__________________________ Name: Date: _____________
1. If a portion of an investment is sold, the value of the shares sold is determined by using
the:
1. first-in, first-out method.
2. average cost method.
3. specific identification method.
A) 1
B)
2
C)
3
D) 1 and 3
2. If a parent company acquires additional shares of its subsidiary's stock directly from the
subsidiary for a price less than their book value:
1. total noncontrolling book value interest increases.
2. the controlling book value interest increases.
3. the controlling book value interest decreases.
A) 1
B)
2
C)
3
D) 1 and 3
3. Under the partial equity method, the workpaper entry that reverses the effect of
subsidiary income for the year includes a:
1. credit to Equity in Subsidiary Income.
2. debit to Subsidiary Income Sold.
3. debit to Equity in Subsidiary Income.
A) 1
B)
2
C)
3
D) both 1 and 2
Page 1
4. Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan
Company on January 1, 2010. Polk's shares were purchased at book value when the fair
values of Sloan's assets and liabilities were equal to their book values. The stockholders'
equity of Sloan Company on January 1, 2010, consisted of the following:
Common stock, $15 par value
$ 450,000
Other contributed capital
337,500
Retained earnings
712,500
Total
$1,500,000
Sloan Company sold 7,500 additional shares of common stock for $90 per share on
January 2, 2010. If Polk Company purchased all 7,500 shares, the book entry to record
the purchase should increase the Investment in Sloan Company account by
A) $562,500.
B)
$590,625.
C)
$675,000.
D) $150,000.
E)
Some other account.
Page 2
5. Polk Company owned 24,000 of the 30,000 outstanding common shares of Sloan
Company on January 1, 2010. Polk's shares were purchased at book value when the fair
values of Sloan's assets and liabilities were equal to their book values. The stockholders'
equity of Sloan Company on January 1, 2010, consisted of the following:
Common stock, $15 par value
$ 450,000
Other contributed capital
337,500
Retained earnings
712,500
Total
$1,500,000
Sloan Company sold 7,500 additional shares of common stock for $90 per share on
January 2, 2010. If all 7,500 shares were sold to noncontrolling stockholders, the
workpaper adjustment needed each time a workpaper is prepared should increase
(decrease) the Investment in Sloan Company by
A) ($140,625).
B)
$140,625.
C)
($112,500).
D) $112,500.
E)
None of these.
Page 3
6. On January 1, 2006, Parent Company purchased 32,000 of the 40,000 outstanding
common shares of Sims Company for $1,520,000. On January 1, 2010, Parent Company
sold 4,000 of its shares of Sims Company on the open market for $90 per share. Sims
Company's stockholders' equity on January 1, 2006, and January 1, 2010, was as
follows:
1/1/0
6
1/1/1
0
Com
mon
stock
, $10
par
value
$400
,000
$400
,000
Othe
r
contr
ibute
d
capit
al
400,
000
400,
000
Retai
ned
earni
ngs
800
,000
1,4
Page 4
A) $68,000.
B)
$170,000.
C)
$96,000.
D) $200,000.
E)
None of these.
Page 5
7. On January 1, 2006, Patterson Corporation purchased 24,000 of the 30,000 outstanding
common shares of Stewart Company for $1,140,000. On January 1, 2010, Patterson
Corporation sold 3,000 of its shares of Stewart Company on the open market for $90 per
share. Stewart Company's stockholders' equity on January 1, 2006, and January 1, 2010,
was as follows:
1/1/0
6
1/1/1
0
Com
mon
stock
, $10
par
value
$
300,
000
$
300,
000
Othe
r
contr
ibute
d
capit
al
300,
000
300,
000
Retai
ned
earni
ngs
6
Page 6
A) $165,000.
B)
$206,250.
C)
$120,000.
D) $142,500.
E)
None of these.
Page 7
8. On January 1, 2006, Peterson Company purchased 16,000 of the 20,000 outstanding
common shares of Swift Company for $760,000. On January 1, 2010, Peterson
Company sold 2,000 of its shares of Swift Company on the open market for $90 per
share. Swift Company's stockholders' equity on January 1, 2006, and January 1, 2010,
was as follows:
1/1/06
1/1/10
Com
mon
stock,
$10
par
value
$200,
000
$200,
000
Other
contri
buted
capita
l
200,0
00
200,0
00
Retain
ed
earnin
gs
400,
000
70
0,000
Page 8
A) $120,000.
B)
$115,000.
C)
$105,000.
D) $84,000.
E)
None of these.
9. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders
results in an increase in the parent's percentage interest in the subsidiary. The parent
company's share of the subsidiary's net assets will increase if the shares are purchased:
A) at a price equal to book value.
B)
at a price below book value.
C)
at a price above book value.
D) will not show an increase.
Use the following to answer questions 10-12:
On January 1, 2006, Perk Company purchased 16,000 of the 20,000 outstanding common shares
of Self Company for $760,000. On January 1, 2010, Perk Company sold 2,000 of its shares of
Self Company on the open market for $90 per share. Self Company's stockholders' equity on
January 1, 2006, and January 1, 2010, was as follows:
1/1/06
1/1/10
Common stock, $10 par value
$ 200,000
$ 200,000
Other contributed capital
200,000
200,000
Retained earnings
400,000
700,000
$800,000
$1,100,000
The difference between implied and book value is assigned to Self Company's land.
10. The amount of the gain on sale of the 2,000 shares that should be recorded on the books
of Perk Company is
A) $34,000.
B)
$85,000.
Page 9
C)
$48,000.
D) $100,000.
E)
None of these.
11. As a result of the sale, Perk Company's Investment in Self account should be credited
for
A) $110,000.
B)
$137,500.
C)
$80,000.
D) $95,000.
E)
None of these.
12. Assuming no other equity transactions, the amount of the difference between implied
and book value that would be added to land on a work paper for the preparation of
consolidated statements on December 31, 2010 would be
A) $120,000.
