Advanced Accounting Study Guide Questions
Course Introduction
Advanced Accounting is an in-depth course that focuses on complex financial accounting topics and practices beyond the introductory level. The course covers areas such as business combinations, consolidations, foreign currency transactions and translations, accounting for partnerships, and segment and interim reporting. Emphasis is placed on the application of accounting principles and standards to unique and challenging business scenarios, including multinational operations and mergers and acquisitions. Students will develop a strong understanding of advanced financial reporting requirements and gain analytical skills necessary for interpreting and preparing complex financial statements in accordance with generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).
Recommended Textbook
Advanced Accounting 11th Edition by Joe Ben Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Q1) On January 1, 2011, Deuce Inc. acquired 15% of Wiz Co.'s outstanding common stock for $62,400 and categorized the investment as an available-for-sale security. Wiz earned net income of $96,000 in 2011 and paid dividends of $36,000. On January 1, 2012, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave Deuce the ability to significantly influence the decision making of Wiz. During 2012, Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2012, Wiz reported a net book value of $468,000. For both purchases, Deuce concluded that Wiz Co.'s book values approximated fair values and attributed any excess cost to goodwill. What amount of equity income should Deuce have reported for 2012?
A) $30,000.
B) $16,420.
C) $38,340.
D) $18,000.
E) $32,840.
Answer: A
Q2) When should an investor not use the equity method for an investment of 21% in another corporation?
Answer: When the investor does not have significant influence with regard to the investee.
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Page 3
Chapter 2: Consolidation of Financial Information
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Q1) Which of the following statements is true regarding a statutory consolidation?
A) The original companies dissolve while remaining as separate divisions of a newly created company.
B) Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.
C) The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.
D) The acquiring company acquires the stock of the acquired company as an investment.
E) A statutory consolidation is no longer a legal option.
Answer: A
Q2) What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?
Answer: When the subsidiary is dissolved, the acquirer records in its books the fair value of individual assets and liabilities acquired as well as the resulting goodwill from the acquisition. However, when separate incorporation is maintained, the acquirer only records the total fair value of assets and liabilities acquired, as well as the resulting goodwill, in one account as an investment.
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Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash. On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets included land that was undervalued by $300,000, a building that was undervalued by $400,000, and equipment that was overvalued by $50,000. The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years. Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years.
Determine the amortization expense related to the combination at the year-end date of 12/31/13.
Answer: 11ea8f9b_5aea_eea3_b161_0b4d2dbfc81e_TB4176_00
Q2) Yules Co. acquired Noel Co. in an acquisition transaction. Yules decided to use the partial equity method to account for the investment. The current balance in the investment account is $416,000. Describe in words how this balance was derived.
Answer: The initial balance in the investment account would be the acquisition value implied by the fair value of consideration transferred. This would not include consideration paid for costs to effect the combination. After the acquisition, the balance in the account is increased by the parent's accrual of the subsidiary's income and decreased by the dividends paid by the subsidiary.
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?
Q2) On January 1, 2010, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no active trading market for Techron stock. Techron Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $98,000 in 2010 and $126,000 in 2011 with dividend payments of $42,000 each year. Without regard for this investment, Jannison had income of $308,000 in 2010 and $364,000 in 2011. Use the economic unit concept to account for this acquisition. What is the non-controlling interest balance as of December 31, 2011?
Q3) How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?
Q4) Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under what conditions will Beta be required to prepare consolidated financial statements?
Q5) Where should a non-controlling interest appear on a consolidated balance sheet?
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Chapter 5: Consolidated Financial StatementsIntercompany Asset Transactions
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Q1) Strickland Company sells inventory to its parent, Carter Company, at a profit during 2010. One-third of the inventory is sold by Carter in 2010. In the consolidation worksheet for 2010, which of the following choices would be a credit entry to eliminate the intra-entity transfer of inventory?
A) Retained earnings.
B) Cost of goods sold.
C) Inventory.
D) Investment in Strickland Company.
E) Sales.
Q2) Fraker, Inc. owns 90 percent of Richards, Inc. and bought $200,000 of Richards' inventory in 2011. The transfer price was equal to 30 percent of the sales price. When preparing consolidated financial statements, what amount of these sales is eliminated?
Q3) On April 7, 2011, Pate Corp. sold land to Shannahan Co., its subsidiary. From a consolidated point of view, when will the gain on this transfer actually be earned?
Q4) When is the gain on an intra-entity transfer of land realized?
Q5) How do upstream and downstream inventory transfers differ in their effect in a year-end consolidation?
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Chapter 6: Intercompany Debt, Consolidated Statement of
Cash Flows, and Other
Issues
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Q1) Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2011. What was the amount of Stoop's earnings that should be included in calculating consolidated diluted earnings per share?
A) $300,000.
B) $240,000.
C) $257,600.
D) $322,000.
E) $201,250.
Q2) How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?
Q3) Parent Corporation had just purchased some of its subsidiary's outstanding bonds on the open market. What items related to these bonds will have to be accounted for in the consolidation process?
Page 8
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Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Q1) Which of the following statements is false concerning a father-son-grandson configuration?
