Advanced Topics in Financial Reporting
Exam Answer Key
Course Introduction
Advanced Topics in Financial Reporting delves into complex and emerging issues in financial accounting and disclosure. The course emphasizes a critical examination of current standards, interpretations, and debates within the field, covering areas such as consolidated financial statements, international financial reporting standards (IFRS), fair value measurements, and accounting for derivatives and hedging activities. Students explore recent changes in regulations and their implications for multinational enterprises, ethical considerations in financial communication, and special reporting scenarios, including segment and interim reporting. The course combines theoretical frameworks with case studies and research to help students analyze, interpret, and evaluate sophisticated financial reporting issues essential for accounting professionals and informed users of financial statements.
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,what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Mercury paid $295,000 for the acquisition?
A) $0
B) $5,000
C) $15,000
D) $45,000
Answer: C
Q2) Based on the preceding information,what would be the total amount of goodwill that Wilson should report at year-end?
A) $0
B) $69,000
C) $79,000
D) $94,000
Answer: B
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Page 3
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 is the consolidated retained earnings balance on December 31,20X1?
A) $470,000
B) $585,000
C) $600,000
D) $759,000
Answer: C
Q2) In its 20X5 income statement,what amount should Grant report as a gain from the sale of half of its investment?
A) $35,000
B) $24,500
C) $30,500
D) $45,500
Answer: C
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4
Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differentials
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Q1) On January 1,20X9,Gold Rush Company acquires 80 percent ownership in California Corporation for $200,000.The fair value of the noncontrolling interest at that time is determined to be $50,000.It reports net assets with a book value of $200,000 and fair value of $230,000.Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time,excluding its investment in California.What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice?
A) $50,000
B) $30,000
C) $40,000
D) $20,000
Answer: D
Q2) Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 3,20X9?
A) $1,580,000
B) $1,064,000
C) $1,150,000
D) $1,236,000
Answer: D
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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 information provided,what amount of total assets will be reported in the consolidated balance sheet for the year?
A) $895,000
B) $801,000
C) $723,000
D) $1,111,000
Q2) Based on the preceding information,what amount of retained earnings will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $300,000
B) $409,000
C) $259,000
D) $191,000
Q3) Based on the preceding information,what amount of retained earnings will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $200,000
B) $212,000
C) $350,000
D) $488,000
6
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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 amount of total liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?
A) $395,000
B) $280,000
C) $275,000
D) $195,000
Q2) Based on the preceding information,in the entry to eliminate the investment balance,
A) retained earnings will be credited for $20,000.
B) additional paid-in-capital will be credited for $20,000.
C) retained earnings will be credited for $10,000.
D) noncontrolling interest will be debited for 30,000.
Q3) 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
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what amount of inventory should be eliminated in the consolidation worksheet for 20X8?
A) $15,000
B) $14,000
C) $12,000
D) $13,000
Q2) 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
Q3) 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
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,at what amount should the land be reported in the consolidated balance sheet as of December 31,20X8?
A) $145,000
B) $220,000
C) $197,000
D) $160,000
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
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of interest income will Light Corporation recognize on December 31,20X8 relative to the interest received on that day,in its separate financial statements?
A) $13,023
B) $13,096
C) $6,538
D) $6,557
Q2) 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
Q3) Based on the information given above,what amount of interest income does Moss record on its individual books for 20X8?
A) $10,950
B) $8,002
C) $9,410
D) $10,002
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Page 10
Chapter 8: Appendix A: Intercompany Indebtedness
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Q1) A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the individual accounting records of the parent and its subsidiary: I.at the date of constructive retirement. II.over the remaining term of the bonds.
A) I
B) II
C) Both I and II
D) Neither I nor II
Q2) Based on the information given above,what amount of gain or loss on bond retirement was recorded?
A) No gain or loss
B) $85,000 gain
C) $85,000 loss
D) $35,000 loss
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11
Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the amount assigned to noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1,20X9,is:
A) $40,000
B) $42,000
C) $36,000
D) $48,000
Q2) Based on the preceding information,the amount assigned to the noncontrolling stockholders' share of preferred stock interest in the preparation of a consolidated balance sheet on January 1,20X6 is
A) $57,600
B) $49,600
C) $48,000
D) $40,000
Q3) Based on the preceding information,Trevor Company's net income for 2009 and 2010 are:
A) $10,000 and $20,000 respectively.
B) $25,000 and $35,000 respectively.
C) $35,000 and $45,000 respectively.
D) $25,000 and $45,000 respectively.
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) 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
Q2) Based on the information provided,what amount was reported as dividends paid in the cash flow from financing activities section of the consolidated statement of cash flows?
A) $60,000
B) $48,000
C) $40,000
D) $20,000
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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Page 13
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) 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.
Q2) Based on the information given above,how many U.S.dollars must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds?
A) $25,132
B) $15,132
C) $3,979
D) $35,775
Q3) Based on the preceding information,what is the market price of Linked Corporation stock on February 20,20X9?
A) $35
B) $37
C) $36
D) $40
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) If the U.S.dollar is the currency in which the foreign affiliate's books and records are maintained,and the U.S.dollar is also the functional currency,
A) the translation method should be used for restatement.
B) the remeasurement method should be used for restatement.
C) either translation or remeasurement could be used for restatement.
D) no restatement is required.
Q2) Based on the preceding information,the translation of cost of goods sold for 20X8,assuming that the Spanish peseta is the functional currency is:
A) $1,700.
B) $1,760.
C) $1,680.
D) $1,692.
Q3) Based on the preceding information,at what dollar amount is the ending inventory shown in the trial balance of the consolidated worksheet?
