Intermediate Accounting
Final Test Solutions
Course Introduction
Intermediate Accounting is a comprehensive course designed to deepen students' understanding of financial accounting principles and practices beyond the introductory level. This course focuses on the application and interpretation of generally accepted accounting principles (GAAP) related to the recognition, measurement, and disclosure of assets, liabilities, equity, revenues, and expenses. Students will analyze and prepare complex financial statements, address issues such as income recognition, asset valuation, and error correction, and explore the conceptual framework underlying accounting standards. The course emphasizes critical thinking, technical proficiency, and ethical considerations, preparing students for advanced study and professional careers in accounting and finance.
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) Which of the following is not a reason for a company to expand through a combination,rather than by building new facilities?
A)A combination might provide cost advantages.
B)A combination might provide fewer operating delays.
C)A combination might provide easier access to intangible assets.
D)A combination might provide an opportunity to invest in a company without having to take responsibility for its financial results.
Answer: D
Q2) Firms should conduct an impairment test for goodwill at least quarterly.
A)True
B)False
Answer: False
Q3) 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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Page 3
Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Failure to obtain representation on the investee's board of directors is an indicator of an investor's inability to exercise significant influence.
A)True
B)False
Answer: True
Q2) Goodwill that has an indefinite useful life is not amortized.
A)True
B)False
Answer: True
Q3) In reference to the determination of goodwill impairment,which of the following statements is correct?
A)The goodwill impairment test under ASC 350-20-35 is a three-step process.
B)If the reporting unit's fair value exceeds its carrying value,goodwill is unimpaired.
C)Under FASB 142,firms must first compare carrying values (book values)at the headquarter level.
D)Firms can reverse previously recognized impairment losses.
Answer: B
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Page 4
Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Percy Inc.acquired 80% of the outstanding stock of Sillson Company in a business combination.The book values of Sillson's net assets are equal to the fair values except for the building,whose net book value and fair value are $500,000 and $800,000,respectively.At what amount is the building reported on the consolidated balance sheet?
A)$400,000
B)$500,000
C)$640,000
D)$800,000
Answer: D
Q2) Pomograte Corporation bought 75% of Sycamore Company's common stock,with a book value of $900,000,on January 2,2014 for $750,000.The law firm of Dewey,Cheatam and Howe was paid $55,000 to facilitate the purchase.At what amount should Pomograte's Investment in Sycamore account be reported on January 2,2014?
A)$675,000
B)$695,000
C)$750,000
D)$845,000
Answer: C
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Chapter 4: Consolidated Techniques and Procedures
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Q1) When performing a consolidation,if the balance sheet does not balance,
A)that indicates that the Investment in Subsidiary account on the parent's books should not be adjusted to -0-,because there is excess value represented in the investment.
B)it is frequently because of the noncontrolling interest,as these amounts do not appear on the separate companies' general ledgers.
C)the debit and credit totals of the adjusting/eliminating columns of the consolidation working paper should be checked to confirm that they balance,and if so,then there is no need to check the individual line items.
D)the amount that it is "off" will always equal the noncontrolling interest in the current year net income of the subsidiary.
Q2) Adjustments made for consolidation statements impact both the parent and subsidiary general ledger accounts.
A)True
B)False
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) Plateau Incorporated bought 60% of the common stock of Sachet Company several years ago.At the time of purchase,the fair value and book value of Sachet's net assets were equal.The cost of the 60% investment was equal to 60% of the book value of Sachet's net assets.Plateau sells merchandise to Sachet at 125% above Plateau's cost.Intercompany sales from Plateau to Sachet for 2014 were $60,000.Unrealized profits in Sachet's December 31,2013 inventory and December 31,2014 inventory were $6,000 and $4,500,respectively.Sachet reported net income of $120,000 for 2014.
Required: In General Journal format,prepare consolidation working paper entries at December 31,2014 to eliminate the effects of the intercompany inventory sales.
Q2) A(n)________ sale is a sale by a parent company to a subsidiary.A(n)________ sale is a sale by a subsidiary to a parent company.
A)deferred; realized
B)realized; deferred
C)upstream; downstream
D)downstream; upstream
Q3) A downstream sale is a sale by a parent to a subsidiary.