B)
$115,000.
C)
$105,000.
D) $84,000.
13. Which of the following items is not a specified priority for unsecured creditors in a
bankruptcy petition?
A) Administration fees incurred in administering the bankrupt's estate.
B)
C)
Unsecured claims for wages earned within 90 days and are less than $4,650 per
employee.
Unsecured claims of governmental units for unpaid taxes.
D) Unsecured claims on credit card charges that do not exceed $3,000.
Page 10
14. When fresh-start reporting is used according to Statement of Position (SOP) 90-7, the
implication is that a new firm exists. Which of the following statements is not correct
about fresh-start accounting?
A) Assets are reported at fair values.
B)
Beginning retained earnings is reported at zero.
C)
The fair value of the assets must be less than the post liabilities and allowed claims.
D) The original owners must own less than 50% of the voting stock after
reorganization.
Page 11
15. The following information pertains to the transfer of real estate in regards to a troubled
debt restructuring by Nen Co. to Baker Co. in full settlement of Nen's liability to Baker:
Carryi
ng
amount
of
liabilit
y
settled
$450,0
00
Carryi
ng
amount
of real
estate
transfe
rred
$300,0
00
Fair
value
of real
estate
transfe
rred
$330,0
00
What amount should Nen report as ordinary gain (loss) on transfer of real estate?
A) $(30,000).
Page 12
B)
$30,000.
C)
$120,000.
D) $150,000.
Page 13
16. The following information pertains to the transfer of real estate in regards to a troubled
debt restructuring by Nen Co. to Baker Co. in full settlement of Nen's liability to Baker:
Carryi
ng
amount
of
liabilit
y
settled
$450,0
00
Carryi
ng
amount
of real
estate
transfe
rred
$300,0
00
Fair
value
of real
estate
transfe
rred
$330,0
00
What amount should Baker report as a gain or (loss) on restructuring?
A) $120,000 ordinary loss.
Page 14
B)
$120,000 extraordinary loss.
C)
$150,000 ordinary loss.
D) $150,000 extraordinary loss.
Page 15
17. Bad Company filed a voluntary bankruptcy petition, and the statement of affairs
reflected the following amounts:
Esti
mate
d
Asset
s
Book
Valu
e
Curr
ent
Valu
e
Asset
s
pledg
ed
with
fully
secur
ed
credi
tors
$
900,
000
$
1,11
0,00
0
Asset
s
pledg
ed
parti
ally
Page 16
A) $720,000.
B)
$840,000.
C)
$960,000.
D) $1,080,000.
18. The final settlement with unsecured creditors is computed by dividing:
A) total net realizable value by total unsecured creditor claims.
B)
net free assets by total secured creditor claims.
C)
total net realizable value by total secured creditor claims.
D) net free assets by total unsecured creditor claims.
19. Dodge Corporation entered into a troubled debt restructuring agreement with their local
bank. The bank agreed to accept land with a carrying value of $200,000 and a fair value
of $300,000 in exchange for a note with a carrying amount of $425,000. Ignoring
income taxes, what amount should Dodge report as a gain on its income statement?
A) $0.
B)
$100,000.
C)
$125,000.
D) $225,000.
Page 17
20. The following information pertains to the transfer of real estate in regards to a troubled
debt restructuring by Drier Co. to Cole Co. in full settlement of Drier's liability to Cole:
Carryi
ng
amount
of
liabilit
y
settled
$375,0
00
Carryi
ng
amount
of real
estate
transfe
rred
$250,0
00
Fair
value
of real
estate
transfe
rred
$275,0
00
What amount should Drier report as ordinary gain (loss) on transfer of real estate?
A) $(25,000).
Page 18
B)
$25,000.
C)
$100,000.
D) $125,000.
Page 19
21. The following information pertains to the transfer of real estate in regards to a troubled
debt restructuring by Drier Co. to Cole Co. in full settlement of Drier's liability to Cole:
Carryi
ng
amount
of
liabilit
y
settled
$375,0
00
Carryi
ng
amount
of real
estate
transfe
rred
$250,0
00
Fair
value
of real
estate
transfe
rred
$275,0
00
What amount should Cole report as a gain or (loss) on restructuring?
A) $100,000 ordinary loss.
Page 20
B)
$100,000 extraordinary loss.
C)
$125,000 ordinary loss.
D) $125,000 extraordinary loss.
Page 21
22. Poor Company filed a voluntary bankruptcy petition, and the settlement of affairs
reflected the following amounts:
Estimated
Assets
Book Value
Assets pledged with fully secured creditors
$ 450,000
$ 555,000
Assets pledged partially secured creditors
270,000
180,000
Free assets
630,000
480,000
$1,350,000
Page 22
A) $360,000.
B)
$420,000.
C)
$480,000.
D) $540,000.
23. The goals of the International Accounting Standards Committee include all of the
following except
A) To improve international accounting.
B)
To formulate a single set of auditing standards to be applied in all countries.
C)
To promote global acceptance of its standards.
D) To harmonize accounting practices between countries.
24. Milestones in the transition plan for mandatory adoption of IFRS by US companies
include all of the following except:
A) Improvements in accounting standards.
B)
C)
Limited early adoption of IFRS in an effort to enhance comparability for US
investors
Mandatory use of IFRS by US entities.
D) All of the above are milestones in the transition plan for mandatory adoption of
IFRS by US companies.
25. The roles of the IASC Foundation include
A) establishing global standards for financial reporting.
B)
coordinating the filing requirements of stock exchange regulatory agencies.
C)
financing IASB operations.
D) all of the above are roles of the IASC Foundation.
26. Concerns of the SEC with regard to the mandatory adoption of IFRS by US entities
include all of the following except:
A) the extent to which the standard-setting process addresses emerging issues in a
timely manner.
B) the security and stability of IASC funding.
