Advanced Financial Accounting Exam Solutions
Course Introduction
Advanced Financial Accounting delves into complex topics beyond the basic principles of financial reporting and accounting. This course explores the accounting treatment of business combinations, consolidations, foreign currency transactions, partnership accounting, and specialized industries. Students will analyze and prepare consolidated financial statements, address accounting for mergers and acquisitions, examine issues related to international financial reporting standards, and understand reporting requirements for governmental and nonprofit organizations. Emphasis is placed on critical thinking, problem-solving, and the application of standards to real-world business scenarios, preparing students for advanced roles in the accounting profession.
Recommended Textbook
Advanced Financial Accounting 11th Edition by Theodore Christensen
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Based on the preceding information,for Delta:
A) no goodwill should be reported at year-end.
B) goodwill impairment of $15,000 should be recognized at year-end.
C) goodwill impairment of $20,000 should be recognized at year-end.
D) goodwill of $30,000 should be reported at year-end.
Answer: B
Q2) Which of the following observations is (are)consistent with the acquisition method of accounting for business combinations?
I.Expenses related to the business combination are expensed.
II.Stock issue costs are treated as a reduction in the issue price.
III.All merger and stock issue costs are expensed.
IV.No goodwill is ever recorded.
A) III
B) IV
C) I and II
D) I, II, and IV
Answer: C
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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 preceding information,what amount will be reported by Yang as balance in investment in Spiel on December 31,20X8,if it used the fair value option to account for its investment in Spiel?
A) $105,000
B) $118,750
C) $100,000
D) $122,500
Answer: A
Q2) On January 1,20X9 Athlon Company acquired 30 percent of the common stock of Opteron Corporation,at underlying book value.For the same year,Opteron reported net income of $55,000,which includes an extraordinary gain of 40,000.It did not pay any dividends during the year.By what amount would Athlon's investment in Opteron Corporation increase for the year,if Athlon used the equity method?
A) $0
B) $16,500
C) $4,500
D) $12,000
Answer: B
Page 4
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differentials
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Q1) Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 2,20X2?
A) $1,120,000
B) $1,300,000
C) $1,480,000
D) $1,900,000
Answer: C
Q2) Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31,20X9,consolidated balance sheet?
A) $90,000
B) $54,000
C) $36,000
D) $0
Answer: C
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5
Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) 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
Q2) Based on the information given above,what will be the amount of net assets reported in the consolidated balance sheet?
A) $1,420,000
B) $1,325,000
C) $1,250,000
D) $900,000
Q3) Based on the information given above,goodwill will be reported at what amount in a consolidated balance sheet?
A) $170,000
B) $150,000
C) $95,000
D) $75,000
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Chapter 5: Consolidation of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Questions
Q1) Based on the preceding information,what is the amount of write-off of differential associated with this acquisition recorded by Melkor during 20X9?
A) $0
B) $32,500
C) $26,000
D) $20,000
Q2) Based on the information given,what balance in accounts receivable did Y Company report at December 31,20X8?
A) $28,000
B) $48,000
C) $40,000
D) $38,000
Q3) Based on the preceding information,what amount will be reported as total stockholders' equity in the consolidated balance sheet prepared immediately after the business combination?
A) $445,000
B) $205,000
C) $565,000
D) $550,000
7
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what amount of sales will be reported in the consolidated income statement for 20X8?
A) $500,000
B) $850,000
C) $600,000
D) $800,000
Q2) Based on the information given above,what balance will be reported for inventory in the consolidated balance sheet for December 31,20X8?
A) $56,573
B) $23,846
C) $32,727
D) $67,000
Q3) Based on the information given above,what amount of sales will be reported in the 20X6 consolidated income statement?
A) $120,000
B) $135,000
C) $150,000
D) $160,000
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Sample Questions
Q1) Based on the preceding information,what amount of receivable/payable should be eliminated in the 20X8 consolidated financial statements?
A) $125,432
B) $7,900
C) $5,560
D) $140,000
Q2) 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 consolidating entries.
B) Credited for $10,000 in the consolidating entries.
C) Debited for $10,000 in the consolidating entries.
D) Credited for $40,000 in the consolidating entries.
Q3) Based on the information provided,in the preparation of the 20X4 consolidated financial statements,equipment will be ______ in the consolidation entries.
A) debited for $6,650
B) debited for $56,350
C) debited for $63,000
D) credited for $63,000
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,in the preparation of the 20X8 consolidated financial statements,premium on bonds payable will be:
A) debited for $46,767 in the consolidating entries.
B) credited for $43,060 in the consolidating entries.
C) debited for $43,060 in the consolidating entries.
D) credited for $46,767 in the consolidating entries.
