Partnership Accounting Exam Practice Tests
Course Introduction
Partnership Accounting explores the principles and procedures involved in the financial management of partnerships. This course covers the formation, operation, and dissolution of partnership firms, emphasizing partner capital accounts, income allocation, admission and retirement of partners, goodwill valuation, and changes in ownership structure. Students will learn how to prepare and analyze partnership financial statements, address legal and tax considerations, and apply relevant accounting standards to real-world scenarios. The course equips students with practical skills to handle complex accounting issues unique to partnerships, preparing them for roles in public accounting, business management, and entrepreneurship.
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) When considering an acquisition,which of the following is NOT a method by which one company may gain control of another company?
A)Purchase of the majority of outstanding voting stock of the acquired company.
B)Purchase of all assets and liabilities of another company.
C)Purchase of all the outstanding voting stock of the acquired company.
D)Purchase of 25% of outstanding voting stock of the acquired company.
Answer: D
Q2) In an acquisition,if the fair value of identifiable assets acquired over liabilities assumed exceed the cost of the acquired company the gain is recognized as an extraordinary gain by the acquiror.
A)True
B)False
Answer: False
Q3) In August 1999,the Financial Accounting Standards Board issued a report supporting its proposed decision to eliminate the pooling of interests method to account for business combinations.
A)True
B)False
Answer: True
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Page 3
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) Griffon Incorporated holds a 30% ownership in Duck Corporation.Griffon should use the equity method under which of the following circumstances?
A)Griffon has surrendered significant stockholder rights by agreement between Griffon and Duck.
B)Griffon has been unable to secure a position on the Duck Corporation's Board of Directors.
C)Griffon has inadequate or untimely information to apply the equity method.
D)The ownership of Duck Corporation is diverse.
Answer: D
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4
Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The consolidated financial statements are primarily for the benefit of managers of the parent company.
A)True
B)False
Answer: False
Q2) 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
Q3) Push-down accounting is the process of recording the effects of the acquisition price assignment directly on the books of the parent company.
A)True
B)False
Answer: False
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Chapter 4: Consolidated Techniques and Procedures
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Q1) Under the equity method of accounting parent-retained earnings and the consolidated-retained earnings are equal.
A)True
B)False
Q2) The consolidated cash flow statement is prepared from the consolidated income statement and consolidated balance sheet.
A)True B)False
Q3) What is the amount of total assets?
A)$1,380,000
B)$1,402,000
C)$1,470,000
D)$1,875,000
Q4) What is the amount of consolidated Retained Earnings?
A)$224,000
B)$259,200
C)$304,000
D)$324,000
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6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A)$512,000.
B)$526,000.
C)$522,500.
D)$528,000.
Q2) A subsidiary's realized income is its reported net income adjusted for intercompany profits from upstream sales.
A)True
B)False
Q3) The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31,2014 will show consolidated cost of sales of
A)$120,000.
B)$136,000.
C)$148,000.
D)$210,000.
Q4) Sales by a subsidiary to its parent affects the operating income of the parent when the merchandise is resold.
A)True
B)False
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) 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.
Q2) 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 $6,000 to Gain on Sale of Equipment.
Q3) Unrealized inventory profits self-correct over any three accounting periods. A)True B)False
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) A constructive retirement of parent bonds occurs when an affiliate purchases outstanding bonds of the parent.
A)True
B)False
Q2) With respect to the bond purchase,the consolidated income statement of Pfadt Corporation and Subsidiary for 2013 showed a gain or loss of
A)$ 4,500.
B)$ 5,000.
C)$10,800.
D)$12,000.
Q3) The gain from the bond purchase that appeared on the December 31,2013 consolidated income statement was
A)$4,320.
B)$4,800.
C)$5,400.
D)$6,000.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) On September 1,2013,Nelson Corporation acquired a 90% interest in Corbin Corporation for $900,000.Corbin's stockholders' equity at January 1,2013 consisted of $200,000 of Common Stock and $600,000 of Retained Earnings.The book values of its assets and liabilities were equal to their respective fair values on this date.All excess purchase cost was attributed to goodwill.
During 2013,Corbin uniformly earned $98,000 and paid dividends of $19,000 on each of four dates: February 1,June 1,August 1,and December 1.
Required: Compute the following:
1.Implied goodwill associated with Corbin Corporation based on Nelson's purchase price on September 1,2013.
2.Nelson's income from Corbin for 2013.
3.Preacquisition income for Nelson Corporation and Subsidiary for 2013.
4.Noncontrolling interest share for 2013.
5.What is the balance in Nelson's Investment in Corbin account at December 31,2013?