Page 23
C)
the enhancement of IASB independence through a system of voluntary
contributions from firms in the accounting profession.
D) the degree to which due process is integrated into the standard-setting process .
27. Benefits of the FASB Accounting Standards Codification (ASC) include all of the
following except
A) increases the independence of the FASB.
B)
aids in the convergence of US GAAP with IFRS.
C)
reduces time and effort required to research accounting issues.
D) clearly distinguishes between authoritative and non-authoritative guidance.
28. IFRS and US GAAP differ with regard to financial statement presentation in all of the
following except
A) IFRS generally requires that assets be listed in order of increasing liquidity while
US GAAP requires that assets be listed in order of decreasing liquidity.
B) US GAAP requires expenses to be listed by function while IFRS requires expenses
to be listed by nature.
C) IFRS prohibits extraordinary items which are allowed by US GAAP.
D) IFRS requires two years of comparative income statements while under US GAAP,
three years of income statements are required.
Use the following to answer questions 29-31:
On January 1, 2010, AirFrance purchases an airplane for 14,400,000. The components of the
airplane and their useful lives are as follows:
Component
Frame
Engine
Other
Cost
7,200,000
4,800,000
2,400,000
Useful life
24 years
20 years
10 years
AirFrance uses the straight-line method of depreciation. The asset is assumed to have no salvage
value.
29. Under IFRS, the entry to record the acquisition of the airplane would include
A) a debit to Asset/ Airplane of 14,400,000.
Page 24
B)
a debit to Asset/ Airplane frame of 14,400,000.
C)
a debit to Asset/ Airplane engine of 4,800,000.
D) cannot be determined from the information given.
30. Under US GAAP, the entry to record depreciation expense on the asset at December 31,
2011 will include
A) a credit to accumulated depreciation of 1,200,000.
B)
a debit to depreciation expense of 1,440,000
C)
a debit to depreciation expense of 800,000.
D) a credit to accumulated depreciation of 600,000.
31. Under IFRS, the entry to record depreciation expense on the asset at December 31, 2011
will include a credit to accumulated depreciation of
A) 1,440,000.
B)
1,200,000
C)
800,000.
D) 600,000.
Use the following to answer questions 32-34:
Bellingham Electronics Inc. offers one model of laptop computer for 1000 and a two-year
warranty for 250. The retailer, as part of a Boxing Day promotion, offers a limited-time offer
for the laptop, including delivery and the two-year warranty for 1,180. The cost of the
computer to Bellingham is 700. Any warranty repairs are assumed to be done ratably over
time. Bellingham accounts for transactions using the customer consideration model.
In the first twelve months following the sale, Bellingham incurred 980 of costs servicing the
computers under warranty.
32. Bellingham sells ten laptops to Bertram Inc. under the limited-time promotion. Upon
delivery of the laptops to Bertram, Bellingham will recognize revenue of
A) 9,300.
B)
9,440
Page 25
C)
10,000.
D) 11,800.
33. In the first twelve months following the sale, Bellingham would reduce the Contract
liability warranty account by
A) 784.
B)
980
C)
1,180.
D) 1,380.
34. In the first twelve months, Bellingham would record warranty expense of
A) 784.
B)
980
C)
1,180.
D) 1,380.
35. Significant differences between IFRS and Chinese GAAP include all of the following
except
A) Chinese GAAP allows the use of LIFO while IFRS prohibits it.
B)
Chinese GAAP has different related party disclosure requirements.
C)
Chinese GAAP follows the cost principle while IFRS allows for revaluations and
recoveries of impairment losses.
D) Chinese GAAP uses the equity method of accounting for jointly controlled entities
while IFRS also allows proportionate consolidation.
36. All of the following are options for non-US companies who wish to list securities on a
US exchange except
A) The company can use either IFRS or their local GAAP.
B)
C)
If a company uses their local GAAP they must reconcile net income and
shareholders' equity or fully disclose all financial information required of US
companies.
If a company uses their local GAAP they must reconcile net income and
shareholders' equity and fully disclose all financial information required of US
Page 26
companies
D) The company must file a form 20-F with the SEC.
37. All of the following are true regarding American Depository Receipts (ADRs) except
A) Most ADRs are unsponsored, meaning that the DR bank creates a DR program
without a formal agreement with the issuing non-US company.
B) An ADR is a derivative instrument traded in the US that usually represents a fixed
number of publicly traded shares of a non-US company.
C) ADRs are denominated in US dollars.
D) A Level 1 sponsored ADR is the easiest way for a non-US company to access US
markets.
Page 27
38. On November 1, 2011, American Company sold inventory to a foreign customer. The
account will be settled on March 1 with the receipt of $500,000 foreign currency units
(FCU). On November 1, American also entered into a forward contract to hedge the
exposed asset. The forward rate is $0.70 per unit of foreign currency. American has a
December 31 fiscal year-end. Spot rates on relevant dates were:
Per
Unit of
Date
Foreig
n
Curren
cy
Novem
ber 1
$0.73
Decem
ber 31
0.71
March
1
0.74
Page 28
A) FCU Receivable
350,000
Premium on Forward Contract
15,000
Dollars Payable
365,000
B)
Dollars Receivable
365,000
Discount on Forward Contract
15,000
FCU Payable
350,000
Page 29
C)
FCU Receivable
365,000
Discount on Forward Contract
15,000
Dollars Payable
350,000
D) Dollars ReceivableFCU Receivable
350,000
Discount on Forward Contract
15,000
FCU Payable
365,000
Page 30
39. Jackson Paving Company purchased equipment for 350,000 British pounds from a
supplier in London on July 7, 2011. Payment in British pounds is due on Sept. 7, 2011.
The exchange rates to purchase one pound is as follows:
July 7
August 31, (year
end)
September 7
Spot-rate
2.08
2.05
2.04
30-day rate
2.07
2.03
-60-day rate
2.06
1.99
--
On its August 31, 2011 income statement, what amount should Jackson Paving report as
a foreign exchange transaction gain:
A) $14,000.
