Special Topics in Accounting Study Guide Questions
Course Introduction
Special Topics in Accounting explores advanced and emerging issues within the field of accounting beyond the scope of traditional courses. The course is designed to address contemporary developments, current events, regulatory changes, and technological advancements impacting accounting practices. Through case studies, research assignments, and class discussions, students will analyze topics such as international accounting standards, forensic accounting, accounting for sustainability, advanced financial reporting, and the use of data analytics in accounting. The curriculum may vary each semester to reflect the most relevant trends and challenges, providing students with the knowledge and analytical skills necessary to navigate the evolving landscape of the accounting profession.
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) It is frequently more expensive for a firm to obtain needed facilities through combination than through development.
A)True
B)False
Answer: False
Q2) Durer Inc.acquired Sea Corporation in a business combination and Sea Corp.went out of existence.Sea Corp.developed a patent listed as an asset on Sea Corp.'s books at the patent office filing cost.In recording the combination,
A)fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp.
B)Sea Corp.'s prior expenses to develop the patent are recorded as an asset by Durer at purchase.
C)the patent is recorded as an asset at fair market value.
D)the patent's market value increases goodwill.
Answer: C
Q3) Firms should conduct an impairment test for goodwill at least quarterly.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Which method of accounting will generally be used when one company purchases between 20% to 50% of the outstanding stock of another company?
A)Only the fair value method may be used.
B)Only the equity method may be used.
C)The GAAP prescribed the equity method may be used.
D)The GAAP prescribed the fair value method may be used.
Answer: C
Q2) Jacana Corporation paid $200,000 for a 25% interest in Lilypad Corporation's common stock on January 1,2013,but was not able to exercise significant influence over Lilypad.During 2014,Jacana reported income of $120,000,excluding its income from Lilypad,and paid dividends of $50,000.Lilypad reported net income of $40,000 during 2014 and paid dividends of $20,000.Jacana should report net income for 2014 in the amount of
A)$115,000.
B)$120,000.
C)$125,000.
D)$130,000.
Answer: C
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The GAAP requires a noncontrolling interest in a subsidiary be displayed and labeled in the consolidated balance sheet as a separate component of equity.
A)True
B)False
Answer: True
Q2) A parent's income from subsidiary investments can be referred to investment income from subsidiary.
A)True
B)False
Answer: True
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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Page 5
Chapter 4: Consolidated Techniques and Procedures
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Q1) The direct method of the consolidated cash flow statement begins with the controlling share of consolidated net income.
A)True
B)False
Q2) 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.
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) Sales by a subsidiary to its parent affects the operating income of the parent when the merchandise is resold.
A)True
B)False
Q2) Pirate Transport bought 80% of the outstanding voting stock of Seaways Shipping at book value several years ago.(At the time of purchase,the fair value and book value of Seaways' net assets were equal.)Pirate sells merchandise to Seaways at 120% above Pirate's cost.Intercompany sales from Pirate to Seaways for 2014 were $450,000.Unrealized profits in Seaways' December 31,2013 inventory and December 31,2014 inventory were $17,000 and $15,000,respectively.Seaways reported net income of $750,000 for 2014.
Required:
1.Determine Pirate's income from Seaways for 2014.
2.In General Journal format,prepare consolidation working paper entries at December 31,2014 to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.
Q3) Parent sales to its subsidiary increase parent sales,COGS and gross profit.
A)True
B)False
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Page 7
Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) Porter Corporation acquired 70% of the outstanding voting common stock of Sherman Inc.in 2008.On January 1,2009,Sherman Inc.purchased a depreciable machine for $120,000 cash with an estimated useful life of 10 years that was depreciated on a straight-line basis.The machine has no estimated salvage value.Sherman used the machine until the end of 2011.On January 2,2012,Sherman sold the machine to Porter who continued to use the same estimated life (seven years remaining),salvage value and depreciation method that was used by Sherman.At the end of 2012,Sherman reported a gain on sale of the machine of $14,000.
Required:
Answer the following questions concerning Porter and Sherman.
1.Prepare elimination/adjusting entries for the consolidated working papers for the year ended December 31,2012.
2.How much depreciation expense relating to the transferred asset did Porter record in 2012 on the company's separate books?
3.How much depreciation expense relating to the transferred asset was reported on the consolidated income statement in 2012?
4.What amounts were reported for the Machine and the Accumulated Depreciation in the consolidated balance sheet on December 31,2012?
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Page 8
Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Consolidated Interest Expense and consolidated Interest Income,respectively,that appeared on the consolidated income statement for the year ended December 31,2013 was
A)$10,800 and $0.
B)$10,800 and $6,600.
C)$0 and $0.
D)$16,200 and $6,600.
Q2) If the price paid by an affiliate to acquire the debt of another is less than the book value of the debt,a constructive loss on retirement of debt occurs.
