Financial Reporting and Analysis
Exam Questions
Course Introduction
Financial Reporting and Analysis provides students with a comprehensive understanding of how financial statements are prepared, analyzed, and interpreted. The course covers the principles and standards governing the presentation of financial information, including income statements, balance sheets, cash flow statements, and statements of shareholders equity. Students learn to evaluate an organizations financial health, profitability, and liquidity using key ratios and analytical tools, as well as to recognize the impact of accounting policies and estimates on reported figures. Through case studies and real-world examples, the course emphasizes the importance of transparent financial reporting in enabling informed decision-making by investors, managers, and regulators.
Recommended Textbook
Advanced Accounting 13th Edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) A merger occurs when one corporation takes over all the operations of another business entity,and that entity is dissolved.
A)True
B)False
Answer: True
Q2) Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as A)an expense for the current year.
B)a prior period adjustment to retained earnings.
C)additional cost to investment of Slope on the consolidated balance sheet.
D)a reduction in additional paid-in capital.
Answer: A
Q3) Firms should conduct an impairment test for goodwill at least quarterly. A)True
B)False
Answer: False
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Which one of the following statements is correct for an investor company?
A)The balance in the Investment in Osprey Co.account can be reduced to represent a decline in the fair market value of the investment,but will not be adjusted if the fair market value increases.
B)Under the equity method,the balance in the Investment in Osprey Co.account can be negative if the investee corporation operates at a loss.
C)Once the balance in the Investment in Osprey Co.is reduced to zero,it will not be reduced any further.
D)Under the equity method,the balance in the Investment in Osprey Co.account will increase when cash dividends are received.
Answer: C
Q2) The GAAP requires that all majority-owned subsidiaries be consolidated,except when control lies with the majority interest.
A)True
B)False
Answer: False
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4
Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) A subsidiary can be excluded from consolidation when control does not rest with the majority owner.
A)True
B)False
Answer: True
Q2) Pental Corporation bought 90% of Sedacor Company's common stock at its book value of $400,000 on January 1,2014.During 2014,Sedacor reported net income of $130,000 and paid dividends of $40,000.At what amount should Pental's Investment in Sedacor account be reported on December 31,2014?
A)$400,000
B)$481,000
C)$490,000
D)$530,000
Answer: B
Q3) The consolidated financial statements are primarily for the benefit of managers of the parent company.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Consolidated Techniques and Procedures
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Sample Questions
Q1) What amount of Goodwill will be reported?
A)$54,400
B)$68,000
C)$72,000
D)$90,000
Q2) A parent company uses the equity method to account for its wholly-owned subsidiary.Which of the following will be a correct procedure for the Investment account?
A)A debit for a subsidiary loss and a credit for dividends received
B)A credit for subsidiary income and a debit for dividends received
C)A debit for subsidiary dividends received and a credit for a subsidiary loss
D)A credit for a subsidiary loss and a credit for dividends received
Q3) The entry to record the receipt of intercompany note receivable includes a credit to Note Receivable - Subsidiary.
A)True
B)False
Q4) In the cost method of acquisition income is recognized only when the subsidiary declares dividends.
A)True
B)False
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) Assume there are routine inventory sales between parent companies and subsidiaries.When preparing the consolidated financial statements,which of the following line items is indifferent to the sales being either upstream or downstream?
A)Consolidated retained earnings
B)Consolidated gross profit
C)Noncontrolling interest share
D)Controlling interest share of consolidated net income
Q2) A downstream sale is a sale by a parent to a subsidiary.
A)True
B)False
Q3) The 2014 consolidated income statement showed cost of goods sold of
A)$500,000.
B)$516,000.
C)$532,000.
D)$660,000.
Q4) The ending inventory of the purchasing affiliate reflects the intercompany transfer price.
A)True B)False
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Gross profit on inventory items sold for use in the operations of an affiliate will be realized for consolidated statement purposes immediately.
A)True
B)False
Q2) Which of the following is correct?
A)No consolidation working paper entry is required for this transaction in 2014.
B)A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2014.
C)A consolidation working paper entry is required each year that Sidd has the land.
D)A consolidation working paper entry was required only if the land was held for resale in 2014.