B)
$7,000.
C)
$10,500.
D) $0.
Page 31
40. On September 1, 2011, Swash Plating Company entered into two forward exchange
contracts to purchase 250,000 euros each in 90 days. The relevant exchange rates are as
follows:
Forward Rate
Spot rate
For Dec. 1, 2011
September 1, 2011
1.46
1.47
September 30, 2011 (year-end)
1.50
1.48
The first forward contract was to hedge a purchase of inventory on September 1,
payable on December 1. On September 30, what amount of foreign currency transaction
loss should Swash Plating report in income?
A) $0.
B)
$2,500.
C)
$5,000.
D) $10,000.
Page 32
41. On September 1, 2011, Swash Plating Company entered into two forward exchange
contracts to purchase 250,000 euros each in 90 days. The relevant exchange rates are as
follows:
Forward Rate
Spot rate
For Dec. 1, 2011
September 1, 2011
1.46
1.47
September 30, 2011 (yearend)
1.50
1.48
The second forward contract was strictly for speculation. On September 30, 2011, what
amount of foreign currency transaction gain should Swash Plating report in income?
A) $0.
B)
$2,500.
C)
$5,000.
D) $10,000.
Page 33
42. On November 1, 2011, Prism Company sold inventory to a foreign customer. The
account will be settled on March 1 with the receipt of 250,000 foreign currency units
(FCU). On November 1, Prism also entered into a forward contract to hedge the exposed
asset. The forward rate is $0.90 per unit of foreign currency. Prism has a December 31
fiscal year-end. Spot rates on relevant dates were:
Per Unit of
Date
Foreign Currency
November 1
$0.93
December 31
0.91
March 1
0.94
The entry to record the forward contract is
Page 34
A) FCU Receivable
225,000
Premium on Forward Contract
7,500
Dollars Payable
232,500
B)
Dollars Receivable
232,500
Discount on Forward Contract
7,500
FCU Payable
225,000
Page 35
C)
FCU Receivable
232,500
Discount on Forward Contract
7,500
Dollars Payable
225,000
D) Dollars Receivable
225,000
Discount on Forward Contract
7,500
FCU Payable
232,500
Page 36
43. Caldron Company purchased equipment for 375,000 British pounds from a supplier in
London on July 3, 2011. Payment in British pounds is due on Sept. 3, 2011. The
exchange rates to purchase one pound is as follows:
July 3
August 31, (year
end)
September 3
Spot-rate
1.58
1.55
1.54
30-day rate
1.57
1.53
-60-day rate
1.56
1.49
--
On its August 31, 2011, income statement, what amount should Caldron report as a
foreign exchange transaction gain:
A) $18,750.
B)
$3,750.
C)
$11,250.
D) $0.
Page 37
44. On April 1, 2011, Trent Company entered into two forward exchange contracts to
purchase 300,000 euros each in 90 days. The relevant exchange rates are as follows:
Forward Rate
Spot rate
For Aug. 1, 2011
April 1, 2011
1.16
1.17
April 30, 2011 (yearend)
1.20
1.18
The first forward contract was to hedge a purchase of inventory on April 1, payable on
December 1. On April 30, what amount of foreign currency transaction loss should
Trent report in income?
A) $0.
B)
$3,000.
C)
$9,000.
D) $12,000.
Page 38
45. On April 1, 2011, Trent Company entered into two forward exchange contracts to
purchase 300,000 euros each in 90 days. The relevant exchange rates are as follows:
Forward Rate
Spot rate
For Aug. 1, 2011
April 1, 2011
1.16
1.17
April 30, 2011 (yearend)
1.20
1.18
The second forward contract was strictly for speculation. On April 30, 2011, what
amount of foreign currency transaction gain should Trent report in income.
A) $0.
B)
$3,000.
C)
$9,000.
D) $12,000.
Page 39
46. The following balance sheet accounts of a foreign subsidiary at December 31, 2011,
have been translated into U.S. dollars as follows:
Translated at
Current Rates
Historical Rates
Accounts receivable, current
$ 600,000
$ 660,000
Accounts receivable, long-term
300,000
324,000
Inventories carried at market
180,000
198,000
Goodwill
190,000
220,000
$1,270,000
$1,402,000
Page 40
A) $1,270,000
B)
$1,288,000
C)
$1,300,000
D) $1,354,000
Page 41
47. A wholly owned subsidiary of a U.S. parent company has certain expense accounts for
the year ended December 31, 2011, stated in local currency units (LCU) as follows:
LCU
Depreciation of equipment
(related assets
were purchased January 1, 2009)
375,000
Provision for doubtful accounts
250,000
Rent
625,000
The exchange rates at various dates are as follows:
Dollar equivalent
of 1 LCU
December 31, 2011
$0.50
Average for year ended December 31,
2011
0.55
January 1, 2009
0.40
Page 42
A) $687,500
B)
$625,000
C)
$550,000
D) $500,000
48. If the functional currency is determined to be the U.S. dollar and its financial statements
are prepared in the local currency, SFAS 52, requires which of the following procedures
to be followed?
A) Translate the financial statements into U.S. dollars using the current rate method.
B)
Remeasure the financial statements into U.S. dollars using the temporal method.
C)
Translate the financial statements into U.S. dollars using the temporal method.
D) Remeasure the financial statements into U.S. dollars using the current rate method.
49. P Company acquired 90% of the outstanding common stock of S Company which is a
foreign company. The acquisition was accounted for using the purchase method. In
preparing consolidated statements, the paid-in capital of S Company should be
converted at the:
A) exchange rate effective when S Company was organized.
B)
exchange rate effective on the date of purchase of the stock of S Company by P
Company.
C) average exchange rate for the period S Company stock has been upheld by P
Company.
D) current exchange rate.
