CPA Exam Preparation: Advanced Accounting Study Guide Questions
Course Introduction
This course is designed to comprehensively prepare students for the advanced accounting topics featured on the CPA Exam. Emphasizing complex areas such as business combinations, consolidations, partnerships, foreign currency transactions, and segment and interim reporting, the course integrates rigorous practice with exam-style questions and simulations. Students will analyze advanced accounting standards, apply professional judgment to multifaceted scenarios, and develop competence in financial reporting and disclosures. This preparation ensures a thorough understanding of both conceptual frameworks and practical problem-solving skills required to excel on the CPA Exams advanced accounting sections.
Recommended Textbook
Advanced Accounting 6th Edition by Debra
C. Jeter
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Chapter 1: Introduction to Business Combinations and the
Conceptual Framework
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Q1) When following the economic unit concept in the preparation of consolidated financial statements,the basis for valuing the noncontrolling interest in net assets is the:
A)book values of subsidiary assets and liabilities.
B)fair values of subsidiary assets and liabilities.
C)general price level adjusted values of subsidiary assets and liabilities.
D)fair values of parent company assets and liabilities.
Answer: B
Q2) Which of the following is not a component of other comprehensive income under GAAP?
A)earnings.
B)gains and losses that bypass earnings.
C)impairment losses.
D)accumulated other comprehensive income.
Answer: D
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Chapter 2: Accounting for Business Combinations
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Q1) Briefly describe the different treatment under SFAS 141 vs.SFAS 141R for the following issues:
-Business definition
-Acquisition costs
-In-process R&D
-Contingent consideration
Answer: 11ea8d5d_8042_60bd_9c97_599316734f7e_TB4284_00_TB4284_00
Q2) SFAS 141R requires that all business combinations be accounted for using:
A)the pooling of interests method.
B)the acquisition method.
C)either the acquisition or the pooling of interests methods.
D)neither the acquisition nor the pooling of interests methods.
Answer: B
Q3) With an acquisition,direct and indirect expenses are:
A)expensed in the period incurred.
B)capitalized and amortized over a discretionary period.
C)considered a part of the total cost of the acquired company.
D)charged to retained earnings when incurred.
Answer: A
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Page 4
Chapter 3: Consolidated Financial Statements Date of Acquisition
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Q1) Eliminating entries are made to cancel the effects of intercompany transactions and are made on the:
A)books of the parent company.
B)books of the subsidiary company.
C)workpaper only.
D)books of both the parent company and the subsidiary.
Answer: C
Q2) One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is:
A)an undervaluation of the subsidiary's assets.
B)the existence of unrecorded goodwill.
C)an overvaluation of the subsidiary's liabilities.
D)the existence of unrecorded contingent liabilities.
Answer: D
Q3) Under the acquisition method,indirect costs relating to acquisitions should be:
A)included in the investment cost.
B)expensed as incurred.
C)deducted from other contributed capital.
D)none of these.
Answer: B
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Chapter 4: Consolidated Financial Statements After Acquisition
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Q1) A parent company received dividends in excess of the parent company's share of the subsidiary's earnings subsequent to the date of the investment.How will the parent company's investment account be affected by those dividends under each of the following accounting methods?
A)Cost Method,no effect; Partial Equity Method,no effect
B)Cost Method,decreased; Partial Equity Method,no effect
C)Cost Method,no effect; Partial Equity Method,decreased
D)Cost Method,decreased; Partial Equity Method,decreased
Q2) Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1,2016.Suburbia reported net income in 2016 of $90,000 and in 2017 of $120,000 earned evenly throughout the respective years.Prime received $24,000 dividends from Suburbia in 2016 and $36,000 in 2017.Prime uses the equity method to record its investment. Prime should record investment income from Suburbia during 2017 of:
A)$36,000
B)$120,000
C)$84,000
D)$48,000
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Chapter 5: Allocation and Depreciation of Differences
Between Implied and Book Values
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Q1) Sleepy Company,a 70%-owned subsidiary of Pickle Corporation,reported net income of $600,000 and paid dividends totaling $225,000 during Year 3.Year 3 amortization of differences between current fair values and carrying amounts of Sleepy's identifiable net assets at the date of the business combination was $112,500.The noncontrolling interest in consolidated net income of Sleepy for Year 3 was:
A)$146,250.