A)True
B)False
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) A gain or loss on sales downstream from parent to subsidiary is initially included in parent income and must be 100% eliminated.
A)True
B)False
Q2) Parrot Company owns all the outstanding voting stock of Southern Manufacturing.On January 1,2014,Parrot sold machinery to Southern at its book value of $24,000.Parrot had the machinery three years before selling it and used an eight-year straight-line depreciation method,with zero salvage value.Southern will use the straight-line depreciation method,and assumes the machine has five years remaining and no salvage value.In the 2014 consolidating working papers,the depreciation expense A)required no adjustment.
B)decreased by $4,800.
C)increased by $4,800.
D)increased by $8,000.
Q3) Unrealized inventory profits self-correct over any three accounting periods.
A)True B)False
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) 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
Q2) Controlling interest share of consolidated net income for 2013 was
A)$443,600.
B)$444,000.
C)$444,400.
D)$448,000.
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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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) The GAAP stipulates that transactions of an investee of a capital nature that affect the investor's share of stockholders' equity of the investee should be accounted for as if the investee were a consolidated subsidiary if accounting for an equity investment under a one-line consolidation.
A)True
B)False
Q2) At December 31,2014 year-end,Arnold Corporation's investment in Oakes Inc.was $200,000 consisting of 80% of Oakes's $250,000 stockholders' equity on that date.On April 1,2015,Arnold sold 20% interest (one-fourth of its holdings)in Oakes for $65,000.During 2015,Oakes had net income of $75,000 (earned uniformly)and on July 1,2015,Oakes paid dividends of $40,000.Arnold uses the equity method to account for the investment. Required:
1.What is the gain or loss on sale of the 20% interest?
2.Record the journal entries for Arnold for the year ending December 31,2015.Use the beginning-of-the-year-sale-date assumption.
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Chapter 9: Indirect and Mutual Holdings
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Q1) On January 1,2014,Adam Corporation purchased a 90% interest in Rodney Corporation.On January 1,2014,Rodney Corporation purchased an 80% interest in Ben Corporation.
In all investment acquisitions,the cost of the interest was equal to the book value of the interest and the fair value of the interest.The following information is available for 2014: \(\begin{array}{lcc}
&\text { Purchase Cost } &\text { Net Income (Net Loss) for } 2014\\
\text { Adam } & \$ 1,000,000 & \$ 200,000 \\
\text { Rodney } & \$ 10,000 & (\$ 10,000) \\
\text { Ben } & \$ 15,000 & \$ 50,000
\end{array}\)
The separate net incomes do not include investment income.
Required:
1.What is controlling interest share of consolidated net income for 2014?
2.What is noncontrolling interest shares of consolidated net income for 2014?
Q2) Mutual holdings occur when affiliates hold ownership interests in each other.
A)True B)False
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Page 11
Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Pan Corporation has total stockholders' equity of $5,000,000 consisting of $1,000,000 of $10 par value Common Stock,$1,000,000 of Additional Paid-in Capital,and $3,000,000 of Retained Earnings.Pan owns 80% of Sailor Corporation's common stock purchased at book value,which equals fair value.Sailor has $900,000 of 10% cumulative preferred stock outstanding,with no preferred dividends in arrears.The preferred stock has no call price,redemption price or liquidation price.Pan acquired 60% of the preferred stock of Sailor for $500,000.After this transaction the balances in Pan's Retained Earnings and Additional Paid-in Capital accounts,respectively,are
A)$2,960,000 and $1,000,000.
B)$3,000,000 and $960,000.
C)$3,000,000 and $1,040,000.
D)$3,040,000 and $1,000,000.
Q2) All dividends in arrears on cumulative preferred stock are included in the equity allocated to preferred stockholders.
A)True
B)False
Q3) The calculation of parent EPS and consolidated basic EPS are identical.
A)True
B)False
Page 12
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Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) Goodwill was reported in the December 31,2014 consolidated balance sheet at A)$170,000.
B)$180,000.
C)$200,000.
D)$210,000.
Q2) Income attributable to the noncontrolling interest is treated as an expense.