Q3) An elimination entry at December 31,2014 for the intercompany sale will include a
A)credit of $6,000 to Depreciation Expense.
B)credit of $6,000 to Accumulated Depreciation.
C)credit of $6,000 to Equipment.
D)credit of $6,000 to Gain on Sale of Equipment.
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Using the original information,the balances for the Bonds Payable and Bond Interest Payable accounts,respectively,on the consolidated balance sheet for December 31,2015 were
A)$3,000,000 and $ 90,000.
B)$3,000,000 and $180,000.
C)$6,000,000 and $ 90,000.
D)$6,000,000 and $180,000.
Q2) If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability,a ________ occurs.
A)realized loss on the retirement of debt from the viewpoint of the subsidiary
B)realized gain on the retirement of debt from the viewpoint of the subsidiary
C)constructive loss on the retirement of debt from the viewpoint of the consolidated entity
D)constructive gain on the retirement of debt from the viewpoint of the consolidated entity
Q3) A constructive retirement of parent bonds occurs when an affiliate purchases outstanding bonds of the parent.
A)True
B)False
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Page 9
Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Preacquisition dividends are dividends paid on stock by the subsidiary before the date of acquisition by the parent.
A)True
B)False
Q2) Jersey Company acquired 90% of York Company on April 1,2014.Both Jersey Company and York Company have December 31 fiscal year ends.Under current GAAP,which of the following statements is false?
A)The consolidated income statement in 2014 should not include York's revenues and expenses prior to April 1,2014.
B)When preparing consolidating work papers in 2014,York's revenues prior to April 1,2014 are eliminated.
C)York's earnings prior to April 1,2014 should appear as a deduction on the consolidated income statement in 2014.
D)The consolidated income statement in 2014 should include York's revenues and expenses after April 1,2014.
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Page 10
Chapter 9: Indirect and Mutual Holdings
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Q1) Packer Corporation owns 100% of Abel Corporation,Abel Corporation owns 95% of Bacon Corporation and Bacon Corporation owns 80% of Cab Corporation.The separate net incomes (excluding investment income)of Packer,Abel,Bacon,and Cab are $300,000,$100,000,$200,000,and $300,000,respectively.All of the investments were made at times when the investee's book values were equal to their fair values.There were no cost/book value differentials for each investment.
Required:
Determine the controlling interest share of consolidated net income and noncontrolling interest shares for Packer Corporation and Subsidiaries for the current year.
Q2) Mutual holdings occur when affiliates hold ownership interests in each other. A)True B)False
Q3) The treasury stock approach to account for parent stock held by subsidiary accounts for the stock as treasury stock for the consolidated entity. A)True
B)False
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Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) 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.
Q2) What is the implied goodwill for Salter based on Pardy's purchase price for Salter on January 1,2014?
A)$0
B)$35,000
C)$70,000
D)$100,000
Q3) If no redemption provision is provided on preferred stock,the equity allocation base is based on par value of the stock less any liquidation premium.
A)True
B)False
Q4) The consolidated entity must file a consolidated income tax return.
A)True
B)False
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Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) All companies holding a significant interest in a variable interest entity (VIE)must disclose the nature,purpose,size and activities of the VIE in the consolidated statements.
A)True
B)False
Q2) Under parent company theory,the amount of consolidated net income is equal to the amount of ________ under entity theory.
A)noncontrolling interest share
B)noncontrolling interest income
C)income attributable to controlling stockholders
D)income attributable to noncontrolling stockholders
Q3) Pascoe's income from Sarabet under the equity method for 2014 was
A)$72,000.
B)$87,500.
C)$90,000.
D)$100,000.
Q4) Joint ventures may be organized as partnerships or undivided interests,but not corporations.
A)True
B)False
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) On November 1,2014,the Yankee Corporation,a U.S.corporation,purchased and received an extruding machine from Wales Corporation,a UK company.The purchase price was $10,000 (U.S.dollars)and Yankee agreed to pay in pounds on February 1,2015.Both corporations are on a calendar year accounting period.Assume that the spot rates for the British pound on November 1,2014,December 31,2014,and February 1,2015,are $1.60,$1.62,and $1.66,respectively.