B)$33,750.
C)$67,500.
D)$180,000.
Q2) If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price,the workpaper entry to eliminate the investment account:
A)debits Excess of Fair Value over Implied Value.
B)debits Difference Between Implied and Fair Value.
C)debits Difference Between Implied and Book Value.
D)credits Difference Between Implied and Book Value.
Q3) Push down accounting is an accounting method required for the subsidiary in some instances such as the banking industry.Briefly explain the concept of push down accounting.
Page 7
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Chapter 6: Elimination of Unrealized Profit on Intercompany
Sales of Inventory
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Q1) The noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the subsidiary's reported net income:
A)plus unrealized profit in ending inventory less unrealized profit in beginning inventory.
B)plus realized profit in ending inventory less realized profit in beginning inventory.
C)less unrealized profit in ending inventory plus realized profit in beginning inventory.
D)less realized profit in ending inventory plus realized profit in beginning inventory.
Q2) Sales from one subsidiary to another are called:
A)downstream sales.
B)upstream sales.
C)intersubsidiary sales.
D)horizontal sales.
Q3) Past and proposed GAAP agree that unrealized intercompany profit should not be included in consolidated net income or assets.Briefly explain the preferred approach of eliminating intercompany profit.
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Chapter 7: Elimination of Unrealized Gains or Losses on Intercompany Sales
of Property and Equipment
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Q1) Pine Company,a computer manufacturer,owns 90% of the outstanding stock of Slider Company.On January 1,2017,Pine sold computers to Slider for $500,000.The computers,which are inventory to Pine,had a cost to Pine of $350,000.Slider Company estimated that the computers had a useful life of six years from the date of purchase. Slider Company reported net income of $310,000,and Pine Company reported net income of $870,000 from its independent operations (including sales to affiliates)for the year ended December 31,2017.
Required:
A.Prepare in general journal form the workpaper entries necessary because of the intercompany sales in the consolidated statements workpaper for both 2017 and 2018.
B.Calculate controlling interest in consolidated net income for 2017.
Q2) The amount of the adjustment to the noncontrolling interest in consolidated net assets is equal to the noncontrolling interest's percentage of the:
A)unrealized intercompany gain at the beginning of the period.
B)unrealized intercompany gain at the end of the period.
C)realized intercompany gain at the beginning of the period.
D)realized intercompany gain at the end of the period.
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Chapter 8: Changes in Ownership Interest
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Sample Questions
Q1) On January 1,2016,P Corporation purchased 75% of S Corporation for $500,000.S's stockholders' equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date.S Corporation sold an additional 8,000 shares of previously unissued stock on December 31,2016. Assume that P Corporation purchased the additional shares what would be their current percentage ownership on December 31,2016?
A)62 1/2%.
B)75%
C)79 1/6%
D)100%
Q2) Under the partial equity method,the workpaper entry that reverses the effect of subsidiary income for the year includes a:
A)credit to Equity in Subsidiary Income.
B)debit to Subsidiary Income Sold.
C)debit to Equity in Subsidiary Income.
D)credit to Equity in Subsidiary Income and debit to Subsidiary Income Sold.
Q3) A parent's ownership percentage in a subsidiary may change for several reasons.Identify three reasons the ownership percentage may change.
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Page 10
Chapter 9: Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements
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Sample Questions
Q1) Pallet Corporation owns 90% of the outstanding common stock of Stealth Company.On January 1,2014,Stealth Company issued $500,000,12%,ten-year bonds. On January 1,2016,Pallet Corporation paid $412,000 for Stealth Company bonds with a par value of $400,000 and a carrying value of $393,600.Both companies use the straight-line method to amortize bond premiums and discounts.Pallet Corporation accounts for the investment using the cost method of accounting.
Pallet Corporation would report a balance in the Investment in Stealth Company Bonds account on December 31,2016,of
A)$412,000.
B)$393,600.
C)$410,500.
D)$400,000.
Q2) The constructive gain or loss to the purchasing company is the difference between the:
A)book value of the bonds and their par value.