50. In preparing consolidated financial statements of a U.S. parent company and a foreign
subsidiary, the foreign subsidiary's functional currency is the currency:
A) of the country the parent is located.
B)
of the country the subsidiary is located.
C)
in which the subsidiary primarily and generates spends cash.
D) in which the subsidiary maintains its accounting records.
Page 43
51. Gains from remeasuring a foreign subsidiary's financial statements from the local
currency, which is not the functional currency, into the parent company's currency
should be reported as a(n):
A) other comprehensive income item.
B)
extraordinary item (net of tax).
C)
part of continuing operations.
D) deferred credit.
52. Assuming no significant inflation, gains resulting from the process of translating a
foreign entity's financial statements from the functional currency to U.S. dollars should
be included as a(n):
A) other comprehensive income item.
B)
extraordinary item (net of tax).
C)
part of continuing operations.
D) deferred credit.
53. A foreign subsidiary's functional currency is its local currency and inflation of over 100
percent has been experienced over a three-year period. For consolidation purposes,
SFAS No. 52 requires the use of:
A) the current rate method only.
B)
the temporal method only
C)
both the current rate and temporal methods.
D) neither the current rate or the temporal method.
54. The objective of remeasurement is to:
A) produce the same results as if the books were maintained in the currency of the
foreign entity's largest customer.
B) produce the same results as if the books were maintained solely in the local
currency.
C) produce the same results as if the books were maintained solely in the functional
currency.
D) None of the above.
Page 44
55. An entity is permitted to aggregate operating segments if the segments are similar
regarding the
A) nature of the production processes.
B)
types or class of customers.
C)
methods used to distribute products or provide services.
D) all of these.
56. Which of the following is not a segment asset of an operating segment?
A) Assets used jointly by more than one segment.
B)
Assets directly associated with a segment.
C)
Assets maintained for general corporate purposes.
D) Assets used exclusively by a segment.
57. SFAS No. 131 requires the disclosure of information on an enterprise's operations in
different industries for
1. each annual period presented.
2. each interim period presented.
3. the current period only.
A) 1
B)
2
C)
3
D) both 1 and 2
58. Which of the following is not required to be disclosed by SFAS No. 131?
A) Information concerning the enterprise's products.
B)
Information related to an enterprise's foreign operations.
C)
Information related to an enterprise's major suppliers.
D) All of the above are required disclosures.
Page 45
59. A segment is considered to be significant if its
1. reported profit is at least 10% of the combined profit of all operating segments.
2. reported profit (loss) is at least 10% of the combined reported profit of all operating
segments not reporting a loss.
3. reported profit (loss) is at least 10% of the combined reported loss of all operating
segments that reported a loss.
A) 1
B)
2
C)
3
D) both 2 and 3
60. Which of the following disclosures is not required to be presented for a firm's reportable
segments?
A) Information about segment assets
B)
Information about the bases for measurement
C)
Reconciliation of segment amounts and consolidated amounts for revenue, profit or
loss, assets, and other significant items.
D) All of these must be presented.
61. An enterprise determines that it must report segment data in annual reports for the year
ended December 31, 2011. Which of the following would not be an acceptable way of
reporting segment information?
A) Within the body of the financial statements, with appropriate explanatory
disclosures in the footnotes
B) Entirely in the footnotes to the financial statements.
C)
As a special report issued separately from the financial statements.
D) In a separate schedule that is included as an integral part of the financial
statements.
Page 46
62. Long Corporation's revenues for the year ended December 31, 2011, were as follows
Consolidated revenue per income statement
800,000
Intersegment sales
105,000
Intersegment transfers
35,000
Combined revenues of all operating segments
$940,000
Long has a reportable segment if that segment's revenues exceed
A) $80,000.
B)
$90,500.
C)
$94,000.
D) $14,000.
63. Which of the following is not part of the information about foreign operations that is
required to be disclosed?
A) Revenues from external customers
B)
C)
Operating profit or loss, net income, or some other common measure of
profitability
Capital expenditures
D) Long-lived assets
Page 47
64. Eaton, Inc., discloses supplemental industry segment information. The following data
are available for 2011.
Traceable
Segment
Sales
operating expenses
A
$420,000
$255,000
B
480,000
300,000
C
300,000
165,000
$1,200,000
$720,000
Additional 2011 expenses, not included above, are as follows:
Indirect operating expenses
$240,000
General corporate expenses
Page 48
A) $135,000
B)
$ 75,000
C)
$ 105,000
D) $ 30,000
65. Gant Company has four manufacturing divisions, each of which has been determined to
be a reportable segment. Common operating costs are appropriately allocated on the
basis of each division's sales in relation to Gant's aggregate sales. Gant's Delta division
accounted for 40% of Gant's total sales in 2011. For the year ended December 31, 2011,
Delta had sales of $5,000,000 and traceable costs of $3,600,000. In 2011, Gant incurred
operating costs of $350,000 that were not directly traceable to any of the divisions. In
addition, Gant incurred interest expense of $360,000 in 2011. In reporting
supplementary segment information, how much should be shown as Delta's operating
profit for 2011?
A) $1,400,000
B)
$1,256,000
C)
$1,260,000
D) $1,116,000
66. Inventory losses from market declines that are expected to be temporary
A) should be recognized in the interim period in which the decline occurs.
B)
C)
should be recognized in the last (fourth) quarter of the year in which the decline
occurs.
should not be recognized.
D) none of these.
67. Which of the following does not have to be disclosed in interim reports?
A) Seasonal costs or expenses.
B)
Significant changes in estimates.
C)
Disposal of a segment of a business.
D) All of these must be disclosed.
Page 49
68. Companies using the LIFO method may encounter a liquidation of base period
inventories at an interim date that is expected to be replaced by the end of the year. In
these cases, cost of goods sold should be charged with the
A) cost of the most recent purchases.
B)
average cost of the liquidated LIFO base.
C)
expected replacement cost of the liquidated LIFO base.