A)True
B)False
Q3) Companies in which equity investors cannot provide financing for the entity's business risks and activities without additional financial support are considered variable interest entitites according to the GAAP.
A)True
B)False
Q4) Assume the entity theory is used.On January 2,2014,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.
A)$27,000; $30,000
B)$27,000; $34,500
C)$30,000; $30,000
D)$30,000; $35,000
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) When the billing for a U.S.company's sale to a company in a foreign country is denominated in U.S.dollars,________ is required when preparing journal entries for the sale.
A)translation to a foreign currency
B)conversion to a foreign currency
C)translation to U.S.dollars
D)no translation
Q2) On November 4,2014,the Oak Corporation,a U.S.corporation,purchased components for an assembly machine from Maple Industries,a Canadian Company,which were put into Parts Inventory.The purchase price was 80,000 Canadian dollars and Oak agreed to pay in Canadian dollars in 90 days.Both corporations are on a calendar year accounting period.Assume that the spot rates for the Canadian dollar on November 4,2014,December 31,2014,and February 2,2015,are $0.9985,$1.0191,and $1.0064,respectively.
Required:
Record the November 4,December 31,and February 2 transactions in the General Journals of Oak Corporation and Maple Industries.If no entry is required on a particular date,indicate "No entry" in the General Journal.
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Page 14
Chapter 13: Accounting for Derivatives and Hedging
Activities
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Q1) The net gain or loss in earnings during the period for a fair-value hedge must be reported in the financial statement footnotes.
A)True
B)False
Q2) The purchase price of an option contract is typically recorded as
A)an expense.
B)an asset.
C)an amortized cost.
D)a component of shareholders equity.
Q3) One characteristic of a derivative is it does not require or permit net settlements.
A)True
B)False
Q4) If an existing asset is being hedged,it and the derivative are marked to fair value at the end of every month.
A)True
B)False
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Page 15
Chapter 14: Foreign Currency Financial Statements
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Q1) At the time of a business acquisition,
A)identifiable assets and liabilities are allocated the portion of the translation or remeasurement adjustment that existed on the date of acquisition.
B)a foreign entity's assets and liabilities are translated into U.S.dollars using the current exchange rate in effect on that date.
C)the difference between investment fair value and translated net assets acquired is treated as a remeasurement gain or loss on the income statement.
D)the difference between investment fair value and translated net assets acquired is recorded as a cumulative translation adjustment on the balance sheet.
Q2) The GAAP permits two methods for converting the foreign subsidiary's financial statements into U.S.dollars: temporal method and the fixed rate method.
A)True
B)False
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16
Chapter 15: Segment and Interim Financial Reporting
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Q1) The gross profit method for estimating inventory and cost of goods sold can be used for interim financial reports if the periodic inventory method is not used and it is too costly to perform an inventory count.
A)True
B)False
Q2) 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
Q3) For an operating segment to be considered a reporting segment under the revenue threshold,its reported revenue must be 10% or more of
A)the combined enterprise revenues,eliminating all relevant intracompany transfers and balances.
B)the combined revenues,excluding intersegment revenues,of all operating segments.
C)the combined revenues,including intersegment revenues,of all operating segments.
D)the consolidated revenue of all operating segments.
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17
Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) Austin contributes his computer equipment to the landscaping partnership he starts with Bentley.At what amount should the computer equipment be credited to Austin's partnership capital?
A)The tax basis
B)The fair value at the date of contribution
C)Austin's original cost
D)At the amount that Bentley contributes,with the assumption that they both contribute equally to the partnership
Q2) If the average capital for Bertram and Ernest from the above information is $224,000 and $238,000,respectively,what will be the total amount of profit allocated to salary and interest distributions?
A)$93,800
B)$146,200
C)$218,200
D)$240,000
Q3) Under a partnership,each partner has mutual agency and limited liability.
A)True
B)False
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Chapter 17: Partnership Liquidation
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Q1) Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss sharing ratios because
A)using ownership percentages would permit solvent partners to not share profits with insolvent partners.
B)the residual profit and loss ratios represent the ownership percentages.
C)these amounts represent profits and losses from prior periods that would have been shared using the residual profit and loss ratios.