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Chapter 9: Indirect and Mutual Holdings
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Q1) Paik Corporation owns 80% of Acdol Corporation and 60% of Ben Corporation.Acdol Corporation owns 10% of Ben Corporation.All subsidiary investments were acquired at book value.There are no fair value/book value differentials associated with each investment.Separate net incomes (excluding investment income)of the affiliated companies for 2014 are:
\[\text { Paik: } \quad \$ 600,000 \text { which includes \$60,000 unrealized losses on inventcry items sold to Ben }\] \[\text { Acdol: } \quad\$ 360,000\] \[\text { Ben: } \quad \$ 340,000 \text { whirh includes } \$ 100,000 \text { unrealized profit on land sold to Acdol }\] Required:
Determine controlling interest share of consolidated net income and noncontrolling interest shares for Paik Corporation and Subsidiaries for 2014.
Q2) 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
Q3) Consolidation procedures for direct and indirect holdings are the same. 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) All dividends in arrears on cumulative preferred stock are included in the equity allocated to preferred stockholders.
A)True
B)False
Q2) Palmer Company owns a 25% interest in Sad,Incorporated,a domestic company.Sad had net income of $60,000 and paid dividends of $20,000.Palmer's tax rate is 35%.For simplicity,assume that Sad's undistributed earnings are Palmer's only temporary timing difference.Assume Sad qualifies for the 80% dividend received deduction.Which of the following statements is correct?
A)The current tax liability is $700.
B)The current tax liability is $1,050.
C)Under GAAP,Palmer provides for income taxes on Sad's undistributed earnings with a credit to deferred tax liability of $700.
D)Under GAAP,Palmer provides for income taxes on Sad's undistributed earnings with a credit to deferred tax liability of $1,050.
Q3) The calculation of parent EPS and consolidated basic EPS are identical.
A)True
B)False
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Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.
A)book value; subsidiary
B)book value; parent
C)fair value; subsidiary
D)present value; parent
Q2) Goodwill was reported in the December 31,2014 consolidated balance sheet at
A)$170,000.
B)$180,000.
C)$200,000.
D)$210,000.
Q3) Push-down accounting is the establishment of a new accounting and reporting basis for an entity in its separate financial statements,based on a purchase transaction in the voting stock of the entity that results in a substantial change of ownership of the outstanding voting stock of the entity.
A)True
B)False
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Page 13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) Which of the following statements is true regarding forward contracts,futures contracts,options and swaps?
A)A forward contract can be purchased on the open market and is recorded at its historical cost,then adjusted for changes in the market.
B)A futures contract is negotiated between two parties who are betting in the opposite direction on the movement of the underlying price.
C)An option is a contract requiring the holder to either "put" or "call" an underlying asset at a specified point in time.
D)A swap is a contract between two parties to exchange an ongoing stream of cash flows.
Q2) A put option requires the seller to buy an asset at market price and the buyer of the put option has the option to sell the asset at market.
A)True
B)False
Q3) Forward contracts are very standardized and easily traded in the markets. A)True
B)False
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Page 14
Chapter 13: Accounting for Derivatives and Hedging
Activities
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Q1) One characteristic of a derivative is it does not require or permit net settlements.
A)True
B)False
Q2) Assuming a present value factor of 1 for simplicity,what is the fair value of this forward contract on January 31?
A)$-0-
B)$ 60 asset
C)$160 liability
D)$200 liability
Q3) Assuming a present value factor of 1 for simplicity,what is the fair value of this forward contract on November 2?
A)$-0-
B)$100 asset
C)$100 liability
D)$38,100 asset
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Chapter 14: Foreign Currency Financial Statements
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Q1) The primary goal behind consolidating financial statements of a controlled subsidiary is
A)assuring that the subsidiary financial statements are the same under the temporal method or the current rate method.
B)assuring that the individual nature of the subsidiary entity is not lost in the consolidation.
C)representing the conversion of statements at the historical exchange rate.
D)representing the company's underlying economic condition.
Q2) Under the temporal method monetary assets and liabilities are remeasured at historical rates and other assets and equities are remeasured at current exchange rates.
A)True
B)False
Q3) Gains and losses from foreign currency transactions which are designated as economic hedges of a net investment in a foreign subsidiary are recorded as translation adjustments of stockholder's equity.
A)True
B)False
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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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) 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
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Page 17
Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) When a partner dissociates from the partnership,the partnership operation is terminated.
A)True
B)False
Q2) 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).
Q3) A partner assigned his partnership interest to a third party.Which statement best describes the legal ramifications to the assignee?
A)The assignment of the partnership interest does not entitle the assignee to partnership assets upon a liquidation.
B)The assignment dissolves the partnership.
C)The assignee has the right to share in the management of the partnership.