D) none of these.
69. Which of the following statements most accurately describes interim period tax
expense?
A) The best estimate of the annual tax rate times the ordinary income (loss) for the
quarter.
B) The best estimate of the annual tax rate times income (loss) for the year to date less
tax expense (benefit) recognized in previous interim periods.
C) Average tax rate for each quarter, including the current quarter, times the current
income (loss).
D) The previous year's actual effective tax rate times the current quarter's income.
Page 50
70. Finney, a calendar year company, has the following income before income tax provision
and estimated effective annual income tax rates for the first three quarters of 2011:
Income Before
Estimated
Effective
Income Tax
Annual Tax
Rate
Quarter
Provision
at the End of
Quarter
First
$120,000
25%
Second
160,000
25%
Third
200,000
30%
Finney's income tax provision in its interim income statement for the third quarter
Page 51
A) $74,000.
B)
$60,000.
C)
$50,000.
D) $144,000.
71. An inventory loss from a market price decline occurred in the first quarter. The loss was
not expected to be restored in the fiscal year. However, in the third quarter the inventory
had a market price recovery that exceeded the market decline that occurred in the first
quarter. For interim reporting, the dollar amount of net inventory should
A) decrease in the first quarter by the amount of the market price decline and increase
in the third quarter by the amount of the market price recovery.
B) decrease in the first quarter by the amount of the market price decline and increase
in the third quarter by the amount of the decrease in the first quarter.
C) not be affected in the first quarter and increase in the third quarter by the amount of
the market price recovery that exceeded the amount of the market price decline.
D) not be affected in either the first quarter or the third quarter.
72. Which of the following is an advantage of a partnership?
A) mutual agency
B)
limited life
C)
unlimited liability
D) none of these
73. The bonus and goodwill methods of recording the admission of a new partner will
produce the same result if the:
1. new partner's profit-sharing ratio equals his capital interest
2. old partners' profit-sharing ratio in the new partnership is the same relatively as it was
in the old partnership.
A) 1
B)
2
C)
both 1 and 2 are met.
D) none of these.
Page 52
74. When the goodwill method is used and the book value acquired is less than the value of
the assets invested, total implied capital is computed by
A) multiplying the new partner's capital interest by the capital balances of existing
partners.
B) dividing the total capital balances of existing partners by their collective capital
interest.
C) dividing the new partner's investment by his (her) capital interest.
D) dividing the new partner's investment by the existing partners' collective capital
interest.
Page 53
75. The partnership of Adams and Baker was formed on February 28, 2011. At that date the
following assets were invested:
Adams
Baker
Cash
$ 120,000
$200,000
Merchandise
-0320,000
Building
-0840,000
Furniture and equipment
200,000
-0-
The building is subject to a mortgage loan of $280,000, which is to be assumed by the
partnership. The partnership agreement provides that Adams and Baker share profits or
losses 30% and 70%, respectively. Baker's capital account at February 28, 2011, should
be
A) $1,080,000.
B)
$1,360,000.
C)
$1,176,000.
Page 54
D) $952,000.
Page 55
76. The following balance sheet information is for the partnership of Abel, Ball, and Catt:
Cash
$ 210,000
Liabilities
$ 510,000
Other assets
1,500,000
Abel, Capital
(40%)
300,000
Ball, Capital
(40%)
480,000
_________
Catt, Capital
(20%)
420,000
$1,710,000
$1,710,000
Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If the assets are fairly valued on the above balance sheet and the partnership wishes to
admit Dent as a new 1/5 partner without recording goodwill or bonus, Dent should
Page 56
A) $427,500.
B)
$240,000.
C)
$300,000.
D) $342,000.
Page 57
77. The following balance sheet information is for the partnership of Abel, Ball, and Catt:
Cash
$ 210,000
Liabilities
$ 510,000
Other assets
1,500,000
Abel, Capital
(40%)
300,000
Ball, Capital
(40%)
480,000
_________
Catt, Capital
(20%)
420,000
$1,710,000
$1,710,000
Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If assets on the initial balance sheet are fairly valued, Abel and Ball consent and Dent
pays Catt $225,000 for his interest; the revised capital balances of the partners would be
Page 58
A) Abel, $315,000; Ball, $495,000; Dent, $450,000.
B)
Abel, $315,000; Ball, $495,000; Dent, $420,000.
C)
Abel, $300,000; Ball, $570,000; Dent, $450,000.
D) Abel, $300,000; Ball, $480,000; Dent, $420,000.
Page 59
78. Linda desires to purchase a one-fourth capital and profit and loss interest in the
partnership of Hank, Greg, and Jim. The three partners agree to sell Linda one-fourth of
their respective capital and profit and loss interests in exchange for a total payment of
$100,000. The payment is made directly to the individual partners. The capital accounts
and the respective percentage interests in profits and losses immediately before the sale
to Linda follow
Percentage
Capital
Interests in
Accounts
Profits and
Losses
Hank
$168,000
50%
Greg
104,000
35
Jim
48,000
15
Total
$320,000
Page 60
A) $126,000; $78,000; $36,000
B)
$156,000; $99,000; $45,000
C)
$178,000; $111,000; $51,000
D) $208,000; $132,000; $60,000
79. The partnership of Amos, Cole, and Eddy had total capital of $570,000 on December
31, 2011 as follows:
Amos, Capital (30%)
$180,000
Cole, Capital (45%)
255,000
Eddy, Capital (25%)
135,000
Total
$570,000
Profit and loss sharing percentages are shown in parentheses. If Flynn purchases a 25
percent interest from each of the old partners for a total payment of $270,000 directly to
the old partners
A) total partnership net assets can logically be revalued to $1,080,000 on the basis of
the price paid by Flynn.
B) the payment of Flynn does not constitute a basis for revaluation of partnership net
assets because the capital and income interests of the old partnership were not
aligned.
C) total capital of the new partnership should be $760,000.