Required:
Record the November 1,December 31,and February 1 transactions in the General Journals of Yankee Corporation and Wales Corporation.If no entry is required on a particular date,indicate "No entry" in the General Journal.
Q2) What exchange gain or loss appeared on Sooty's 2014 income statement?
A)a loss of $10,000
B)a loss of $15,000
C)a gain of $10,000
D)a gain of $15,000
Q3) Gains and losses on foreign currency transactions can be deferred until the foreign currency is converted into U.S.dollars.
A)True
B)False
Page 14
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Chapter 13: Accounting for Derivatives and Hedging
Activities
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Q1) If a financial instrument is classified as a cash flow hedge,then
A)its gains or losses are reported in the income statement if a fiscal year-end occurs before the settlement date.
B)it is classified as a held-to-maturity asset.
C)it does not require a notional amount.
D)its gains or losses are reported in the balance sheet if a fiscal year-end occurs before the settlement date.
Q2) International accounting standards differ from U.S.Generally Accepted Accounting Principles in that International standards
A)require that firm sale or purchase commitments are accounted for as fair value hedges.
B)require that firm sale or purchase commitments are accounted for as cash flow hedges.
C)state that firm sale or purchase commitments may not be treated as a hedged transaction.
D)permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges.
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Page 15
Chapter 14: Foreign Currency Financial Statements
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Q1) Functional currency is the currency of the primary economic environment in which it operates.
A)True
B)False
Q2) A U.S.parent corporation loans funds to a foreign subsidiary to be used to purchase equipment.The loan is denominated in U.S.dollars and the functional currency of the subsidiary is the euro.This intercompany transaction is a foreign currency transaction of A)neither the subsidiary nor the parent,as it is eliminated as part of the consolidation procedure.
B)the subsidiary but not the parent.
C)both the subsidiary and the parent.
D)the parent but not the subsidiary.
Q3) A foreign subsidiary's foreign currency statements must conform with the U.S.GAAP before translated into U.S.dollars.
A)True
B)False
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Chapter 15: Segment and Interim Financial Reporting
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Q1) A reconciliation between the segment data and the consolidated information must be provided for the total of the reportable segments' revenues and the reported consolidated revenues.
A)True
B)False
Q2) Management-approach-based segments are called operating segments.
A)True
B)False
Q3) Enterprises must disclose the existence of major customers; the single customer that accounts for 10 percent or more of the enterprise's revenue.
A)True
B)False
Q4) The Securities and Exchange Commission require that quarterly reports be prepared for the company's stockholders and for filing with the IRS.
A)True B)False
Q5) Pensions and corporate headquarters are all part of an operating segment. A)True B)False
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) When property is invested in the partnership,it is recorded at fair value.
A)True
B)False
Q2) How much cash must Oran invest to acquire a one-fifth interest?
A)$235,000
B)$141,000
C)$293,750
D)$301,250
Q3) What is the total amount for the allocation of interest,salary,and bonus,and how much over-allocation is present?
A)$180,000 and $0
B)$240,000 and $60,000
C)$249,000 and $0
D)$249,000 and $69,000
Q4) What goodwill will be recorded?
A)$ 80,000
B)$240,000
C)$320,000
D)$400,000
18
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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) A simple partnership liquidation requires
A)periodic payments to creditors and partners determined by a safe payments schedule.
B)partnership assets to be converted into cash with full payment made to all outside creditors before remaining cash is distributed to partners.
C)only creditors to be paid in an orderly manner.
D)periodic payments to partners as cash becomes available.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) What is an advantage of filing a Chapter 11 petition?
A)The continuation of interest accrual on liabilities
B)Restrictions imposed by the bankruptcy court on day-to-day transactions
C)It is less costly than filing Chapter 7.
D)The opportunity to cancel unfavorable contracts
Q2) A single creditor
A)can never file a petition for bankruptcy.
B)with a $15,775 or more secured claim may file a petition for bankruptcy.
C)with a $15,775 or more unsecured claim may file a petition for bankruptcy,if there are fewer than 12 unsecured creditors.
D)with a $14,425 or more unsecured claim may file a petition for bankruptcy if there are more than 12 unsecured creditors.
Q3) U.S.Trustees are appointed by the Attorney General to handle the administrative duties of bankruptcy cases.