B)book value of the bonds and their purchase price.
C)cost of the bonds and their par value.
D)cost of the bonds and their purchase price.
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Chapter 10: Insolvency Liquidation and Reorganization
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Q1) An involuntary petition filed by a firm's creditors whereby there are twelve or more creditors must be signed by at least:
A)two creditors.
B)three creditors.
C)five creditors.
D)six creditors.
Q2) Lyme Corporation entered into a troubled debt restructuring agreement with their local bank.The bank agreed to accept land with a carrying amount of $360,000 and a fair value of $540,000 in exchange for a note with a carrying amount of $765,000.Ignoring income taxes,what amount should Lyme report as a gain on its income statement?
A)$0.
B)$180,000.
C)$225,000.
D)$405,000.
Q3) When a bankruptcy court enters an "order for relief" it has:
A)accepted the petition.
B)dismissed the petition.
C)appointed a trustee.
D)started legal action against the debtor by its creditors.
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Chapter 11: International Financial Reporting Standards
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Q1) Which of the following statements is true regarding the IASC?
A)The IASC is a public-sector,not-for-profit organization.
B)The IASC is accountable to an international securities regulator.
C)The IASC is a stand-alone,private-sector organization.
D)The IASC funds the operations of the IASB through filing fees paid to national securities regulators.
Q2) Accounting under IFRS and US GAAP is similar for all of the following topics EXCEPT:
A)changes in estimates.
B)related party transactions.
C)research and development costs.
D)changes in methods.
Q3) New terminology introduced under the joint IFRS- US GAAP Customer Consideration (Allocation)Model includes all of the following EXCEPT:
A)revenue recognition voids.
B)contract rights.
C)net contract asset/ liability.
D)performance obligations.
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13
Chapter 12: Accounting for Foreign Currency Transactions and Hedging Foreign
Exchange
Risk
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Q1) A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to:
A)hedge a net investment in a foreign entity.
B)hedge an identifiable foreign currency commitment.
C)speculate in foreign currency.
D)none of these.
Q2) On October 1,2016,Kill Company shipped equipment to a foreign customer for a foreign currency (FC)price of FC 3,000,000 due on January 31,2017.All revenue realization criteria were satisfied and accordingly the sale was recorded by Kill Company on October 1.Simultaneously,Kill entered into a forward contract to sell 3,000,000 FCU on January 31,2017 for $1,200,000.Payment was received from the foreign customer on January 31,2017.Spot rates on October 1,December 31,and January 31 were $0.42,$0.425,and $0.435,respectively.Kill amortizes all premiums and discounts on forward contracts and closes its books on December 31.
Required:
Prepare all journal entries relative to the above to be made by Kill during 2016 and 2017.
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Chapter 13: Translation of Financial Statements of Foreign
Affiliates
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Q1) The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called:
A)verification.
B)translation.
C)remeasurement.
D)None of these.
Q2) Which of the following would be restated using the average exchange rate under the temporal method?
A)cost of goods sold
B)depreciation expense
C)amortization expense
D)None of these
Q3) Under the temporal method,monetary assets and liabilities are translated by using the exchange rate existing at the:
A)beginning of the current year.
B)date the transaction occurred.
C)balance sheet date.
D)None of these.
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Chapter 14: Reporting for Segments and for Interim
Financial Periods
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Q1) In SFAS No.131,the FASB requires all public companies to report a variety of information for reportable segments.Define a reportable segment and identify the information to be reported for each reportable segment.
Q2) The following information is available for Pink Company for 2017:
a.In early April Pink made major repairs to its equipment at a cost of $90,000.These repairs will benefit the remainder of 2017 operations.
b.At the end of May,Pink sold machinery with a book value of $35,000 for $45,000.
c.An inventory loss of $60,000 from market decline occurred in July.In the fourth quarter the inventory had a market value recovery that exceeded the market decline by $30,000. Required:
Compute the amount of expense/loss that would appear in Pink Company's June 30,September 30,and December 31,2017,quarterly financial statements.
Q3) Publicly owned companies are usually required to file some type of quarterly (interim)report as part of the agreement with the stock exchanges that list their stock.Indicate two problems with interim reporting and GAAP's position on this reporting.