A) $45,000
B) $50,000
C) $40,000
D) $35,000
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Chapter 13: Segment and Interim Reporting
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Sample Questions
Q1) Reno Corporation disposed of one of its segments in the second quarter and incurred a gain from disposal of discontinued segment of $300,000,net of taxes.What is the effect of this gain from disposal of discontinued segment?
A) Increase each of the last three quarters' net income by $100,000
B) Increase net income from operations for the year by $300,000
C) Increase second quarter net income by $300,000
D) Increase each quarter's net income by $75,000
Q2) The key to reporting accounting information by segments is determining what constitutes a segment.Of the following,which is not a method of determining a reportable segment?
A) Operating profit
B) Revenues
C) Number of employees
D) Combined identifiable assets
Q3) Based on the preceding information,the cost of goods sold for the year 20X8,is:
A) $2,080,000
B) $1,880,000
C) $1,835,000
D) $1,910,000
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Page 16
Chapter 14: Sec Reporting
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Sample Questions
Q1) The purpose of a "tombstone ad" is:
A) to inform investors an upcoming offering has been canceled.
B) to inform investors of an upcoming offering.
C) to inform investors an upcoming offering will be delayed for 30 days.
D) to inform investors securities will be offered for sale after the company has responded to the SEC's comment letter.
Q2) Which regulation created the Securities and Exchange Commission?
A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Investment Company Act of 1940
D) Garn-St. Germain Depository Institutions Act of 1982
Q3) Pro forma disclosures are:
A) used to disclose unscheduled material events.
B) interim financial statements need not be audited.
C) materials submitted to shareholders for votes on corporate matters.
D) "what-if" presentations often taking the form of summarized financial statements.
Q4) "Red Herring" Prospectus
Q5) Customary Review
Q6) Staff Accounting Bulletins
Page 17
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Sample Questions
Q1) Refer to the information provided above.David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000.The land account is increased before David is admitted.By what amount is the land account increased?
A) $40,000
B) $10,000
C) $36,000
D) $20,000
Q2) Refer to the information provided above.Assume that David invests $50,000 for a one-fourth interest.Goodwill is to be recorded.The journal to record David's admission into the partnership will include:
A) a credit to cash for $50,000.
B) a debit to goodwill for $7,500.
C) a credit to David, Capital for $60,000.
D) a credit to David, Capital for $50,000.
Q3) The ABC partnership had net income of $100,000 for 20X9.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/20X9 books they discovered that $30,000 was spent on a piece of land in December 20X9 and was expensed.What should happen?
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Chapter 16: Partnerships: Liquidation
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Q1) Refer to the above information.If the other assets are sold for $140,000 and all partners are personally insolvent,how much should I receive upon liquidation?
A) $0
B) $2,000
C) $6,600
D) $22,000
Q2) The JKL partnership liquidated its business in 20X9.Due to an expected long liquidation period,a cash distribution plan was developed.The initial sale and realization of cash from noncash assets resulted in partner K properly getting $24,000.No other partners received cash along with K.Based upon this information,which of the following statements is correct?
I.K's loss absorption power (LAP)was higher than J's LAP and L's LAP.
II.K's capital balance was substantially larger than the balances of J and L.
A) I only
B) II only
C) Either I or II
D) Neither I nor II
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) According to the latest GASB exposure draft,which of the following is the only governmental fund type that may report an unassigned fund balance?
A) General fund
B) Special revenue fund
C) Capital projects fund
D) Permanent fund
Q2) The general fund of the City of Atlanta received a check for $10,000 from an Atlanta resident on July 1,20X8.Of the amount received,$4,800 represented full payment of property taxes for 20X8,and the remaining $5,200 represented an advance payment for property taxes of 20X9.On July 1,20X8,the general fund should record the receipt by debiting Cash for $10,000 and by crediting A) Revenue-Property Tax for $10,000.
B) Property Taxes Receivable-Current for $4,800 and Deferred Revenue for $5,200.
C) Revenue-Property Tax for $4,800 and Deferred Revenue for $5,200.
D) Property Taxes Receivable-Current for $4,800 and Revenue- Property Tax for $5,200.
Q3) Discuss major differences between a governmental entity's uses of the modified accrual method and a for-profit corporation's use of the accrual method.
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Page 20
Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) What account should be debited in the debt service fund to recognize an installment payment currently due on general obligation serial bonds?
I.Matured Bonds Payable.
II.Expenditures-Principal.
A) I
B) II
C) Either I or II
D) Neither I nor II
Q2) Which presentation method combines the component unit's results into the primary government's financial results?
A) Blended presentation
B) Discrete presentation
C) Combined presentation
D) Consolidated presentation
Q3) Enterprise and internal service funds should recognize revenues when they are
A) received in cash.
B) available and earned.
C) measurable and earned.
D) measurable and available.
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Chapter 19: Not-For-Profit Entities
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Q1) Income was earned from investments of assets that the board previously designated for plant expansion.
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.
Q2) For the year ended June 30,20X9,a private college received contributions from alumni which were restricted for faculty research stipends to be awarded during the next fiscal year.For the year ended June 30,20X9,these contributions should be disclosed on the statement of activities of the private college as an increase in:
A) the fund balance of the restricted current fund.
B) temporarily restricted net assets.
C) deferred revenues.
D) temporarily restricted fund balance.
Q3) The governing board designated assets for plant expansion.
Q4) "Financial statement of a private NFP entity" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) Based on the preceding information,what is the estimated dividend percentage?
A) 23 percent
B) 93 percent
C) 77 percent
D) 68 percent
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) Based on the preceding information,what is the total amount of unsecured claims?
A) $113,000
B) $126,000
C) $93,000
D) $121,000
Q4) What are the conditions necessary for using fresh start reporting in reorganization?
Q5) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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