A)True
B)False
Q3) The loss on the retirement of bonds only appears in the consolidated income statement in the year in which we constructively retire the bonds. A)True
B)False
Q4) When a company issues bonds,the bond liability will reflect the current market rate of interest.
A)True
B)False
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2,2014.Giant's percentage ownership immediately after the sale of additional stock would be
A)66-2/3%.
B)75%.
C)80%.
D)83-1/3%.
Q2) A stock split by a subsidiary increases the number of shares outstanding,but it does not affect the net assets of the subsidiary or the individual equity accounts.
A)True
B)False
Q3) Whenever a parent ceases to have a controlling interest,the subsidiary should be deconsolidated and recorded as either an equity method or cost method investment.
A)True
B)False
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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) Ackroyd's noncontrolling interest share for 2014 is
A)$7,609.
B)$8,044.
C)$15,652.
D)$23,696.
Q3) Noncontrolling interest share for Achille is
A)$18,000.
B)$25,200.
C)$36,200.
D)$72,000.
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Page 11
Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) For the year ending December 31,2014,the amount of Pamplin's income from Sage (associated with the common stock investment in Sage)is
A)$32,400.
B)$36,000.
C)$60,000.
D)$90,000.
Q2) 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
Q3) What is the goodwill on the consolidated balance sheet for Pamplin and Subsidiaries on December 31,2014 based on Pamplin's purchase of Sage's common stock?
A)$140,000
B)$240,000
C)$290,000
D)$306,667
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12
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)$210,000.
Q2) The Securities and Exchange Commission requires the use of push-down accounting for SEC filings when a subsidiary is substantially wholly-owned with no substantial publicly held debt or preferred stock outstanding.
A)True
B)False
Q3) Under GAAP,the ________ will include the variable interest entity in consolidated financial statements.
A)special purpose entity
B)limited liability company
C)trust
D)primary beneficiary
Q4) Push-down capital is an additional paid-in capital account.
A)True
B)False
Page 13
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) If a sale on account by a U.S.company is made with a foreign company,and the U.S.company has no foreign currency risk,then
A)the U.S.company has measured the transaction in U.S.dollars.
B)the U.S.company has denominated the transaction in U.S.dollars.
C)the foreign company has measured the transaction in their own currency.
D)the foreign company has denominated the transaction in their own currency.
Q2) A U.S.importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the
A)dollar weakened relative to the Korean won and the won was the denominated currency.
B)dollar weakened relative to the Korean won and the dollar was the denominated currency.
C)dollar strengthened relative to the Korean won and the won was the denominated currency.
D)dollar strengthened relative to the Korean won and the dollar was the denominated currency.
Q3) Swaps are contracts to exchange an ongoing stream of cash flows.
A)True
B)False
Page 14
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) Assuming a present value factor of 1 for simplicity,what is the fair value of this forward contract on November 2?
A)$-0-
B)$100 asset
C)$100 liability
D)$38,100 asset
Q2) Taydus Corporation,a U.S.corporation,sold goods on December 2 to a company overseas,and is now carrying a receivable denominated in euros.Taydus signed a 60-day forward contract on that same date to sell euros.The spot rate was $1.40 on the date they signed the contract and the 60-day forward rate was $1.36.At the end of that month when they closed the books at their fiscal year-end,the spot rate was $1.42 and the 30-day forward rate was $1.40.Assume this is a fair value hedge.The forward contract will not be settled net.What would be reported by Taydus for the year ending December 31?
A)Net exchange gain
B)Net exchange loss
C)Deferred exchange gain
D)Deferred exchange loss
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Chapter 14: Foreign Currency Financial Statements
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Q1) Which of the following statements about the Current Rate method is false?
A)Translation involves restating the functional currency amounts into the reporting currency.
B)All assets and liabilities are translated at the current rate.
C)If the subsidiary maintains their books in their functional currency,the current rate method is used.
D)The effect of exchange rate changes are reported on the income statement as a foreign exchange gain or loss.
Q2) When all elements of the financial statements are translated using a current exchange rate,it is referred to as the current rate method.
A)True
B)False
Q3) All of the following factors would be used to define a foreign entity's functional currency,except
A)high volume of intercompany transactions.
B)expenses for foreign entity primarily driven by local factors.
C)financing for foreign entity denominated in local currency.
D)foreign entity's status as a local tax haven for transfer pricing purposes.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) Pensions and corporate headquarters are all part of an operating segment.
A)True
B)False
Q2) Jacana Company uses the LIFO inventory method.During the second quarter,Jacana experienced a 100-unit liquidation in its LIFO inventory at a LIFO cost of $430 per unit.Jacana considered the liquidation temporary and expects to replace the units in the third quarter at an estimated replacement cost of $460 a unit.The cost of goods sold computation in the interim report for the second quarter will
A)include the 100 liquidated units at the $460 estimated replacement unit cost.
B)include the 100 liquidated units at the $430 LIFO unit cost.
C)be understated by $3,000.
D)be overstated by $3,000.
