)$580,000.
D)$604,000.
E)$572,000.
Q2) Compute the noncontrolling interest in the net income of Demers at December 31,2020.
A)$18,400.
B)$14,000.
C)$22,600.
D)$24,000.
E)$12,600.
Q3) In consolidation,the total amount of expenses related to Kailey,and to Denber's acquisition of Kailey,for 2019 is determined to be
A)$153,750.
B)$161,250.
C)$205,000.
D)$210,000.
E)$215,000.
Page 6
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Sample Questions
Q1) Assuming there are no excess amortizations associated with the consolidation,and no other intra-entity asset transfers,what amount of this gain should be recognized for consolidation purposes for 2017?
A)$12,000.
B)$9,600.
C)$8,400.
D)$2,000.
E)$1,200.
Q2) On November 8,2018,Power Corp.sold land to Wood Co. ,its wholly owned subsidiary.The land cost $61,500 and was sold to Wood for $89,000.For consolidated financial statement reporting purposes,when must the gain on the sale of the land be recognized?
A)Proportionately over a designated period of years.
B)When Wood Co.sells the land to a third party.
C)No gain may be recognized.
D)As Wood uses the land.
E)When Wood Co.begins using the land productively.
Q3) Throughout 2018,Cleveland Co.sold inventory to Leeward Co. ,its subsidiary.From a consolidated financial statement point of view,when will the gross profit on this transfer be recognized?
Page 7
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Q1) How does the existence of a noncontrolling interest affect the preparation of a consolidated statement of cash flows?
Q2) How do outstanding subsidiary stock warrants affect the calculation of consolidated earnings per share?
A)They will be included in both basic and diluted earnings per share if they are dilutive.
B)They will only be included in diluted earnings per share if they are dilutive.
C)They will only be included in basic earnings per share if they are dilutive.
D)Only the warrants owned by the parent company affect consolidated earnings per share.
E)Because the warrants are for subsidiary shares,there will be no effect on consolidated earnings per share.
Q3) Net cash flow from operating activities was:
A)$43,000.
B)$44,800.
C)$46,200.
D)$50,000.
E)$25,000.
Q4) Prepare Panton's journal entry to recognize the impact of this transaction.
Page 8
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) What was the impact on Mosby's 2018 net income as a result of this fair value hedge of a firm commitment?
A)$1,760.60 decrease.
B)$1,960.60 decrease.
C)$1,000.00 decrease.
D)$1,760.60 increase.
E)$1,960.60 increase.
Q2) What is the amount of Adjustment to Accumulated Other Comprehensive Income for 2019 from these transactions?
A)$1,000.
B)$1,600.
C)$1,800.
D)$2,000.
E)$2,600.
Q3) Assuming this is a cash flow hedge;prepare journal entries for this sales transaction and forward contract.
Q4) What amount will Coyote Corp.report in its 2018 balance sheet for Inventory?
Q5) How is the fair value of a Forward Contract determined by U.S.GAAP?
Q6) What factors create a foreign exchange gain?
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Chapter 8: Translation of Foreign Currency Financial
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Sample Questions
Q1) Under the temporal method,inventory at net realizable value would be remeasured for the balance sheet at what rate?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q2) Under the current rate method,property,plant & equipment would be translated at what rate?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q3) Under the current rate method,how would cost of goods sold be translated?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) Eden contributes $49,000 into the partnership for a 25% interest.The four original partners share profits and losses equally.Using the bonus method,determine the balances for each of the five partners after Eden joins the partnership.
Q2) By what methods can a person gain admittance to a partnership?
Q3) What events cause the dissolution of a partnership?
Q4) For what events or conditions should the Articles of Partnership make provision?
Q5) What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?
A)$70,000.
B)$40,000.
C)$60,000.
D)$80,000.
E)$42,000.
Q6) What was Wasser's total share of net income for 2017?
A)$63,000.
B)$53,000.
C)$58,000.
D)$29,000.
E)$51,000.
Page 11
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Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) Develop a predistribution plan for this partnership,assuming $12,000 of liquidation expenses are expected to be paid.
Q2) If the land is sold for $450,000,what amount will Roberts receive in the final settlement?
A)$ 0.
B)$ 30,000.
C)$217,500.
D)$362,500.
E)$502,500.
Q3) Prepare the journal entry for Donald,Chief & Berry LLP on August 1,2018,to record payment of liabilities.
Q4) Xygote,Yen,and Zen were partners who were liquidating their partnership.Each partner has a deficit balance in their respective capital account.Assuming all assets from the partnership have been liquidated,and all of the liabilities have been paid,how should any additional cash coming into the partnership be distributed to the partners?
Q5) Prepare a schedule to calculate the safe installment payments to be made to the partners at the end of February.
Q6) Record the journal entry for the sale of the noncash assets.
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Chapter 11: Accounting for State and Local Governments, part
I
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Sample Questions
Q1) Which type of account would you assign a gift of $1.5 million dollars with restriction indicating that only the future income generated from this balance can be used by the government?
A)Committed
B)Nonspendable
C)Assigned
D)Unassigned
E)Restricted
Q2) According to GASB Concepts Statement No.1,what are the three groups of primary users of external state and local governmental financial reports?
A)The Securities and Exchange Commission,the citizenry,and legislative and oversight bodies.
B)The Securities and Exchange Commission,legislative and oversight bodies,and investors and creditors.
C)The Securities and Exchange Commission,the citizenry,and investors and creditors.
D)The citizenry,legislative and oversight bodies,and investors and creditors.
E)The citizenry,management,and the Governmental Accounting Office.
Q3) When should property taxes be recognized under modified accrual accounting?
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Chapter 12: Accounting for State and Local Governments, part II
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Sample Questions
Q1) What is meant by the term fiscally independent?
Q2) According to the GASB (Governmental Accounting Standards Board),which one of the following is not a criterion for determining whether a government is legally separate?
A)The government can determine its own budget.
B)The government can issue bonded debt.
C)The government has corporate powers including the right to sue and be sued.
D)The government has the power to levy taxes.
E)The government can issue preferred stock.
Q3) What is meant by the term legally independent?
Q4) Prepare a Statement of Net Position at December 31,2018.
Q5) Determine and prepare the journal entries for the City of Wetteville,in the general fund,on the dates mentioned for each lettered item,for the purposes of preparing the fund financial statements.
Q6) What three criteria must be met to identify a governmental unit as a primary government?
Q7) What three criteria must be met before a governmental unit can elect to not capitalize and therefore report a work of art or historical treasure as an asset?
Q8) What are the three broad sections of a state or local government's CAFR?
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