Consolidated Financial Statements
Exam Preparation Guide
Course Introduction
This course explores the principles and practices surrounding the preparation and presentation of consolidated financial statements, which report the financial position and results of a parent company and its subsidiaries as a single economic entity. Topics include the identification and treatment of group structures, accounting for business combinations, intercompany transactions and balances, non-controlling interests, goodwill, and the application of relevant International Financial Reporting Standards (IFRS). By the end of the course, students will develop the skills to analyze and prepare consolidated financial statements, interpret relevant disclosures, and understand their importance in decision-making for various stakeholders.
Recommended Textbook
Advanced Financial Accounting 9th Edition by Richard Baker
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Chapter 1: Intercorporate Acquisitions and Investments in
Other Entities
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Q1) A statutory consolidation is a type of business combination in which:
A)one of the combining companies survives and the other loses its separate identity.
B)one company acquires the voting shares of the other company and the two companies continue to operate as separate legal entities.
C)two publicly traded companies agree to share a board of directors.
D)each of the combining companies is dissolved and the net assets of both companies are transferred to a newly created corporation.
Answer: D
Q2) Which of the following observations refers to the term differential?
A)Excess of consideration exchanged over fair value of net identifiable assets.
B)Excess of fair value over book value of net identifiable assets.
C)Excess of consideration exchanged over book value of net identifiable assets.
D)Excess of fair value over historical cost of net identifiable assets.
Answer: C
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3
Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) If Push Company owned 51 percent of the outstanding common stock of Shove Company,which reporting method would be appropriate?
A)Cost method
B)Consolidation
C)Equity method
D)Merger method
Answer: B
Q2) Based on the information provided,what amount of total liabilities will be reported in the consolidated balance sheet prepared on December 31,20X4?
A)$525,000
B)$115,000
C)$125,000
D)$190,000
Answer: D
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4
Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) Based on the preceding information,what amount would be reported as total liabilities in the consolidated balance sheet at December 31,20X9?
A)$330,000
B)$712,000
C)$318,000
D)$130,000
Answer: A
Q2) Based on the preceding information,what amount will be assigned to the noncontrolling interest on January 3,20X9,in the consolidated balance sheet?
A)$86,000
B)$44,000
C)$68,800
D)$50,000
Answer: A
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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 differential will arise in the consolidation process?
A)$0
B)$5,000
C)$15,000
D)$65,000
Q2) 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
Q3) Based on the preceding information,what amount of total stockholder's equity will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$300,000
B)$479,000
C)$315,000
D)$350,000
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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 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
Q2) All of the following are examples of how a parent company may lose control over a subsidiary and discontinue future consolidation,except:
A)The parent sells some of its interest in the subsidiary.
B)The subsidiary issues additional common stock.
C)The subsidiary comes under the control of the government or other regulator.
D)The subsidiary issues a stock dividend or a stock split.
Q3) Based on the preceding information,the increase in the fair value of patents held by Wisden is:
A)$20,000
B)$25,000
C)$15,000
D)$5,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what will be the income to noncontrolling interest for 20X8?
A)$39,750
B)$37,875
C)$71,275
D)$70,875
Q2) Assume Push sold the inventory to Shove.
Using the fully adjusted equity method,what journal entry would be recorded by Push to recognize the realization of the 20X1 deferred intercompany profit and to defer the 20X2 unrealized gross profit on inventory sales to Shove?
A)Option A
B)Option B
C)Option C
D)Option D
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the information provided,while preparing the 20X8 consolidated income statement,depreciation expense will be:
A)debited for $750 in the eliminating entries.
B)credited for $750 in the eliminating entries.
C)credited for $1,500 in the eliminating entries.
D)debited for $1,500 in the eliminating entries.
Q2) Based on the preceding information,consolidated net income for 20X9 will be:
A)$150,000.
B)$100,000.
C)$148,000.
D)$130,000.
Q3) Based on the preceding information,in the preparation of the 20X8 consolidated financial statements,equipment will be:
A)debited for $50,000.
B)debited for $40,000.
C)credited for $70,000.
D)debited for $25,000.