Q3) Interim financial reports provide more timely,extensive information than annual financial reports.
A)True
B)False
Q4) Management-approach-based segments are called operating segments.
A)True
B)False
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) Drawings
A)are advances to a partnership.
B)are loans to a partnership.
C)are a function of interest on partnership average capital.
D)are the same nature as withdrawals.
Q2) What partnership capital will Robert have after Quincy retires?
A)$200,000
B)$280,000
C)$360,000
D)$440,000
Q3) When property is invested in the partnership,it is recorded at fair value. A)True
B)False
Q4) Under a partnership,each partner has mutual agency and limited liability. A)True
B)False
Q5) When a partner dissociates from the partnership,the partnership operation is terminated.
A)True
B)False
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Chapter 17: Partnership Liquidation
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Q1) The book value of the partnership equity (i.e.,total equity of the partners)on June 30,2014 is
A)$ 58,000.
B)$ 60,000.
C)$ 84,000.
D)$120,000.
Q2) 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.
Q3) The liquidation of a partnership is covered under Section 807 of the Uniform Partnership Act of 1997.
A)True
B)False
Q4) A partnership is solvent if enough resources exist to pay creditors and make a cash distribution to the partners.
A)True
B)False
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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) 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.
Q3) In the bankruptcy process a statement of affairs is prepared and filed by the trustee.The statement of affairs shows the income statement information.
A)True
B)False
Q4) The inability to make payments on time is equity insolvency.
A)True
B)False
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Page 20
Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Proprietary funds report revenues and expenses using a modified-accrual basis of accounting.
A)True
B)False
Q2) For each of the following events or transactions,identify the type of fund(s)that will be affected.
1.A central purchasing department was established to handle all the purchasing needs of a county government.
2.A county government levies sales taxes restricted as to use for job creation.
3.A county government receives a large contribution specifying that income from the contribution be distributed each year to the county zoo.The principal is to remain intact indefinitely.
4.A city government paid construction costs of $12,000 on city hall building.
5.A city government paid general operating costs.
Q3) The key focus of government fund accounting concerns
A)capital expenditures.
B)intergovernmental transfers from the general fund.
C)income measurement.
D)the current ability to provide and fund services and goods.
Page 21
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Goodwill County had the following transactions for their General Fund in the first month of their fiscal 2014 year,which ends June 30,2014.
1.The budget was approved,with $1,200,000 expected from property taxes,and another $5,000,000 expected from sales taxes.The budget showed these funds were expected to be spent on Salaries and Wages,$3,100,000; Utilities,$1,800,000; Rent,$900,000; and Supplies,$200,000.
2.Supplies were ordered in the amount of $33,000.
3.The electric bill was paid upon receipt in the amount of $75,000.
4.Property taxes were billed in the amount of $1,200,000,due on December 31.Bad debts are estimated at 1% of receivables.
5.Supplies were received,but the invoice amount was $35,000 and will be paid in 35 days.Supplies are used quickly and are not inventoried.
6.Property tax payments were received amounting to $100,000.
7.Payment was received from merchants for sales tax collections amounting to $400,000.
Required:
Prepare the journal entries for the General Fund that would be required for these transactions.
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Page 22
Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Interest payments on loans outstanding that do not relate to acquiring,constructing or improving capital assets are classified as ________ on the cash flow statement for an Enterprise Fund.
A)Cash Flows from Operating Activities
B)Cash Flows from Noncapital Financing Activities
C)Cash Flows from Capital and Related Financing Activities
D)Cash Flows from Investing Activities
Q2) In a Statement of Cash Flows for a proprietary fund,what are the primary categories of cash flow activities?
A)Operating,Financing,Investing
B)Operating,Noncapital Financing,Capital and Related Financing,Investing
C)Operating,Financing,Noncapital Investing,Capital and Related Investing
D)Noncapital Operating,Capital and Related Operating,Investing,Financing
Q3) The accounting equation for proprietary funds: Current Assets - Noncurrent Assets + Current Liabilities - Noncurrent Liabilities = Net position.
A)True
B)False
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) In a not-for-profit,private university,the federal grant funds given directly to students for financial aid are an example of A)a bequest.
B)an agency transaction.
C)unrestricted revenue.
D)a restricted contribution.
Q2) Governmental not-for-profit entities follow GASB. A)True
B)False
Q3) 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.
Q4) The FASB ASC is the primary authority over accounting principles for governmental colleges and universities.
A)True
B)False
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24
Chapter 23: Estates and Trusts
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Q1) 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
Q2) A deceased person that has a valid will in force at the time of death is said to have died intestate.
A)True
B)False
Q3) In reference to estates,which of the following statements is correct?
A)An estate comes into existence at the death of an individual.
B)If the deceased person had a valid will at the time of death,he or she is said to have died intestate.
C)The heir receiving the largest portion of the estate is typically appointed the executor. D)Claims may be made for up to seven years against an estate.
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