Accounting Theory
Test Questions
Course Introduction
Accounting Theory explores the foundational principles, concepts, and frameworks that underpin the practice of accounting. This course examines the evolution and development of accounting standards, the role of accounting in society, and the various theoretical approaches that guide financial reporting. Students will analyze the assumptions behind accounting policies, the ethical implications of accounting decisions, and contemporary issues such as fair value measurement, sustainability reporting, and international harmonization of accounting standards. Through critical evaluation and real-world case studies, participants will gain a deeper understanding of how theory influences accounting practice and its impact on financial decision-making.
Recommended Textbook
Advanced Financial Accounting 12th Edition by Theodore
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Page 2
E. Christensen
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) 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
Q2) Based on the preceding information,what amount will be recorded by Zenith as its investment in Plummet,if it paid $500,000 for the acquisition?
A)$610,000
B)$400,000
C)$500,000
D)$510,000
Answer: D
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3
Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No Differential
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Q1) On January 2,20X5,Park Co.purchased 10 percent of Sky,Inc.'s outstanding common shares for $400,000.Park is the largest single shareholder in Sky,and Park's officers are a majority on Sky's board of directors.As a result,Park is able to exercise significant influence over Sky.Sky reported net income of $500,000 for 20X5,and paid dividends of $150,000.In its December 31,20X5,balance sheet,what amount should Park report as investment in Sky?
A)$385,000
B)$450,000
C)$400,000
D)$435,000
Answer: D
Q2) Based on the preceding information,what amount would Pullman Company receive as dividends from Skate for the year?
A)$62,000
B)$21,600
C)$18,600
D)$54,000
Answer: C
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Chapter 3:
The Reporting Entity and the Consolidation of
Less-Than-Wholly- Owned Subsidiaries With No Differential
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Q1) For which of the following reporting units is the preparation of combined financial statements most appropriate?
A)A corporation and a foreign subsidiary with nonintegrated homogeneous operations.
B)A corporation and a majority-owned subsidiary with nonhomogeneous operations.
C)Several corporations with related operations owned by one individual.
D)Several corporations with related operations with some common individual owners.
Answer: C
Q2) Pluto Company owns 80 percent of the common stock of Star Corporation.During the year,Pluto reported sales of $1,000,000,and Star reported sales of $500,000,including sales to Pluto of $80,000.The amount of sales that should be reported in the consolidated income statement for the year is:
A)$500,000.
B)$1,300,000.
C)$1,420,000.
D)$1,500,000.
Answer: C
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Which of the following is true? When companies employ push-down accounting:
A)the subsidiary revalues assets and liabilities to their fair values as of the acquisition date.
B)a special account called Revaluation Capital will appear in the consolidated balance sheet.
C)all consolidation entries are made on the books of the subsidiary rather than in consolidated worksheets.
D)the subsidiary is not substantially wholly owned by the parent.
Q2) Based on the information given above,at what amount will Paris's investment in Stockholm stock be reported in a consolidated balance?
A)$520,000
B)$170,000
C)$95,000
D)$0
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6
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 amount will be reported as noncontrolling interest in the consolidated balance sheet immediately following the acquisition?
A)$0
B)$70,000
C)$83,750
D)$100,000
Q2) Based on the preceding information,what amount of total inventory will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$130,000
B)$135,000
C)$90,000
D)$45,000
Q3) Based on the information given,what amount will be reported as total controlling interest in the consolidated balance sheet?
A)$254,000
B)$285,000
C)$364,000
D)$395,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) 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
Q2) Based on the information given above,what amount of cost of goods sold did Sink record in 20X4?
A)$1,612,000
B)$2,418,000
C)$2,790,000
D)$3,596,000
Q3) Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?
A)$2,765,000
B)$1,620,000
C)$1,422,000
D)$2,963,000
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,the gain on sale of equipment recorded by Plesco for 20X8 is:
A)$70,000.
B)$65,000.
C)$50,000.
D)$40,000.
Q2) Pillar Company owns 70 percent of Salt Company's outstanding common stock.On December 31,20X8,Salt sold equipment to Pillar at a price in excess of Salt's carrying amount,but less than its original cost.On a consolidated balance sheet at December 31,20X8,the carrying amount of the equipment should be reported at:
A)Pillar's original cost.
B)Salt's original cost.