D)The assignee does not become a partner but has the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation.
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Chapter 17: Partnership Liquidation
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Q1) What is the proper disposition of a partnership loan that was made from a partner who has a debit balance in the capital account?
A)The loan is ignored in liquidation.
B)The loan is offset against the debit balance in the capital account.
C)The loan is charged off to the capital accounts of all the partners in their profit and loss sharing ratios.
D)The loan is held for payment after all other capital accounts are covered.
Q2) Creditors of the partnership may seek the personal assets of the partners to satisfy amounts owed.When this happens
A)creditors may only file against partnership assets.
B)creditors must file against all partners and recover their claims based on the individual partner's profit and loss distribution percentage.
C)creditors must file against all partners and recover their claims based on the individual partner's percentage ownership.
D)creditors may file against an individual partner to recover their claims,or against any combination of partners.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) 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?
Q2) The inability to make payments on time is equity insolvency.
A)True
B)False
Q3) Which of the following does not occur for a trustee in a Chapter 7 bankruptcy case?
A)Gains and losses on the sale of assets are debited to the estate equity account.
B)Unrecorded liabilities discovered by the trustee are debited to the estate equity account and credited to the liability account.
C)Liquidation expenses are debited to the estate equity account.
D)An income statement is prepared showing gains and losses on sale of assets.
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20
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 Clinton.
a.Borrowed $100,000 by issuing a one-year,5% note,three months before year-end.
b.Accrued interest at year end,but did not pay the interest at year end.
c.Charges for services rendered of $2,500 were billed and collected immediately.
d.Incurred salary costs of $5,000,unpaid.
Required:
Analyze the above transactions by using the accounting equation for a governmental fund.
Q2) 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.
Q3) Enterprise funds and Internal service funds are Fiduciary Fund types.
A)True
B)False
Page 21
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Middlefield County incurred the following transactions during 2014:
1.The county authorized a new general obligation bond issue of $5 million par to construct an office building with a contract price of $4,975,000.The bonds were issued for $4,980,000.
2.The county levied real property taxes of $10,000,000.Eighty-five percent of the net taxes were collected immediately.Two percent of the total levy was estimated to be uncollectible.
3.The office building was completed and the county paid the contract price to the contractor.
4.The General Fund transferred $500,000 to the Debt Service Fund.
5.The county paid $200,000 for interest on the bonds from the Debt Service Fund.
Required:
Prepare journal entries for each of the above transactions.Identify the appropriate fund or funds used by Middlefield County.
Q2) What statements are required for Government-wide financial statements?
A)Statement of Cash Flows and Balance Sheet
B)Statement of Cash Flows and Statement of Net Assets
C)Statement of Net Position and Statement of Activities
D)Operating Statement and Balance Sheet
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) The three financial statements for a proprietary fund: statement of net position; statement of revenues,expenses,and changes in fund net position; and statement of cash flows.
A)True
B)False
Q2) 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
Q3) GASB Statement No.34 mandates that the indirect method be used for the cash flow statement of proprietary funds.
A)True
B)False
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) In a nongovernmental,nonprofit hospital,contractual adjustments are
A)the discounted rate given to hospital employees.
B)discounts arranged with third-party payors.
C)recorded as a deduction from revenue or as an expense.
D)additional amounts paid by select group participants.
Q2) Voluntary health and welfare organizations
A)may not have paid executives or staff.
B)are governed by separate GASB statements.
C)use fund accounting,following the rules for proprietary fund reporting.
D)are supported by,and provide voluntary services to,the public.
Q3) A donor gives a Voluntary Health and Welfare Organization (VHWO)$1,000 cash that is restricted for a research project.What account does the VHWO credit when the VHWO receives the money?
A)Nonoperating Revenue
B)Permanently Restricted Revenue
C)Unrestricted Support
D)Temporarily Restricted Support
Q4) Nongovernmental not-for-profit entities follow FASB standards.
A)True
B)False
Page 24
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Chapter 23: Estates and Trusts
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Q1) Which of the following are entitled to the remainder of the estate after all other rightful claims on the estate have been satisfied?
A)Remainder beneficiaries
B)Residual beneficiaries
C)Alternate beneficiaries
D)Secondary beneficiaries
Q2) What is the document prepared by the executor or administrator to show accountability for estate property received and maintained or disbursed in accordance with the will?
A)The Administrator/Executor's Fiduciary Report
B)The charge-discharge statement
C)The Administrator/Executor's Testamentary Report
D)The Administrator/Executor's Principal/Income Report
Q3) Which of the following phrases is frequently used to refer to estate or trust accounting?
A)Non-profit accounting
B)Testamentary accounting
C)Fiduciary accounting
D)Temporary accounting
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