Corporate Accounting Test
Bank
Course Introduction
Corporate Accounting provides an in-depth understanding of accounting principles and practices as they apply to corporate entities. The course covers key topics such as the preparation and analysis of financial statements, accounting for share capital and debentures, amalgamation, absorption, and reconstruction of companies. Students learn about the legal and regulatory framework governing corporate accounting, as well as methods for handling various corporate transactions. Emphasis is placed on practical application, critical thinking, and ethical considerations, equipping students with the skills needed to manage and interpret complex financial information in a corporate environment.
Recommended Textbook
Advanced Accounting 12th Edition by
Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) In the business combination of Polka and Spot,
A)all of the items listed above are treated as expenses.
B)all of the items listed above except the cost of registering and issuing the securities are included in the purchase price.
C)the costs of registering and issuing the securities are deducted from the fair market value of the common stock used to acquire Spot.
D)only the costs of closing duplicate facilities,the salaries of Polka's employees assigned to the merger,and the costs of the shareholders' meeting would be treated as expenses.
Answer: C
Q2) Historically,much of the controversy concerning accounting requirements for business combinations involved the ________ method.
A)purchase
B)pooling of interests
C)equity
D)acquisition
Answer: B
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Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) The income from an equity method investee is reported on one line of the investor company's income statement except when
A)the cost method is used.
B)the investee has extraordinary items.
C)the investor company is amortizing cost-book value differentials.
D)the investor company changes from the cost to the equity method.
Answer: B
Q2) Jacana Corporation paid $200,000 for a 25% interest in Lilypad Corporation's common stock on January 1,2013,but was not able to exercise significant influence over Lilypad.During 2014,Jacana reported income of $120,000,excluding its income from Lilypad,and paid dividends of $50,000.Lilypad reported net income of $40,000 during 2014 and paid dividends of $20,000.Jacana should report net income for 2014 in the amount of
A)$115,000.
B)$120,000.
C)$125,000.
D)$130,000.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The unamortized excess account is
A)a contra-equity account.
B)used in allocating the amounts paid for recorded balance sheet accounts that are above or below their fair values.
C)used in allocating the amounts paid for each asset and liability that are above or below their book values,especially when numerous assets or liabilities are involved.
D)the excess purchase cost that is attributable to goodwill.
Answer: C
Q2) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock.On the consolidated financial statements of Panini Corporation and Strathmore,Malone is
A)an affiliate.
B)a noncontrolling interest.
C)an equity investee.
D)a related party.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Questions
Q1) A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary.The parent has control over the subsidiary.Which of the following statements is correct?
A)The parent corporation must prepare consolidated financial statements for the economic entity.
B)The parent corporation must use the fair value method.
C)The parent company may use the equity method but the subsidiary cannot be consolidated.
D)The parent company can use the equity method or the fair value/cost method.
Q2) What amount of total liabilities will be reported?
A)$206,000
B)$278,400
C)$319,600
D)$348,000
Q3) What is the reported amount for the noncontrolling interest?
A)$80,000
B)$84,400
C)$98,000
D)$122,500
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Page 6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) On January 1,2014,Plastam Industries acquired an 80% interest in Sparta Company to assure a steady supply of Sparta's inventory that Plastam uses in its own manufacturing businesses.Sparta sold 100% of its output to Plastam during 2014 and 2015 at a markup of 125% of Sparta's cost.Plastam had $12,000 of these items remaining in its inventory at December 31,2015.If Plastam neglected to eliminate unrealized profits from all intercompany sales from Sparta,the inventory on the consolidated balance sheet at December 31,2015 was
A)overstated by $1,920.
B)understated by $1,920.
C)overstated by $2,400.
D)understated by $2,400.
Q2) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A)$512,000.
B)$526,000.
C)$522,500.
D)$528,000.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) After eliminating/adjusting entries are prepared,what was the intercompany sale impact on the consolidated financial statements for the year ended December 31,2014? \( \begin{array}{ll}\text {
A) Consolidated Net Income } & \text { Consolidated Net Assets } \\ \text { No effect } & \text { Noeffect } \\ \text {
B) Consolidated Net Income } & \text { Consolidated Net Asset } \\ \text { No effect } & \text { Increased } \\ \text {
C) Consolidated Net Income } & \text { Consolidated Net Asset } \\ \text { Decreased } & \text { Decreased } \\ \text {
D) Consolidated Net Income } & \text { Consolidated Net Asset } \\ \text { Decreased } & \text { Noeffect }\end{array} \)
Q2) In the eliminating/adjusting entries on consolidation working papers for 2014,the Truck account was
A)debited for $3,000.