C)Pillar's original cost less Salt's recorded gain.
D)Pillar's original cost less 70 percent of Salt's recorded gain.
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.
Page 9
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what was the carrying amount of the bonds on Shirt's books on the date of purchase by Pants?
A)$300,000
B)$311,902
C)$312,098
D)$324,000
Q2) 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?
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10
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,what is the total noncontrolling interest reported in the consolidated balance sheet as of January 1,20X8?
A)$80,000
B)$40,000
C)$50,000
D)$60,000
Q2) Based on the preceding information,by what amount did the Investment in Siena account change?
A)Increase of $296,500
B)Decrease of $296,500
C)Increase of $64,000
D)Decrease of $64,000
Q3) Based on the preceding information,what is the portion of Shovel's retained earnings assignable to its preferred shareholders on January 1,20X9?
A)$40,000
B)$50,000
C)$60,000
D)$70,000
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?
A)$590,000
B)$585,000
C)$575,000
D)$560,000
Q2) Based on the preceding information,what is the book value of shares acquired by Pair Logic on July 1,20X8?
A)$240,000
B)$191,250
C)$230,000
D)$180,000
Q3) Based on the preceding information,what is the fair value of the noncontrolling interest at the time of acquisition?
A)$47,813
B)$57,500
C)$60,000
D)$45,000
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12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) On November 6,20X7,Zucor Corp.purchased merchandise from an unaffiliated foreign company for 50,000 units of the foreign company's local currency.On that date,the spot rate was $1.259.Zucor paid the bill in full three months later when the spot rate was $1.258.The spot rate was $1.255 on December 31,20X7.What amount should Zucor report as a foreign currency transaction gain in its income statement for the year ended December 31,20X7?
A)$0
B)$50
C)$150
D)$200
Q2) 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) Under the temporal method,which of the following is usually used to translate monetary amounts to the functional currency?
I.The current exchange rate
II.The historical exchange rate
III.Average exchange rate
A)I
B)III
C)II
D)Either I or II
Q2) Based on the information provided,in Newsprint's 20X8 consolidated income statement,what amount should be included as foreign exchange loss in computing net income,if the supplier's foreign currency is the functional currency and the translation method is appropriate?
A)$28,000
B)$13,000
C)$25,000
D)$8,000
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Page 14
Chapter 13: Segment and Interim Reporting
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Q1) Based on the preceding information,in the entry in August to record the sale of the 2,000 units:
A)Cost of Goods Sold will be debited for $70,000.
B)Inventory will be credited for $85,000.
C)Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for $15,000.
D)Excess of Replacement Cost over LIFO Cost of Inventory Liquidation will be credited for $67,000.
Q2) Zeus Corporation has determined that it has 15 reportable operating segments.In order to comply with the standard for segment disclosures,Zeus Corporation should do which of the following?
A)Report 10 reportable segments and disclose the remaining 5 segments as other operating segments.
B)Report 10 reportable segments by combining the most closely related segments.
C)Report 15 reportable segments as long as the 75 percent revenue test has been satisfied.
D)Report 12 reportable segments and show all other operating segments in a column labeled "Other Operating Segments."
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Chapter 14: Sec Reporting
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Q1) Paul's Plumbing acquired Smithtown Distributors on January 15,20X8.Pansy's Flowers acquired Sam's Farm on January 1,20X7.In the 12/31/X7 financial statements filed with the SEC,Paul's Plumbing included a Pro Forma disclosure and Pansy's Flowers did not.If both acquisitions account for 100% of the common stock of the company acquired and are considered to be material,then can both filings be considered proper?
Q2) Which of the following divisions of the SEC regulates national securities exchanges,brokers,and dealers of securities?
A)Division of Investment Management
B)Division of Corporation Finance
C)Division of Economic and Risk Analysis
D)Division of Trading and Markets
Q3) Regulation D of the SEC presents important exemptions from full registration requirements for:
A)private placements.
B)issuances of securities by savings and loan associations.
C)issuances of securities by common carriers regulated by the Interstate Commerce Commission.
D)foreign companies.
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Refer to the above information.Nancy is paid $76,000,and all implied goodwill is recorded.What is the total amount of goodwill recorded?