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Page 9
Chapter 8: Intercompany Indebtedness
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Q1) 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
Q2) On January 1,20X6,Nichols Corporation issued 10-year bonds at par to unrelated parties.The bonds pay interest of $15,000 every June 30 and December 31.On December 31,20X9,Harn Corporation purchased all of Nichols' bonds in the open market at a $6,000 discount.Harn is Nichols' 80 percent owned subsidiary.Harn uses the straight line method of amortization.The consolidated income statement for the year 20X9 should report with respect to the bonds:
I.interest expense of $30,000.
II.an extraordinary gain of $6,000.
A)I
B)II
C)Either I or II
D)Neither I nor II
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,in the journal entry recorded by Vision for sale of shares:
A)Cash will be credited for $60,000.
B)Investment in Meta Stock will be credited for $51,000.
C)Investment in Meta Stock will be credited for $60,000.
D)Additional Paid-in Capital will be credited for $45,000.
Q2) The ending balance in Additional Paid-In Capital would be:
A)$0
B)$187,500
C)$312,500
D)$125,000
Q3) Based on the preceding information,what will be the equity method income reported by Company A from its investment in Company B during 20X9?
A)$32,000
B)$30,000
C)$72,000
D)$48,000
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what would Gulfstream report as income tax expense for the year?
A)$17,500
B)$18,760
C)$23,800
D)$22,540
Q2) Based on the information provided,what amount of income tax expense should be assigned to Company A?
A)$72,000
B)$66,000
C)$112,000
D)$62,000
Q3) Based on the information provided,what is the diluted earnings per share for the consolidated entity for 20X8?
A)4.53
B)4.33
C)4.00
D)3.80
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12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,the entries made on April 1,20X9 will include:
A)a debit to Other Comprehensive Income for $200,000.
B)a debit to Cost of Goods Sold for $2,240,000.
C)a credit to Oil Inventory for $2,240,000.
D)a credit to Cost of Goods Sold for $100,000.
Q2) Based on the preceding information,the entries on January 30,20X9,include a:
A)Debit to Dollars Payable to Exchange Broker,$180,000.
B)Credit to Cash,$184,000.
C)Credit to Premium on Forward Contract,$4,000.
D)Credit to Foreign Currency Receivable from Exchange Broker,$180,000.
Q3) Based on the preceding information,the entries on January 30,20X9,include a:
A)Debit to Dollars Payable to Exchange Broker,$184,000.
B)Credit to Foreign Currency Transaction Gain,$4,000.
C)Credit to Foreign Currency Receivable from Exchange Broker,$180,000.
D)Debit to Foreign Currency Units (SFr),$184,000.
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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) Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1,20X8.The goodwill associated with this acquisition was $18,350.Exchange rates at various dates during 20X8 follow:
Goodwill suffered an impairment of 20 percent during the year.If the functional currency is the U.S.dollar,how much goodwill impairment loss should be reported on Infinity's consolidated statement of income for 20X8?
A)$3,680
B)$3,670
C)$3,690
D)$3,700
Q3) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
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Chapter 13: Segment and Interim Reporting
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Q1) The management approach to the definition of segments for financial reporting expects a company to:
I.Report disaggregated information on the same organizational basis as used by the company's internal decision makers.
II.Report disaggregated information for at least ten segments.
A)I
B)II
C)Both I and II
D)Neither I nor II
Q2) If a company changes the method it uses to compute the allowance for uncollectible accounts receivable because more recent information has become available,how is this change in method is accounted for?
A)The change is only reported in the current period in which the change is made
B)The change is reported in all future periods affected by the change
C)Previously issued financial statements are not adjusted by the change
D)All of the above are correct ways to account for the change
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Chapter 14: Sec Reporting
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Questions
Q1) In the issuer's annual report,how many years of audited financial statements must be presented?
I.Three years of audited income statements
II.Two years of audited balance sheets
III.Three years of audited statements of cash flows
A)I and II
B)II and III
C)I and III
D)I,II,and III
Q2) The SEC administers many laws and regulations governing the information made in files reports.
Required:
a)What is the difference in issues covered by Regulation S-X and Regulation S-K?
b)How do the issues covered by these regulations differ from the AAERs and SABs?
Q3) Accounting and Auditing Enforcement Releases
Q4) 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
Page 16
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Chapter 15: Partnerships: Formation, operation, and
Changes in Membership
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Q1) Refer to the above information.What is each partner's tax basis in the Jones and Smith partnership?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) A partnership is a(n):
I.accounting entity.
II.taxable entity.