A) This type of ownership pattern does not significantly alter the worksheet process.
B) Most worksheet entries are simply made twice.
C) The doubling of entries may seem overwhelming.
D) The individual consolidation procedures remain unaffected.
E) Consolidated financial statements are required for only the father and son companies.
Q2) What are the essential criteria for including a subsidiary within an affiliated group?
Q3) B Co. owned 70% of the voting common stock of C Corp.; C Corp. owned 20% of B Co. For 2011, B Co. and C Corp. reported net income (not including the investment) of $600,000 and $300,000, respectively. B Co. and C Corp. paid dividends of $80,000 and $60,000, respectively.
Required:
Prepare a schedule showing B Co.'s share of consolidated net income for 2011 using the treasury stock approach.
Q4) What are the benefits or advantages of filing a consolidated income tax return?
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Chapter 8: Segment and Interim Reporting
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Q1) Which of the following are required to be disclosed in interim reports?
A) Cash flows from investing activities.
B) Change in cash.
C) Total current liabilities.
D) Total assets.
E) Gross revenues.
Q2) What are the two approaches that can be followed in preparing interim reports?
A) Indiscrete and terminal.
B) Discrete and terminal.
C) Metric and integral.
D) Discrete and integral.
E) Discrete and metric.
Q3) What approach is used, according to U.S. GAAP, for determination of how a business is divided into segments?
Q4) Which of the segments are separately reportable?
A) DVDs only.
B) DVDs and MP3s.
C) DVDs and VCRs.
D) VCRs and MP3s.
E) DVDs, VCRs, and MP3s.
10
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) What is meant by the spot rate?
Q2) On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36. At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What are the effects on net income from these transactions?
A) $16,000 Discount Expense plus a $12,000 positive Adjustment to Net Income when the merchandise is delivered.
B) $16,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is delivered.
C) $16,000 Discount Expense plus a $20,000 negative Adjustment to Net Income when the merchandise is delivered.
D) $16,000 Discount Expense plus a $20,000 positive Adjustment to Net Income when the merchandise is delivered.
E) $16,000 Discount Expense plus an $16,000 positive Adjustment to Net Income when the merchandise is delivered.
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Chapter 10: Translation of Foreign Currency Financial Statements
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Q1) What is the justification for the remeasurement of foreign currency transactions?
Q2) A net asset balance sheet exposure exists and the foreign currency depreciates. Which of the following statements is true?
A) There is no translation adjustment.
B) There is a transaction loss.
C) There is a transaction gain.
D) There is a negative translation adjustment.
E) There is a positive translation adjustment.
Q3) If a subsidiary is operating in a highly inflationary economy, how are the financial statements to be restated?
A) Historical rate.
B) Working capital rate.
C) Translation.
D) Remeasurement.
E) Current rate.
Q4) Under what circumstances would the remeasurement of a foreign subsidiary's financial statements be required?
Q5) Contrast the purpose of remeasurement with the purpose of translation.
Page 12
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) The IASB and FASB are working on several joint projects. Which of the following is not a topic of the Revenue Recognition Project?
A) Eliminate inconsistencies in existing literature.
B) Cash flow presentation of revenue.
C) Business models issues for revenue recognition.
D) Conceptual basis as framework for future issues of revenue recognition.
E) Contract-based revenue recognition.
Q2) A company sells a building to a bank in 2011 at a gain of $100,000 and immediately leases the building back for period of five years. The lease is accounted for as an operating lease. The building was originally purchased for $200,000 and currently had a book value of $50,000 at the date of the sale. As a result of the sale and leaseback transaction in 2011, what is the difference between income using U.S. GAAP and IFRS in 2012?
A) $0.
B) U.S. GAAP income is $20,000 higher.
C) IFRS income is $80,000 lower.
D) IFRS income is $60,000 lower.
E) IFRS income is $80,000 higher.
Q3) What problems are caused by diverse accounting practices?
Page 13
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Q1) What is included in Part I of a securities registration statement?
Q2) Which one of the following forms is used in connection with registration of securities of real estate companies?
A) S-8.
B) S-1.
C) S-4.
D) S-3.
E) S-11.
Q3) Who has the responsibility for the evaluation of the quality of an investment?
Q4) Regulation S-K:
A) controls the listing of securities by stock exchanges.
B) establishes requirements for nonfinancial information to be filed with the SEC.
C) prescribes the form of financial statements to be filed with the SEC.
D) describes the internal controls a publicly traded company must maintain.
E) prescribes the financial disclosure information that must be included in filings with the SEC.
Q5) Name five securities offerings exempt from registration with the SEC.
Page 14
Q6) What was the purpose of the Securities Exchange Act of 1934?
Q7) What is a private placement of securities?
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Q1) Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building).
Total unsecured liabilities are calculated to be what amount?
Q2) Which of the following is not a responsibility of the bankruptcy trustee?
A) Recover all property belonging to the insolvent company.
B) Liquidate common stock of the company.
C) Preserve the estate from any further deterioration.
D) Make distributions to the proper claimants.
E) Void preferences made by the debtor within 90 days prior to the filing of the bankruptcy petition if the company was already insolvent.