D)using the established profit and loss sharing ratios is not permitted.
Q2) If a partner has a debit capital balance at the time of liquidation,the partner may be required to use their personal funds to settle their partnership obligations.
A)True
B)False
Q3) In a schedule of assumed loss absorptions
A)the partner with lowest loss absorption is eliminated last.
B)it is necessary to have a cash distribution plan first.
C)the least vulnerable partner is eliminated first.
D)the most vulnerable partner is eliminated first.
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) A bankruptcy petition filed by a firm's creditors is
A)a Chapter 2 petition.
B)a petition for liquidation.
C)an involuntary petition.
D)a voluntary petition.
Q2) Chapter 7 bankruptcy appoints a trustee to sell off the assets of the company and pay claims to its creditors.
A)True
B)False
Q3) Ohio Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.05 on the dollar.Lender Bank holds a $100,000 mortgage note receivable from Ohio that is secured by equipment with a $120,000 book value and a $90,000 fair value,and a second mortgage on the same equipment amounting to $50,000.
Required:
How much of the mortgage receivable will be recovered by Lender?
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) The following are transactions for the city of Greenville.
a.Issued $50,000 10-year bonds.
b.Used $30,000 of the cash to buy a truck.
c.Sold the truck that was replaced which had cost $28,000,for $2,000.The old truck was fully depreciated.Residual value is zero.
d.Computed depreciation on the new truck for the year of $6,000.
Required:
Analyze the above transactions by using the accounting equation for a proprietary fund.
Q2) The accounting equation for a governmental fund is
A)Assets = Liabilities + Equity.
B)Current assets + Noncurrent assets - Current liabilities - Noncurrent liabilities = Net position.
C)Current assets - Current liabilities = Fund Balance.
D)Assets = Liabilities + Fund Balance.
Q3) Government business type activities provide services to users for fees that are intended to recover all or a portion of the costs of providing the services.
A)True
B)False
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Old West City had the following transactions in fiscal 2014.Assume that all expenditures were properly appropriated in the fiscal 2014 budget.
1.A six-month loan was made to the special revenue fund from the general fund amounting to $28,000.
2.A purchase order for landscaping maintenance services was issued in the amount of $43,000.
3.A $10,000 nonreciprocal transfer was made to the debt service fund to pay interest amounts outstanding.
4.The final invoice for landscaping maintenance was received in the amount of $39,000,and it was scheduled to be paid in 30 days.
5.The city enters into a capital lease of fixed assets for the general government.The present value of the minimum lease payments equals $70,000.
Required:
Prepare the journal entries for the General Fund.
Q2) Capital project funds may be used for any capital facilities or other capital assets.
A)True
B)False
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Page 22
Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Proprietary funds are required to prepare financial statements that include: A. Statement of Activities
B. Statement of Revenues, Expenditures and Changes in Fund Balance
C. Balance Sheet
D. Statement of Cash Flows
E. Statement of Net Position
F. Statement of Revenues, Expenses and Changes in Net Position
A)C,D,F
B)A,B,D
C)B,C,D
D)D,E,F
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) Governments use proprietary funds to account for business-type activities.
A)True
B)False
Page 23
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Contractual adjustments are discounts arranged with third-party payors that frequently have agreements to reimburse at less-than-established rates.
A)True
B)False
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.
Q3) The FASB ASC is the primary authority over accounting principles for governmental colleges and universities.
A)True
B)False
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Chapter 23: Estates and Trusts
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Q1) In reference to the Uniform Probate Code,which of the following statements is correct?
A)The Code entitles the surviving spouse to a homestead allowance that is exempt from,and has priority over,all claims against the estate.
B)The Code provides a homestead allowance to the surviving spouse of $100,000.
C)The Code provides an allowance for dependents,after other claims have been settled.
D)The Code entitles the surviving spouse to claim 100% of the estate after claims to third-parties are settled.
Q2) A trust created pursuant to a will is referred to as a testamentary trust.
A)True
B)False
Q3) Under the Uniform Probate Code,the personal representative must publish for what time period a notice in a newspaper of general circulation in the county in which the decedent resided?
A)For one week
B)For two weeks
C)For three weeks
D)For five weeks
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