Consolidated Financial Statements
Review Questions
Course Introduction
This course provides a comprehensive examination of the principles and procedures underlying the preparation and presentation of consolidated financial statements in accordance with international accounting standards. Students will explore topics such as the consolidation process, elimination of intercompany transactions, accounting for subsidiaries, associates, and joint arrangements, acquisition method, and non-controlling interest. The course emphasizes practical application through case studies and problem-solving exercises, preparing students to analyze and interpret financial information for groups of companies and equipping them with the skills needed to address complex consolidation scenarios in a global business environment.
Recommended Textbook Fundamentals of Advanced Accounting 7th Edition by Joe Ben Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) What is the balance in Cayman's Investment in Maya account at December 31,2019?
A)$488,700.
B)$489,600.
C)$492,000.
D)$494,400.
E)$514,500.
Answer: B
Q2) What was the balance in the investment account at April 1,2019 just before the sale of shares?
A)$447,500.
B)$468,750.
C)$535,875.
D)$555,000.
E)$624,375.
Answer: C
Q3) What amount of gross profit on 2018 intra-entity sales should Steven defer at December 31,2018?
Answer: [($75,000 - $54,000)× .10 × .40] = $840
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3
Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Goodwill is often acquired as part of a business combination.Why,when separate incorporation is maintained,does Goodwill not appear on the Parent company's trial balance as a separate account?
Answer: While the Goodwill does not appear on the Parent company's books,it is implied as part of the account called Investment in Subsidiary.During the consolidation process,the Investment account is broken down into its component parts.Goodwill,along with other items such as subsidiary fair value adjustments,is then shown separately as part of the consolidated financial statement balances.
Q2) Compute consolidated inventory immediately following the acquisition.
A)$1,650.
B)$1,810.
C)$1,230.
D)$ 580.
E)$1,830.
Answer: B
Q3) How are stock issuance costs accounted for in an acquisition business combination?
Answer: Stock issuance costs reduce the balance in the acquirer's Additional Paid-In Capital in an acquisition business combination.
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Page 4
Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Sample Questions
Q1) All of the following are acceptable methods to account for a majority-owned investment in subsidiary except
A)The equity method.
B)The initial value method.
C)The partial equity method.
D)The fair-value method.
E)Book value method.
Answer: D
Q2) On April 1,2018,Beatty stock closes with a market value of $8.98 per share.How many shares of stock,rounded to the next whole number,must it issue to the former owners of Gateax?
A)682
B)2,000
C)2,228
D)2,884
E)6,000
Answer: C
Q3) What was consolidated net income for the year ended December 31,2018?
Answer: 11ea86f8_4aa6_8616_8084_993cdf66b9a1_TB4173_00
Page 5
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Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock?
A)The parent recognizes a larger percent of subsidiary income.
B)A step acquisition resulting in control may result in a parent recognizing a gain on revaluation.
C)The book value of the subsidiary will increase.
D)The parent's percent ownership in subsidiary will increase.
E)Noncontrolling interest in subsidiary's net income will decrease.
Q2) Compute Pell's investment in Demers at December 31,2020.
A)$625,000.
B)$664,800.
C)$592,400.
D)$500,000.
E)$572,000.
Q3) How is a noncontrolling interest in the net income of an entity reported in the income statement?
Q4) What is pre-acquisition income?
Q5) Why is it important to know if the parent paid a premium to acquire control of a subsidiary?
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Sample Questions
Q1) King Corp.owns 85% of James Co.King uses the equity method to account for its investments.During 2018,King sells inventory to James for $500,000.The inventory originally cost King $420,000.At 12/31/2018,25% of the goods were still in James' inventory. Required:
Prepare the Consolidation Entry TI and Consolidation Entry G for the consolidation worksheet.
Q2) Assuming there are no excess amortizations associated with the consolidation,and no other intra-entity asset transfers,compute the net income attributable to the noncontrolling interest of Gargiulo for 2018.
A)$8,500.
B)$8,570.
C)$8,430.
D)$8,400.
E)$7,580.
Q3) What is the purpose of the adjustments to depreciation expense within the consolidation process when there has been an intra-entity transfer of a depreciable asset?
Q4) What is consolidated net income for 2018?
Q5) How is the gain on an intra-entity transfer of a depreciable asset recognized?
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Sample Questions
Q1) What adjustment is needed for Webb's investment in Jones account?
A)$180,000 increase.
B)$180,000 decrease.
C)$ 45,000 decrease.
D)$ 45,000 increase.
E)No adjustment is necessary.
Q2) What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?
A)Parent's dividends would be subtracted as a financing activity.
B)Gain on sale of land would be deducted from net income.
C)Noncontrolling interest in net income of subsidiary would be added to net income.
D)Proceeds from the sale of long-term investments would be added to investing activities.
E)Loss on sale of equipment would be added to net income.
Q3) Parent Corporation acquired some of its subsidiary's bonds on the open bond market,paying a price $40,000 higher than the bonds' carrying value.How should the difference between the purchase price and the carrying value be accounted for?
Q4) What is the amount of goodwill resulting from this acquisition?