D) total capital of the new partnership will be $840,000 assuming no revaluation.
Page 61
80. The partnership of Amos, Cole, and Eddy had total capital of $570,000 on December
31, 2011 as follows:
Amos, Capital (30%)
$180,000
Cole, Capital (45%)
255,000
Eddy, Capital (25%)
135,000
Total
$570,000
Profit and loss sharing percentages are shown in parentheses. Assume that Flynn
became a partner by investing $150,000 in the Amos, Cole, and Eddy partnership for a
25 percent interest in capital and profits and that partnership net assets are not revalued.
Flynn's capital credit should be
A) $180,000.
B)
$142,500.
C)
$150,000.
D) $190,000.
Page 62
81. The partnership of Amos, Cole, and Eddy had total capital of $570,000 on December
31, 2011 as follows:
Amos, Capital (30%)
$180,000
Cole, Capital (45%)
255,000
Eddy, Capital (25%)
135,000
Total
$570,000
Profit and loss sharing percentages are shown in parentheses.
Assume that Flynn became a partner by investing $100,000 in the Amos, Cole, and
Eddy partnership for a 25 percent interest in the capital and profits, and the partnership
assets are revalued. Under this assumption
A) Flynn's capital credit will be $150,000.
B)
Amos's capital will be increased to $147,000.
C)
total partnership capital after Flynn's admission to the partnership will be $600,000.
D) net assets of the partnership will increase by $190,000, including Flynn's interest.
82. Bell and Carson are partners who share profits and losses 3:7. The capital accounts on
January 1, 2011, are $120,000 and $160,000, respectively. Elston is to be admitted as a
partner with a one-fourth interest in the capital and profits and losses by investing
$80,000. Goodwill is not to be recorded. The capital balances after admission should be:
A) Bell, $117,000; Carson, $153,000; Elston, $90,000
B)
Bell, $120,000; Carson, $160,000; Elston, $90,000
Page 63
C)
Bell, $123,000; Carson, $160,000; Elston, $80,000
D) Bell, $120,000; Carson, $167,000; Elston, $80,000
Page 64
83. The balance sheet for the partnership of Nen, Pap, and Sup at January 1, 2011 follows.
The partners share profits and losses in the ratio of 3:2:5, respectively.
Assets at cost
$480,000
Liabilities
$135,000
Nen, capital
75,000
Pap, capital
120,000
Sup, capital
150,000
$480,000
Nen is retiring from the partnership. By mutual agreement, the assets are to be adjusted
to their fair value of $540,000 at January 1, 2011. Pap and Sup agree that the partnership
will pay Nen $135,000 cash for his partnership interest. NO goodwill is to be recorded.
What is the balance of Pap's capital account after Nen's retirement?
A) $138,000
B)
$108,000
Page 65
C)
$120,000
D) $132,000
Page 66
84. The following balance sheet information is for the partnership of Axe, Barr, and Cole:
Cas
h
$
210,
000
Liab
ilitie
s
$
510,
000
Oth
er
asse
ts
1,50
0,00
0
Axe
,
Cap
ital
(40
%)
300,
000
Barr
,
Cap
ital
(40
%)
480,
000
Page 67
A) $427,500.
B)
$240,000.
C)
$300,000.
D) $342,000.
Page 68
85. Susan desires to purchase a one-fourth capital and profit and loss interest in the
partnership of Tony, Mary, and Ron. The three partners agree to sell Susan one-fourth
of their respective capital and profit and loss interests in exchange for a total payment of
$125,000. The payment is made directly to the individual partners. The capital accounts
and the respective percentage interests in profits and losses immediately before the sale
to Susan follow
Perce
ntage
Capit
al
Inter
ests
in
Acco
unts
Profi
ts
and
Loss
es
Tony
$210
,000
50
%
Mary
130
,000
35
Page 69
A) $157,500; $97,500; $45,000
B)
$195,000; $123,750; $56,250
C)
$222,500; $138,750; $63,750
D) $260,000; $165,000; $75,000
Page 70
86. The partnership of Carr, Eddy, and Howe had total capital of $1,140,000 on December
31, 2011, as follows:
Carr
,
Cap
ital
(30
%)
$36
0,00
0
Edd
y,
Cap
ital
(45
%)
510,
000
Ho
we,
Cap
ital
(25
%)
27
0,00
0
Tota
l
$1,1
40,0
00
Page 71
A) $360,000.
B)
$285,000.
C)
$300,000.
D) $380,000.
Page 72
87. The partnership of Carr, Eddy, and Howe had total capital of $1,140,000 on December
31, 2011, as follows:
Car
r,
Ca
pita
l
(30
%)
$3
60,
00
0
Ed
dy,
Ca
pita
l
(45
%)
51
0,0
00
Ho
we,
Ca
pita
l
(25
%)
2
70,
00
0
Tot
al
$1,
Page 73
A) Klein's capital credit will be $300,000.
B)
Carr's capital will be increased to $394,000.
C)
total partnership capital after Klein's admission to the partnership will be
$1,200,000.
D) net assets of the partnership will increase by $380,000 including Klein interest.
88. Which of the following statements is correct?
1. Personal creditors have first claim on partnership assets.
2. Partnership creditors have first claim on partnership assets.
3. Partnership creditors have first claim on personal assets.
A) 1
B)
2
C)
3
D) Both 2 and 3
Page 74
89. The following condensed balance sheet is presented for the partnership of Jim, Bill, and
Fred who share profits and losses in the ratio of 4:3:3, respectively:
Cash
$ 180,000
Other assets
1,940,000
Jim, receivable
60,000
$ 2,180,000
Accounts payable
$ 480,000
Bill, loan
80,000
Jim, capital
720,000
Bill, capital
440,000
Fred, capital
460,000
$2,180,000
Page 75
A) $270,000
B)
$405,000
C)
$540,000
D) $520,000
Page 76
90. The partnership of Joe, Al, and Mike shares profits and losses 60%, 30%, and 10%,
respectively. On January 1, 2011, the partners voted to dissolve the partnership, at
which time the assets, liabilities, and capital balances were as follows:
Assets
Liabilities and Capital
Cash
$
400,000
$
580,000
Accounts Payable
Other Assets
1,200,000
Joe, Capital
440,000
Al, Capital
380,000
_________
Mike, Capital
200,000
Total assets
$1,600,000
Total liabilities
$1,600,000
Page 77
A) Joe, $744,000;
Al, $372,000;
Mike, $124,000.