Q2) Based on the information given above,what amount of interest expense should be reported in the 20X8 consolidated income statement?
A) $0
B) $6,548
C) $6,511
D) $19,643
Q3) Based on the information given above,what amount of interest expense does Hunter record on its individual books in 20X8?
A) $10,950
B) $8,760
C) $10,301
D) $10,002
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Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of interest expense will be eliminated in the preparation of the 20X9 consolidated financial statements?
A) $17,000
B) $13,300
C) $18,500
D) $22,200
Q2) Which of the following statements is (are)correct?
I.The amount assigned to the noncontrolling interest may be affected by a constructive retirement of bonds.
II.A constructive retirement of bonds normally results in an extraordinary gain or loss.
III.In constructive retirement,the entity would still consider the bonds outstanding,even though they are treated as if they were retired in preparing consolidated financial statements.
A) I
B) II
C) I and III
D) I, II, and III
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the consolidating entry to prepare the consolidated financial statements for Company A as of December 31,20X9 will include a credit to noncontrolling interest in net income of Company B for:
A) 140,000
B) 154,000
C) 152,000
D) 150,000
Q2) Based on the preceding information,what is the income assigned to the noncontrolling interest in the 20X8 consolidated income statement?
A) $10,000
B) $7,000
C) $11,800
D) $4,800
Q3) Based on the information provided,the equity-method income recorded by A Company is:
A) $125,000
B) $200,000
C) $170,000
D) $181,250
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Page 12
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the information provided,what is the basic earnings per share for the consolidated entity for 20X8?
A) 5.04
B) 5.24
C) 3.80
D) 5.18
Q2) Based on the preceding information,what amount will be reported by the company as cash flows from operating activities for 20X8?
A) $175,000
B) $133,000
C) $167,000
D) $207,000
Q3) Based on the information provided,what is the amount of consolidated retained earnings as of December 31,20X8?
A) $340,000
B) $250,000
C) $338,000
D) $388,000
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13
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Sample Questions
Q1) Company X issues variable-rate debt but wishes to fix its interest rates because it believes the variable rate may increase.Company Y has a fixed-rate bond but is looking for a variable-rate interest because it assumes the interest rates may decrease.The two companies agree to exchange cash flows.Such an arrangement is called:
A) a futures contract.
B) a forward contract.
C) a swap.
D) an option.
Q2) Based on the preceding information,the entries on June 30,20X2,include a
A) credit to Foreign Currency Transaction Gain, $6,000.
B) debit to Dollars Payable to Exchange Broker, $254,000.
C) debit to Foreign Currency Units (Br. reals), $254,000.
D) credit to Foreign Currency Receivable from Exchange Broker, $262,500.
Q3) Based on the preceding information,the journal entry made on December 31,20X8 to record decrease in the time value of the options will include:
A) a debit to Loss on Hedge Activity for $150.
B) a credit to Put Option for $300.
C) a debit to Loss on Hedge Activity for $300.
D) a credit to Put Option for $100.
Page 14
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Sample Questions
Q1) Based on the preceding information,at what dollar amount is the ending inventory shown in the subsidiary's trial balance column of the consolidation worksheet?
A) $3,250
B) $3,500
C) $3,750
D) $4,000
Q2) Refer to the above information.Assuming the U.S.dollar is the functional currency,what is Johnson's remeasurement gain (loss)for 20X8? (Assume the ending inventory was acquired on December 31,20X8.)
A) $31,000 gain
B) $36,500 loss
C) $22,000 gain
D) $32,000 gain
Q3) Based on the preceding information,at what amount is the inventory shown on the consolidated balance sheet for the year?
A) $2,700
B) $3,200
C) $3,500
D) $4,000
Page 15
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Chapter 13: Segment and Interim Reporting
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Sample Questions
Q1) During the third quarter of 20X8,Pride Company sold a piece of equipment at an $8,000
Gain.What portion of the gain should Pride report in its income statement for the third Quarter of 20X8?
A) $0
B) $2,000
C) $4,000
D) $8,000
Q2) Derby Company pays its executives a bonus of 6 percent of income before deducting the bonus and income taxes.For the quarter ended March 31,20X8,Derby had income before the bonus and income tax of $12,000,000.For the year ended December 31,20X8,Derby estimates that its income before bonus and income taxes will be $70,000,000.For the quarter ended March 31,20X8,what is the amount of the bonus that Derby should deduct on its income statement?
A) $4,200,000
B) $720,000
C) $1,050,000
D) $180,000
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Page 16
Chapter 14: Sec Reporting
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Sample Questions
Q1) Which of the following forms is the most comprehensive registration statement?
A) Form S-1
B) Form F-2
C) Form S-3
D) Form S-2
Q2) Which of the following statements concerning pro forma disclosures is not true?