Page 8
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) A U.S.company sells merchandise to a foreign company denominated in U.S.dollars.Which of the following statements is true?
A)If the foreign currency appreciates,a foreign exchange gain will result.
B)If the foreign currency depreciates,a foreign exchange gain will result.
C)No foreign exchange gain or loss will result.
D)If the foreign currency appreciates,a foreign exchange loss will result.
E)If the foreign currency depreciates,a foreign exchange loss will result.
Q2) How much foreign exchange gain or loss should be included in Shannon's 2018 income statement?
A)$1,000 gain.
B)$1,000 loss.
C)$2,000 gain.
D)$2,000 loss.
E)$8,000 loss.
Q3) Compute the fair value of the foreign currency option at December 31,2018.
A)$6,000.
B)$4,500.
C)$3,000.
D)$7,500.
E)$1,500.
Page 9
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Chapter 8: Translation of Foreign Currency Financial
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Sample Questions
Q1) Under the current rate method,how would cost of goods sold be translated?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q2) Under the current rate method,depreciation expense would be translated at what rate?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q3) Under the temporal method,depreciation expense would be remeasured at what rate?
A)Beginning of the year rate.
B)Average rate.
C)Current rate.
D)Historical rate.
E)Composite amount.
Q4) Contrast the purpose of remeasurement with the purpose of translation.
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Chapter 9: Partnerships: Formation and Operation
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Sample Questions
Q1) The advantages of the partnership form of business organization,compared to corporations,include
A)Single taxation.
B)Ease of raising capital.
C)Mutual agency.
D)Limited liability.
E)Difficulty of formation.
Q2) What was Wasser's capital balance at the end of 2018?
A)$201,000.
B)$263,520.
C)$264,540.
D)$304,040.
E)$313,780.
Q3) What was Wasser's total share of net income for 2017?
A)$63,000.
B)$53,000.
C)$58,000.
D)$29,000.
E)$51,000.
Q4) Determine the amount of net income allocated to each partner for 2017.
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Chapter 10: Partnerships: Termination and Liquidation
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Sample Questions
Q1) The partnership of Rayne,Marin,and Fulton was being liquidated by the partners.Rayne was insolvent and did not have enough assets to pay all his personal creditors.Under what conditions might Rayne's personal creditors have claimed some of the partnership assets?
Q2) How would $90,000 be distributed?
\(\begin{array}{ccc} & \text { White } &&& \text { Sands } & \text { Luke } \\\end{array}\)
A) \(\begin{array}{ccc} & \$ 15,000 & \$ 25,000 & \$ 50,000 \\\end{array}\)
B) \(\begin{array}{ccc} & \$ 0&&&&\$ 18,947 & \$ 71,053 \\\end{array}\)
C) \(\begin{array}{ccc} & \$0&&&& \$ 40,000 & \$ 50,000 \\\end{array}\)
D) \(\begin{array}{ccc} & \$0&&& & \$ 10,588 & \$ 79,412 \\\end{array}\)
E)\(\begin{array}{ccc} & \$ 27,000 && \$ 18,000 & \$ 45,000 \\ \end{array}\)
Q3) If the land is sold for $450,000,how much cash will Mones receive in the final settlement?
A)$ 0.
B)$ 15,000.
C)$300,000.
D)$217,500.
E)$362,500.
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Chapter 11: Accounting for State and Local Governments, part
I
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Sample Questions
Q1) Which of the following is not one of the categories for reporting fund balances of governmental funds?
A)Spendable
B)Nonspendable
C)Assigned
D)Unassigned
E)Restricted
Q2) What are the five types of governmental funds?
Q3) What assets would be included in the accounting records of a city's general fund?
Q4) On January 1,2018,Wakefield City purchased office supplies for $40,000.During the year,$35,000 of these supplies were used.
Required:
Record the journal entries for these transactions using the purchases method.(Disregard the encumbrance entries. )
Q5) What are the two sets of financial statements mandated by GASB for state and local governments? For each set,what are the names of the individual statements that must be produced?
Page 13
Q6) When should property taxes be recognized under modified accrual accounting?
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Chapter 12: Accounting for State and Local Governments, part II
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Q1) What are the three broad sections of a state or local government's CAFR?
Q2) The parking garage and parking lots owned by the City of Danton reported the following balances for 2018: \[\begin{array} { l r }
\text { Receipts from public users of the parking facilities } & \$ 190,000 \\
\text { Receipts from the city for parking of city-owned vehicles } & 8,000 \\
\text { Salaries paid to employees } & 75,000 \\
\text { Printing - paid to an internal service fund } & 6,000 \\
\text { Interest on bonded debt } & 10,000 \\
\text { Sculpture for entrance to parking lot (donated during 2018) } & 12,500 \\
\text { Depreciation on parking garage } & 30,000 \\
\text { Truck (purchased during 2018) } & 35,000 \\
\text { Maintenance - paid to an internal service find } & 17,000 \end{array}\]
Required:
Prepare the appropriate financial statement for the fund that was used to account for parking operations.
Q3) Prepare a Statement of Net Position at December 31,2018.
Q4) What is meant by the term legally independent?
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