Q3) What is an order for relief?
Q4) On a statement of financial affairs, a company's liabilities should be valued at A) the present value of future cash flows.
B) net realizable value.
C) the amount required for settlement.
D) replacement cost.
E) the amount expected to be paid if the company could honor its debts.
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Chapter 14: Partnerships: Formation and Operation
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Q1) Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They admitted Zell to a 30% interest in the partnership, and the total amount of goodwill credited to the original partners was $700. What amount did Zell contribute to the business?
A) $900.
B) $560.
C) $600.
D) $590.
E) $630.
Q2) P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. If C is to contribute an amount equal to his book value share of the new partnership, how much should C contribute?
A) $22,000
B) $20,000
C) $25,000
D) $18,000
E) $10,000
Q3) What events cause the dissolution of a partnership?
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Chapter 15: Partnerships: Termination and Liquidation
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Q1) Which of the following statements is false concerning the partnership Schedule of Liquidation?
A) Liquidations may take a considerable length of time to complete.
B) Frequent reporting by the accountant is rarely necessary.
C) The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances.
D) The Schedule of Liquidation provides a listing of property still held by the partnership as well as liabilities remaining unpaid.
E) The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution.
Q2) What is the purpose of a predistribution plan?
Q3) Xygote, Yen, and Zen were partners who were liquidating their partnership. Each partner has a deficit balance in their respective capital account. All assets from the partnership have been liquidated and all of the liabilities had been paid. How should any additional cash coming into the partnership be distributed to the partners?
Q4) What is the role of the accountant during the liquidation process?
Q5) What should occur when a solvent partner has a deficit balance?
Q6) Why is a Schedule of Liquidation prepared?
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Chapter 16: Accounting for State and Local Governments
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Q1) When a city received a federal grant for providing food and other assistance to the homeless, the money should have been recorded in
A) the General Fund.
B) an Expendable Trust Fund.
C) a Capital Projects Fund.
D) an Agency Fund.
E) a Special Revenue Fund.
Q2) A city received a grant of $5,000,000 from a private agency. The money was to be used to build a new city library. In which fund should the money be recorded for the Fund Financial Statements?
A) the General Fund.
B) an Expendable Trust Fund.
C) a Capital Projects Fund.
D) an Agency Fund.
E) a Permanent Fund.
Q3) What is the purpose of government-wide financial statements?
Q4) When should property taxes be recognized under modified accrual accounting?
Q5) What are the four fiduciary fund types?
Q6) What are the five types of governmental funds?
Page 18
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Chapter 17: Accounting for State and Local Governments
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Q1) The employees of the City of Raymond earn vacation compensation that totals $1,500 per week. During 2011, $30,000 in vacation time was taken and the remainder is expected to be used during the latter part of next year. In the government-wide financial statements, assuming there was no beginning balance, what liability should be reported at the end of 2011?
A) $0.
B) $1,500.
C) $30,000.
D) $48,000.
E) $78,000.
Q2) GASB Codification Section 2200.106-107 makes which of the following statements regarding Management's Discussion and Analysis?
A) MD&A is required only for Proprietary Fund Financial Statements.
B) MD&A is required for all state and local government financial statements.
C) MD&A is only required for comprehensive annual financial reports.
D) MD&A for state and local government financial statements must include an analysis of potential, untapped revenue sources.
E) MD&A is an optional inclusion for state and local government financial statements.
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Chapter 18: Accounting for Not-For-Profit Organizations
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Q1) How does a voluntary health and welfare organization account for donated goods and cash contributed for operating purposes? What types of revenues are recognized by voluntary health and welfare organizations?
Q2) During 2011, the Garfield Humane Society, a voluntary health and welfare organization, received cash donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to be used in building a new animal shelter. Also during 2011, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for public support for 2011.
Q3) A not-for-profit organization receives a computer as a donation (valued at $2,000). Prepare the journal entry for the transaction.
Q4) For a not-for-profit organization, when is recognition of contributions of artworks and historical treasures not required?
Q5) What are the objectives of accounting for a not-for-profit organization?
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Chapter 19: Accounting for Estates and Trusts
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Q1) What is meant by estate accounting?
Q2) When an estate does not have sufficient assets to satisfy all claims against it, what claim has the highest priority?
A) expenses of administering the estate.
B) federal income taxes.
C) state income taxes.
D) medical expenses of the final illness.
E) back wages owed to any employees.
Q3) The executor of Danny Mack's estate has listed the following properties at fair value: Cash $200,000, Life Insurance Receivable $500,000, Investment in Stocks and Bonds
$50,000, Rental Property $100,000, and Personal Property $80,000. Additionally, the executor found $100,000 of various debts incurred before the decedent's death. The cost of Danny Mack's funeral was $20,000. Prepare the journal entry to record the collection of the life insurance policy.
Q4) What choices does an executor of an estate have in determining the values of assets included in the estate for tax purposes?
Q5) What are the four levels of claims in the order of priority of the Uniform Probate Code?
Q6) What is meant by "an individual dies intestate"?
Page 21
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