B)credited for $3,000.
C)debited for $15,000. D)credited for $15,000.
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) What was the amount of gain or (loss)from the intercompany purchase of Plenty's bonds on January 2,2014?
A)$(56,250)
B)$(75,000)
C)$ 75,000
D)$ 56,250
Q2) If the bonds were originally issued at 103,and 70% of them were purchased on January 2,2016 at 104,the constructive gain or (loss)on the purchase was
A)$(142,800).
B)$( 42,000).
C)$ 42,000.
D)$ 142,800.
Q3) No constructive gain or loss arises from the purchase of an affiliate's bonds if the A)affiliate is a 100%-owned subsidiary.
B)bonds are purchased at book value.
C)bonds are purchased with arm's-length bargaining from outside entities.
D)gain or loss cannot be reasonably estimated.
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9
Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?
A)Utah Company records a gain on sale of stock.
B)Utah Company increases additional paid-in capital.
C)Utah Company decreases additional paid-in capital.
D)Utah Company assigns any excess cost over book value acquired to increase undervalued identifiable assets or goodwill as appropriate.
Q2) Consider a sale of stock by a subsidiary to parties outside the consolidated entity.This transaction requires an adjustment of the parent's investment and additional paid-in capital accounts except when
A)the shares are sold below book value per share.
B)the shares are sold above book value per share.
C)the shares are sold at book value per share.
D)All of the above are correct.
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Chapter 9: Indirect and Mutual Holdings
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Q1) Paglia Corporation owns 80% of Aburn Corporation and has separate net income of $200,000 for 2013.Aburn Corporation has separate net income of $100,000 and owns 70% of the outstanding stock of Badley Corporation.Badley Corporation has separate net income of $80,000.(Separate net incomes exclude investment income . )The cost of each investment was equal to book value and fair value.The controlling interest share of consolidated net income for 2013 is
A)$324,800.
B)$328,800.
C)$344,800.
D)$348,800.
Q2) When mutually-held stock involves subsidiaries holding the stock of each other,the ________ method is not used.
A)equity
B)cost
C)conventional
D)treasury stock
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11
Chapter 10: Subsidiary Preferred Stock,consolidated
Earnings Per Share,and Consolidated Income Taxation
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Q1) Salter has a 2014 net loss of $200,000.No dividends are declared or paid in 2014.What is the change in Pardy's Investment in Salter for the year ending December 31,2014?
A)$ 50,000
B)$ 70,000
C)$140,000
D)$210,000
Q2) What should be the noncontrolling interest share,preferred in the consolidated financial statements of Parminter for the year ending December 31,2014?
A)$1,000
B)$2,000
C)$4,000
D)$5,000
Q3) In computing consolidated diluted EPS,the replacement calculation replaces the parent's equity in subsidiary earnings with the
A)parent's share of basic EPS of the subsidiary.
B)subsidiary's share of basic EPS of the parent.
C)parent's share of diluted EPS of the subsidiary.
D)subsidiary's share of diluted EPS of the parent.
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Chapter 11: Consolidation Theories,push-Down
Accounting,and Corporate Joint Ventures
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Q1) Pascoe's income from Sarabet under the equity method for 2014 was
A)$72,000.
B)$87,500.
C)$90,000.
D)$100,000.
Q2) Patane Corporation acquired 80% of the outstanding voting common stock of Sanlon Corporation on January 1,2014,for $500,000.Sanlon Corporation's stockholders' equity at this date consisted of $250,000 in Capital Stock and $100,000 in Retained Earnings.The fair value of Sanlon's assets was equal to the book value of the assets except for land with a fair value $40,000 greater than its book value,and marketable securities with a fair value $50,000 greater than its book value.Sanlon also had a valuable patent with a fair value of $25,000 and a book value of zero because its development costs were expensed as incurred.The fair value of Sanlon's liabilities is $10,000 higher than the $40,000 book value.
Required:
Calculate the amount of goodwill under the parent company and entity theories of consolidation.
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Page 13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) If the sale of merchandise is denominated in dollars,the November 30 entry to record receipt of the payment from Watchem included a
A)credit to Accounts Receivable for $104,040.
B)credit to Exchange Gain for $3,060.
C)debit to Cash for $107,100.
D)debit to Exchange Loss for $3,060.