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Page 16
Chapter 15: Partnerships: Formation, operation and Ownership Changes
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Q1) Carter and Gore are partners in an automobile repair business.Their respective capital balances are $425,000 and $275,000,and they share profits in a 3:2 ratio.Because of growth in their repair business,they decide to admit a new partner.Bush is admitted to the partnership,after which Carter,Gore,and Bush agree to share profits in a 3:2:1 ratio.
Required:
Prepare the necessary journal entries to record the admission of Bush in each of the following independent situations:
A.Bush invests $300,000 for a one-fourth capital interest,but will not accept a capital balance of less than his investment.
B.Bush invests $150,000 for a one-fifth capital interest.The partners agree that assets and the firm as a whole should be revalued.
C.Bush purchases a 20% capital interest from each partner.Carter receives $100,000 and Gore receives $50,000 directly from Bush.
Q2) There are two methods of recording changes in the membership of a partnershipthe bonus method and the goodwill method.Describe these two methods of recording changes in partnership membership.
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Chapter 16: Partnership Liquidation
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Q1) Under the Uniform Partnership Act:
A)partnership creditors have first claim (Rank I)against the assets of an insolvent partnership.
B)personal creditors of an individual partner have first claim (Rank I)against the personal assets of all partners.
C)partners with credit capital balances share (Rank I)the personal assets of an insolvent partner that has a debit capital balance with personal creditors of that partner.
D)personal creditors of the partners of an insolvent partnership share partnership assets on a pro rata basis (Rank I)with partnership creditors.
Q2) The first step in preparing an advance cash distribution plan is to:
A)determine the order in which partners are to participate in cash distributions.
B)compute the amount of cash each partner is to receive as it becomes available for distribution.
C)allocate any gains (losses)to the partners in their profit-sharing ratio.
D)determine the net capital interest of each partner.
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18
Chapter 17: Introduction to Fund Accounting
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Q1) The expendable fund entity's measurement focus is on:
A)the flow of current financial resources.
B)the flow of economic resources.
C)the flow of revenue,expenses,and net income.
D)none of these.
Q2) The entry to close appropriations,expenditures,and encumbrances accounts includes a debit to:
A)Appropriations.
B)Expenditures.
C)Encumbrances.
D)both Appropriations and Encumbrances.
Q3) Customers' meter deposits which cannot be spent for normal operating purposes would be classified as restricted cash in the balance sheet of which fund?
A)Internal Service
B)Trust
C)Agency
D)Enterprise
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Chapter 18: Introduction to Accounting for State and Local
Governmental Units
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Q1) The activities of a central computer facility should be accounted for in the:
A)General Fund.
B)Internal Service Fund.
C)Enterprise Fund.
D)Capital Projects Fund.
Q2) Encumbrances would NOT appear in which fund?
A)General
B)Enterprise
C)Capital projects
D)Special revenue
Q3) When a truck is received by a governmental unit,it should be recorded in the General Fund as a(n):
A)appropriation.
B)encumbrance.
C)expenditure.
D)fixed asset.
Q4) There are eleven categories of government fund entities that fall under three subheadings.What are the subheadings of government fund entities? What are the main characteristics that set these three subheadings apart?
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Chapter 19: Accounting for Nongovernment Nonbusiness
Organizations: Colleges and Universities, hospitals, and
Other Health Care Organizations
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Q1) When the donor has specified a particular date or event after which the principal of the Endowment Fund may be expended,the Endowment Fund is referred to as a(n):
A)pure endowment fund.
B)term endowment fund.
C)quasi endowment fund.
D)expendable endowment fund.
Q2) On October 10,2016,a national voluntary health help foundation was the recipient of a telethon sponsored by a renowned celebrity.Phone donations totaling $8,500,000 were promised.Based on historical information,15% of these pledges are expected to be uncollectible.Of these pledges,$7,100,000 were collected in 2017; the remainder were considered uncollectible.
Required:
Identify the proper fund and prepare the journal entries necessary in 2016 and 2017.
Q3) In accounting for loan funds,revenue is recorded when the:
A)contribution is received.
B)loan is made to students.
C)loan is repaid by students.
D)students graduate.
Page 21
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