A)True
B)False
Q4) The inability to make payments on time is equity insolvency.
A)True
B)False
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Identify the fund type of the fund being described.
1.A fund used to account for the external portion of investment pools reported by the sponsoring government.
2.A fund used to account for resources that are legally restricted to use of the earnings only for government programs or activities.
3.A fund used to account for resources used to pay for a new stadium.
4.A fund used to account for local taxes withheld on behalf of another county.
5.A fund used to account for resources used to pay interest on a long-term bond issue.
6.A fund used to account for specific revenues that are restricted in use.
7.A fund used to account for the local swimming pool that is owned by the city and used by residents for a membership fee.
8.A fund used to account for the centralized data processing services of the state government.
9.A fund used to account for all funds except those required to be accounted for in another fund.
10.A fund that accounts for government pension plans if the government is the trustee.
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Page 21
Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) A capital lease used by the government to acquire general fixed assets requires a credit to other financing sources - capital lease.
A)True
B)False
Q2) When the donation of bonds is received,what account should be debited?
A)Encumbrance
B)Other Financing Sources
C)Other Financing Uses
D)Investment
Q3) Uncollectibles,such as taxes,are classified as revenue adjustments in government accounting.
A)True
B)False
Q4) Governments must record a liability for uncollected taxes instead of revenues for uncollected taxes if the taxes are going to be collected
A)30 days after the fiscal year end.
B)45 days after the fiscal year end.
C)60 days after the fiscal year end.
D)75 days after the fiscal year end.
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22
and
Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) On January 1,2014,the Enterprise Fund for a local city receives an intergovernmental capital grant of $100,000 from the state government.Upon receipt of the cash on February 1,2014,qualifying expenses of $100,000 for the operating grant will be incurred.What journal entry did the Enterprise Fund prepare on January 1,2014?
A)Debit Cash $100,000,credit Deferred Revenue $100,000
B)Debit Due From Other Governments $100,000,credit Contributed Capital $100,000
C)Debit Restricted Cash $100,000,credit Nonoperating Revenues $100,000
D)Debit Due From Other Governments $100,000,credit Other Financing Sourcesoperating grant $100,000
Q2) What is a significant difference for agency funds when compared to governmental funds?
A)An agency fund has a separate ledger.
B)An agency fund does not report revenues.
C)Agency funds are not associated with any governmental unit.
D)An agency fund will not balance because there is no fund balance account.
Q3) Internal service funds primarily provide goods and services to other departments or agencies.
A)True
B)False
Page 23
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) For a Voluntary Health and Welfare Organization,what entry is prepared when the restriction on a cash donation is met?
A)Debit Unrestricted Net Assets,Credit Restricted Net Assets
B)Debit Unrestricted Fund Balance,Credit Restricted Fund Balance
C)Debit Restricted Fund Balance,Credit Unrestricted Fund Balance
D)Debit Temporarily Restricted Net Assets - Reclassifications out,Credit Unrestricted Net Assets - Reclassifications in
Q2) A private,not-for-profit university received donations of $800,000 in 2014 that were restricted to capital improvements of the football stadium.The university spent $670,000 on capital improvements for the stadium in 2014 and recorded depreciation of $130,000. In 2014,an alumnus contributed a $1,500,000 endowment for football scholarships with all endowment income restricted for that purpose.Endowment income totaled $75,000 for the year and scholarship awards were $68,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
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Chapter 23: Estates and Trusts
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Q1) Receipts due but unpaid at the date of death are a part of the estate principal when accounting for a decedent's estate.
A)True
B)False
Q2) Josh Drake died on May 1,2014.He left his entire estate,with a fair value of $6,200,000 to his sole surviving family member,his daughter,DeeDee.
Prior to any distribution of assets,Josh's estate reflected the following details:
\[\begin{array} { l l }
\text { Funeral expenses } & \$ 11,300 \\
\text { Expcutor's fees } & 10,800 \\
\text { Estate liabilities } & 14,000 \\
\text { Final medical expenses } & 40,700
\end{array}\] Required:
Calculate the federal estate tax on Mr.Drake's estate.You may ignore any state-level inheritance taxes and assume that the federal estate tax rate is 45%.
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