A) They show the effects of major transactions that occur after the end of the fiscal period.
B) They show the effects of major transactions that have occurred during the year but are not fully reflected in the company's historical cost financial statements.
C) The SEC requires these to be presented only when the company has made an unusual asset exchange, or a restructuring of existing indebtedness.
D) They often take the form of summarized financial statements.
Q3) Regulation S-X presents the rules for preparing all of the following except:
A) financial statements.
B) footnotes.
C) auditor's report.
D) management's discussion.
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17
Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Refer to the information provided above.What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded?
A) $60,000
B) $36,000
C) $50,000
D) $45,000
Q2) Which of the following statements best describes accounting for a partnership?
A) A partnership may be a profit or a nonprofit entity.
B) A partnership may use federal income tax rules to account for transactions in their journals and ledger accounts.
C) A partnership's equity section contains both capital and retained earnings accounts.
D) A partnership may only distribute money through a dividend payment.
Q3) Which of the following observations is true of an S corporation?
A) It elects to be taxed in the same manner as a corporation.
B) It does not have the burden of double taxation of corporate income.
C) Its shareholders have personal liability for the corporation's obligations.
D) Its primary income source should be passive investments.
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Chapter 16: Partnerships: Liquidation
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Q1) The personal financial statements of a partner include which of the following?
I.Statement of financial condition.
II.Statement of changes in net worth.
III.Statement of cash flows.
A) I and II
B) I and III
C) II and III
D) I, II, and III
Q2) Based on the preceding information,the journal entry on W & M Corporation's books to record the assets and the issuance of the common stock will include a credit to Additional Paid-In Capital for:
A) $0.
B) $81,000.
C) $31,000.
D) $50,000.
Q3) On a partner's personal statement of financial condition,how are assets valued?
A) Historical cost
B) Book value
C) Discounted value
D) Estimated current value
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) When an internal service fund (ISF)enters into a capital lease the transaction is recorded in the:
I.fixed assets of the ISF.
II.long-term debt of the ISF.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Q2) Which of the following funds are classified as governmental funds?
A) Internal service and capital projects funds.
B) Internal service and debt service funds.
C) Enterprise and agency funds.
D) The general and special revenue funds.
Q3) A budgetary fund balance - assigned in excess of a balance of encumbrances indicates
A) A recording error.
B) An excess of vouchers payable over encumbrances.
C) An excess of purchase orders over invoices received.
D) An excess of appropriations over encumbrances.
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Q4) Briefly discuss the various types of governmental funds and proprietary funds.
Chapter 18: Governmental Entities: Special Funds and Government-Wide Financial Statements
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Q1) What account is debited in a debt service fund when it records matured interest payable?
I.Interest Expense
II.Expenditures
A) I only
B) II only
C) Either I or II
D) Neither I nor II
Q2) Revenue and expense on a government-wide statement of activities for a municipality should be measured on a(n)
A) cash basis.
B) modified accrual basis.
C) accrual basis.
D) reconciliation basis.
Q3) For which of the following funds are the principles and accounting most like those of the general fund?
A) Debt service fund
B) Internal service fund
C) Special revenue fund
D) Investment trust fund
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Chapter 19: Not-For-Profit Entities
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Q1) "Basis of accounting for private NFPs" describes which term listed above?
Q2) Expended 75 percent of the contributions previously received from donors for research.
A)Increases unestricted net assets.
B)Decreases unrestricted net assets.
C)Increases temporarily restricted net assets.
D)Decreases temporarily restricted net assets.
E)Increases permanently restricted net assets.
F)Decreases permanently restricted net assets.
G)Transaction is not reported on the statement of activities.
Q3) Incurred fund-raising costs.
A)Increases unestricted net assets.
B)Decreases unrestricted net assets.
C)Increases temporarily restricted net assets.
D)Decreases temporarily restricted net assets.
E)Increases permanently restricted net assets.
F)Decreases permanently restricted net assets.
G)Transaction is not reported on the statement of activities.
Q4) "Reported as an expenditure of the fund using plant and equipment" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) Which chapters of the Bankruptcy Code deal with corporations?
A) Chapters 1, 3, and 5
B) Chapter 9
C) Chapters 7 and 11
D) Chapters 12 and 13
Q2) Which of the following items are likely to be reported in the supplementary items section of a statement of realization and liquidation?
A) Creditors' claims settled during the period.
B) Trustee's administration fees.
C) New obligations incurred by the trustee.
D) Assets subsequently acquired by the trustee.
Q3) Which monthly report shows the results of the trustee's fiduciary actions beginning at the point the trustee accepts the debtor's assets?
A) Statement of affairs
B) Statement of realization and liquidation
C) Statement of financial position
D) Statement of activities
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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