Q2) Slade Corporation,a U.S.company,purchased materials on account from a manufacturer in Mexico on June 15.The invoice was denominated in the shipper's currency for 480,000 pesos.The goods were paid for on July 18.Slade closes their fiscal year on June 30,and used the following indirect quotes to measure the amounts related to the transactions.
June 15
$1.00 = 12.50 pesos
June 30
$1.00 = 12.80 pesos
July 18 $1.00 = 12.00 pesos
Required:
Show all related journal entries for Slade Company.
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using
A)Modified Cash Basis Accounting.
B)Critical Term Hedge Analysis.
C)Fair Value Hedge Accounting.
D)Hedge of Net Investment in Foreign Subsidiary.
Q2) A fair value hedge differs from a cash flow hedge because a fair value hedge
A)cannot be used for firm purchase or sales commitments.
B)is not recorded unless it is a highly-effective hedge.
C)records gains or losses in the value of the derivative directly to earnings of the company.
D)defers the gains or losses in the value of the derivative using Other Comprehensive Income.
Q3) A forward contract used as a cash flow hedge will be recorded as an asset if
A)the holder is expecting to receive a payment as a result of the contract.
B)the holder is accounting for the hedged instrument as a fair value hedge.
C)the holder is hedging the net investment in a foreign entity.
D)the holder is using the alternate accounting method and deferring all gains or losses from the hedge.
Page 15
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Chapter 14: Foreign Currency Financial Statements
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Q1) Selvey Inc.is a wholly-owned subsidiary of Parsfield Incorporated,a U.S.firm.The country where Selvey operates is determined to have a highly inflationary economy according to GAAP definitions.Therefore,for purposes of preparing consolidated financial statements,the functional currency is
A)its reporting currency.
B)its current rate method currency.
C)the US dollar.
D)its local currency.
Q2) When translating foreign subsidiary income statements using the current rate method,why are some accounts translated at an average rate?
A)This approach improves matching.
B)This approach accentuates the conservatism principle.
C)This approach smoothes out highly volatile exchange rate fluctuations.
D)This approach approximates the effect of transactions which occur continuously during the period.
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Chapter 15: Segment and Interim Financial Reporting
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Sample Questions
Q1) An enterprise has eight reporting segments.Five segments show an operating profit and three segments show an operating loss.In determining which segments are classified as reporting segments under the operating profits test,which of the following statements is correct?
A)The test value for all segments is 10% of consolidated net profit.
B)The test value for profitable segments is 10% or more of those segments reporting a profit,and the test value for loss segments is 10% or more of those segments reporting a loss.
C)The test value for loss segments is 10% of the greater of (a)the absolute value of the sum of those segments reporting losses,or (b)10% of consolidated net profit.
D)The test value for all segments is 10% of the greater of (a)the absolute value of the sum of those segments reporting profits,or (b)the absolute value of the sum of those segments reporting losses.
Q2) What is the threshold for reporting a major customer?
A)5 percent of revenues
B)5 percent of profits
C)10 percent of revenues
D)10 percent of profits
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Page 17
Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) Required:
1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $330,000.
2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).
Q2) If the partnership experiences a net loss of $60,000 for the year,what will be the final net amount of profit or (loss)closed to each partner's capital account?
A)($90,000)to Alfred and $30,000 to Barne
B)($30,000)to Alfred and ($30,000)to Barne
C)($24,000)to Alfred and ($36,000)to Barne
D)$30,000 to Alfred and ($90,000)to Barne
Q3) If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed
A)next to last,because the final allocation is the distribution of the profit residual.
B)before income tax allocations are made.
C)after the salary and interest allocations are made.
D)in any manner agreed to by the partners in the partnership agreement.
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Page 18
Chapter 17: Partnership Liquidation
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Q1) In partnership liquidations,what are safe payments?
A)The amounts of distributions that can be made to the partners,after all creditors have been paid in full.
B)The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
C)The amounts of distributions that can be made to the partners,after all non-cash assets have been adjusted to fair market value.
D)The amounts of distributions that can be made to the partners during the liquidation based on the partner's contributed capital return.
Q2) The book value of the partnership equity (i.e. ,total equity of the partners)on June 30,2014 is
A)$ 58,000.
B)$ 60,000.
C)$ 84,000.
D)$120,000.
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) DeFunk Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.18 on the dollar.Magma Corporation holds a $200,000 mortgage receivable from DeFunk that is secured by the land and buildings with a book value of $180,000 and a fair value of $190,000.Magma also holds an $80,000 unsecured note receivable from Defunk.Mortgage interest owed,which is secured with the mortgage note,is $4,000.Note interest owed,which is unsecured,is $2,000.