A)I only
B)II only
C)Neither I nor II
D)Both I and II
Q3) Refer to the above information.Tiffany is paid $60,000,and no goodwill is recorded.In the journal entry to record Tiffany's withdrawal:
A)Tiffany,Capital will be credited for $60,000.
B)Ron,Capital will be debited for $5,000.
C)Stella,Capital will be debited for $4,000.
D)Cash will be debited for $60,000.
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Chapter 16: Partnerships: Liquidation
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Q1) Based on the preceding information,what amount will be paid out to Bill upon liquidation of the partnership?
A)$0
B)$5,000
C)$25,000
D)$2,500
Q2) When is a partnership considered to be insolvent?
I.When the total of all partners' capital accounts results in a debit balance.
II.When at least one of the partners is personally insolvent.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q3) Based on the preceding information,what amounts will be distributed to Page and Larry upon liquidation of the partnership?
A)Option A
B)Option B
C)Option C
D)Option D
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Page 18
Chapter 17: Governmental Entities: Introduction and General
Fund Accounting
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Q1) All of the following are elements of the statement of financial condition for state and local governments with the exception of:
A)Assets and Liabilities
B)Deferred inflow and outflow of resources
C)Net position
D)Inflow and outflow of resources
Q2) Which of the following observations concerning interfund transfers is true?
A)They are expected to be repaid.
B)They are classified as fund revenues or expenditures.
C)The receiving fund recognizes these transfers as revenue.
D)These transfers are classified under "Other Financing Sources or Uses."
Q3) Which of the following funds should use the accrual basis of accounting?
A)Enterprise and private-purpose trust funds.
B)Permanent funds and internal service funds.
C)Debt service and agency funds.
D)Special revenue and capital projects funds.
Q4) Briefly discuss the various types of governmental funds and proprietary funds.
Q5) Accounting processes differ between a for-profit entity and a governmental entity.Discuss three differences between a governmental entity and a for-profit entity.
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Chapter 18: Governmental Entities: Special Funds and Government-Wide Financial Statements
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Q1) Refer to the above information.On the statement of fiduciary net assets at June 30,20X9,the nonexpendable trust fund should report investments and interest receivable of:
A)Option A
B)Option B
C)Option C
D)Option D
Q2) The general fund of Reston acquired computer equipment costing $70,000 during the fiscal year ended June 30,20X9.Machinery and Equipment should be reported in Reston's General Fund Balance Sheet and government-wide Statement of Net Assets at June 30,20X9,as follows:
A)Option A
B)Option B
C)Option C
D)Option D
Q3) GASB 34 requires a Reconciliation schedule for the Statement of Net Assets.What does this schedule document?
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Chapter 19: Not-For-Profit Entities
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Q1) A private,not-for-profit hospital received a cash contribution of $100,000 from Samantha Hicks on November 14,20X8.Ms.Hicks specified the money be used to acquire equipment.On December 31,20X8,the hospital had not expended any of Ms.Hicks' contribution.On the statement of changes in net assets for the year ended December 31,20X8,the hospital should report the contribution as a $100,000 increase in A)temporarily restricted net assets.
B)unrestricted net assets.
C)fund balance.
D)deferred revenue.
Q2) "Basis for measuring expenditures for contributed services requiring special skills" describes which term listed above?
Q3) A gain was realized from the sale of securities which were permanently invested.The gain is restricted as to use.
Q4) "Financial statement of a private NFP entity" describes which term listed above?
Q5) "Reported as an expenditure of the fund using plant and equipment" describes which term listed above?
Q6) "Basis for measuring contributions" describes which term listed above?
Q7) Received cash contributions restricted by donors for research.
Page 21
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Chapter 20: Corporations in Financial Difficulty
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Q1) What are the conditions necessary for using fresh start reporting in reorganization?
Q2) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
Q3) A "debtor-in-possession" balance sheet is prepared for a company which:
A)is having its debts restructured.
B)is undergoing a liquidation under Chapter 7.
C)is undergoing a reorganization under Chapter 11.
D)is in bankruptcy reorganization but management still controls the company.
Q4) The payment to general unsecured creditors is often termed:
A)a "preference payment."
B)a "dividend."
C)a "write-off."
D)a "bonus."
Q5) The accounting statement of affairs is prepared:
A)at the end of the reorganization process.
B)at the end of the liquidation process.
C)at the beginning of the reorganization process.
D)at the beginning of the liquidation process.
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