A)$20,000
B)$14,000
C)$6,000
D)$0
Q2) Refer to the information above.Nancy is paid $84,000,and no goodwill is recorded.In the journal entry to record Nancy's withdrawal:
A)Lynn,Capital will be debited for $7,000
B)Marty,Capital will be debited for $6,000
C)Nancy,Capital will be credited for $70,000
D)Cash will be debited for $84,000
Q3) Transferable interest of a partner includes all of the following except:
A)the partner's share of the profits and losses of the partnership.
B)the right to receive distributions.
C)the right to receive any liquidating distribution.
D)the authority to transact any of the partnership's business operations.
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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) Based on the preceding information,the journal entry on the partnership's books to record distribution of stock to prior partners will include a debit to Mike,Capital for: A)$38,010.
B)$31,500.
C)$42,000.
D)$44,300.
Q3) A partnership may be involved in "Dissociation" or "Dissolution."
Required:
Describe "Dissociation" and "Dissolution."
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18
Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) 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
Q2) The general fund of Loveland ordered a new fire truck on November 12,20X8,for $150,000.The order was appropriately encumbered on this date.Loveland received the fire truck on January 15,20X9,and issued a voucher to the manufacturer for $148,600.Loveland uses the calendar year for reporting,and outstanding encumbrances at December 31,20X8,are lapsing.On January 15,20X9,the general fund of Loveland should debit:
A)Fund Balance-assigned for Encumbrances for $148,600.
B)Expenditures for $148,600.
C)Expenditures-20X8 for $148,600.
D)Encumbrances for $148,600.
Q3) Accounting processes differ between a for-profit entity and a governmental entity.Discuss three differences between a governmental entity and a for-profit entity.
Page 19
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Chapter 18: Governmental Entities: Special Funds and Governmentwide Financial Statements
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Q1) A debt service fund of Clifton received $100,000 from its general fund during the fiscal year ended June 30,20X9.The cash was used to pay matured interest on Clifton's general obligation bonds,which were issued to finance construction of a new municipal building.On the statement of revenues,expenditures,and changes in fund balance prepared for the debt service fund for the year ended June 30,20X9,the amount received from the general fund should be reported as:
A)revenue.
B)a reduction of expenditures.
C)an other financing source.
D)matured interest payments.
Q2) Which of the following funds use the accrual basis of accounting?
I.Enterprise fund
II.Agency fund
III.Internal service fund
A)I only
B)II only
C)I and III only
D)I,II,and III
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Chapter 19: Not-For-Profit Entities
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Q1) "Reported as an expenditure of the fund using plant and equipment" describes which term listed above?
A)Fair value
B)Net assets without donor restrictions
C)GASB
D)FASB
E)Statement of Revenues,Expenditures,and Changes in Fund Balance
F)Lower of cost or market
G)Accrual method
H)Statement of Activities
I)General fund,restricted fund,endowment fund
J)Modified accrual method
K)Net assets with donor restrictions
L)Endowment fund
M)Unrestricted,temporarily restricted,permanently restricted
N)Depreciation
O)Works of art and other historical treasures
P)General fund
Q)Cost
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21
Chapter 20: Corporations in Financial Difficulty
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Q1) The statement of realization and liquidation contains sections for all the following items except:
A)assets.
B)supplementary items.
C)liabilities.
D)stockholders equity.
Q2) As defined by the Bankruptcy Code,creditors with priority:
I.have collateral claim against specific assets.
II.are unsecured creditors who have priority over other unsecured creditors.
III.are the first to be paid from any proceeds available to unsecured creditors.
A)I only
B)II only
C)I,II and III
D)Both II and III
Q3) Based on the preceding information,what estimated amount will be available for general unsecured creditors upon liquidation?
A)$34,000
B)$52,000
C)$56,000
D)$75,000
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Chapter 21: Intercompany Indebtednessfully Adjusted
Equity Method Using Straight-Line Interest Amortization
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Q1) Based on the information given above,what gain or loss on the retirement of bonds should be reported in the 20X8 consolidated income statement?
A)$6,250 gain
B)$7,500 gain
C)$7,500 loss
D)$6,250 loss
Q2) Based on the information given above,what amount of gain or loss on bond retirement is included in the 20X7 consolidated income statement?
A)$6,600
B)$4,800
C)$6,000
D)$5,400
Q3) Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X9 year-end consolidated financial statements?
A)$3,500
B)$2,800
C)$5,000
D)$2,500
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