Required: How much of the amounts owed will Magma recover?
Q2) Gonne Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.35 on the dollar.Odemay Corporation holds a $100,000 mortgage note receivable from Gonne that is secured by equipment with a $120,000 book value and a $75,000 fair value. Required: How much of the mortgage receivable will be recovered by Odemay?
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Using the revenue types shown below,match each of the revenue sources to a revenue type.Each revenue type may be used more than once.
A.Derived Tax Revenues
B.Imposed Nonexchange Revenues
C.Government-Mandated Nonexchange Transactions
D.Voluntary Nonexchange Transactions
________ 1.Corporate income tax
________ 2.Sales taxes
________ 3.Liquor taxes
________ 4.Fines and penalties paid to a government entity
________ 5.Cigarette taxes
________ 6.Personal income tax
________ 7.Donation made to a government entity
________ 8.Motor fuel tax
________ 9.Property tax
Q2) The accounting equation for an agency fund is
A)Current assets - Current liabilities = Fund Balance.
B)Assets - Liabilities = Equity.
C)Assets = Equity + Liabilities.
D)Assets = Liabilities.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) The City of Electri entered the following transactions during 2014:
1.Borrowed $120,000 for a six-month term,to be paid upon receipt of property tax payments which were previously billed.
2.Used the funds borrowed to purchase a new fire truck.The truck is expected to have a 15-year useful life,and a $5,000 residual value.
3.Received $90,000 cash from a state grant.Funds are restricted for the purchase of a second fire truck.
4.Used the grant funds received to purchase a second fire truck.The truck is expected to have a 15-year useful life,and a $5,000 residual value.
5.Nonreciprocal transfer of $50,000 to the Debt Service Fund to be used toward repayment of the note.
Required:
Prepare the journal entries in the General Fund for the transactions.
Q2) When the interest income of $50,000 is received,what account should be credited?
A)Other Financing Sources
B)Other Financing Uses
C)Deferred Revenue
D)Revenue
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Willborough County had the following transactions in 2014.
1.A central motor pool was established with a $200,000 nonreciprocal transfer from the General Fund.
2.The water and sewer authority,which provides services to residents for a fee,issued a bond offering at $750,000 par.Bonds proceeds are restricted to renovating the treatment facility.
3.Willborough received a grant from the state to be used for renovation of the courthouse amounting to $800,000.The General Fund will temporarily provide $100,000 cash,because the grant is set up on a reimbursement basis and will not be distributed until proper expenditures are documented.
4.Willborough's central motor pool bills out automobile usage to various government agencies amounting to $42,000.
5.The General Fund transfers $67,000 out of the operating budget to fund the county employees' pension plan.
Required:
Prepare the necessary journal entries for each of the above transactions for all funds affected.Be sure to identify the fund type for each entry.
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Prepare journal entries to record the following transactions for a private,not-for-profit university.
1.Tuition and fees assessed total $10,000,000,80% of which was collected by year-end;tuition scholarships were granted for $1,300,000,and $650,000 was expected to be uncollectible.
2.Revenues collected from sales and services by the university bookstore were $1,450,000.
3.Salaries and wages paid were $5,600,000,$300,000 of which was for employees of the university bookstore.
4.Financial aid funds of $700,000 were received from the Pell Grant program;the funds were then disbursed to the appropriate students.
5.Contributions of $600,000 were received;$30,000 was restricted for the athletic department and the balance was unrestricted.An additional $70,000 was pledged to the athletic department by the alumni.
6.Athletic equipment was purchased with $42,000 previously set aside for that purpose.
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Page 24
Chapter 23: Estates and Trusts
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Q1) Avery died testate early in 2014.The following transactions occurred relating to Avery's estate.
1.Avery's estate included bonds with a fair (market)value of $120,000.On the date of Avery's death,there was $2,000 of accrued but unpaid interest.Two months after Avery's death,a check arrived in the amount of $3,000,representing the normal semiannual interest payment.
2.Avery's will stated a specific transfer to the Bird Sanctuary in the amount of $10,000.Avery's estate should be adequate to cover all obligations and devises,and the amount is paid.
3.Funeral expenses amounted to $12,500.
4.A bank statement is received from the First National Bank indicating a cash balance of $8,600.This bank account was not known or included on the estate inventory.
5.Probate fees are paid to the court amounting to $900.
Required:
Prepare the journal entries for the listed transactions.Disregard the impact of estate and income taxes.
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