B)
Joe, $440,000;
Al, $380,000;
Mike, $200,000.
C)
Joe, $224,000;
Al, $272,000;
Mike, $164,000.
D) Joe, $396,000;
Al, $198,000;
Mike, $66,000.
Page 78
91. The partnership of Pratt, Ellis, and Mack share profits and losses in the ratio of 4:4:2,
respectively. The partners voted to dissolve the partnership when its assets, liabilities,
and capital were as follows:
Assets
Cash
$ 250,000
Other assets
1,000,000
$1,250,000
Liabilities and Capital
Liabilities
$ 200,000
Pratt, Capital
300,000
Ellis, Capital
350,000
Mack, Capital
400,000
$1,250,000
Page 79
A) Pratt, $90,000; Ellis, $140,000; Mack, $295,000
B)
Pratt, $210,000; Ellis, $290,000; Mack, $145,000
C)
Pratt, $290,000; Ellis, $210,000; Mack, $105,000
D) Pratt, $150,000; Ellis, $175,000; Mack, $200,000
92. The ABC partnership has the following capital accounts on its books at December 31,
2011:
Credit
A, Capital
$400,000
B, Capital
240,000
C, Capital
80,000
All liabilities have been liquidated and the cash balance is zero. None of the partners
have personal assets in excess of his personal liabilities. The partners share profits and
losses in the ratio of 3:2:5. If the noncash assets are sold for $400,000, the partners
should receive as a final payment:
A) A, $304,000; B, $176,000; C, $80,000
B)
A, $256,000; B, $144,000; C, $-0-
C)
A, $304,000; B, $176,000; C, $-0-
D) A, $120,000; B, $80,000; C, $200,000
Page 80
Page 81
93. The summarized balances of the accounts of MNO partnership on December 31, 2011,
are as follows:
Asset
s
Liabi
lities
and
Capit
al
Cash
$
15,0
00
Liabi
lities
$
15,0
00
Nonc
ash
9
0,00
0
M,
Capit
al
45,0
00
N,
Capit
Page 82
A) $20,000
B)
$35,000
C)
$75,000
D) $120,000
Page 83
94. Adamle, Boyer, and Clay are partners with a profit and loss ratio of 4:3:3. The
partnership was liquidated and, prior to the liquidation process, the partnership balance
sheet was as follows:
ADAMLE, BOYER, AND CLAY
Balance Sheet
January 1, 2011
Assets
Liabilities and Equity
Cash
$ 60,000
Adamle, Capital
$216,000
Other assets
540,000
Boyer, Capital
240,000
_______
Clay, Capital
144,000
Total Assets
$600,000
Page 84
A) $360,000
B)
$144,000
C)
$504,000
D) $480,000
Page 85
95. The partnership of Starr, Foley, and Pele share profits and losses in the ratio of 4:4:2,
respectively. The partners voted to dissolve the partnership when its assets, liabilities,
and capital were as follows:
Assets
Liabilities and Equity
Cash
$150,000
Liabilities
$120,000
Other assets
600,000
Starr, Capital
180,000
Foley, Capital
210,000
Pele, Capital
240,000
Total assets
$750,000
Total Lia & Equity
$750,000
Page 86
A) Starr, $54,000; Foley, $84,000; Pele, $177,000.
B)
Starr, $174,000; Foley, $174,000; Pele, $87,000.
C)
Starr, $126,000; Foley, $126,000; Pele, $63,000.
D) Starr, $90,000; Foley, $105,000; Pele, $120,000.
96. A, B, and C have capital balances of $90,000, $60,000, and $30,000, respectively.
Profits are allocated 35% to A, 35% to B and 30% to C. The partners have decided to
dissolve and liquidate the partnership. After paying all creditors the amount available
for distribution is $60,000. A, B, and C are all personally solvent. Under the
circumstances, C will
A) receive $18,000.
B)
receive $30,000.
C)
personally have to contribute an additional $6,000.
D) personally have to contribute an additional $36,000.
Page 87
97. The ABC partnership has the following capital accounts on its books at December 31,
2011:
Credit
A, Capital
$200,000
B, Capital
120,000
C, Capital
40,000
All liabilities have been liquidated and the cash balance is zero. None of the partners
have personal assets in excess of his personal liabilities. The partners share profits and
losses in the ratio of 3:2:5. If the noncash assets are sold for $150,000, the partners
should receive as a final payment:
A) A, $152,000; B, $88,000; C, $40,000
B)
A, $128,000; B, $72,000; C, $ - 0 -
C)
A, $152,000; B, $88,000; C, $ - 0 -
D) A, $60,000; B, $40,000; C, $100,000
Page 88
98. The summarized balances of the accounts of RST partnership on December 31, 2011,
are as follows:
Assets
Liabilities and Equity
Cash
$ 30,000
Liabilities
$ 30,000
Noncash
180,000
R, Capital
90,000
S, Capital
60,000
T, Capital
30,000
Total Assets
$210,000
Total Lia & Equities
$210,000
Page 89
A) $60,000
B)
$70,000
C)
$150,000
D) $240,000
Page 90
Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
D
B
C
C
D
B
D
C
B
B
D
C
D
C
B
A
D
D
C
B
A
D
B
A
C
C
A
B
C
D
C
B
C
B
A
C
A
D
C
D
B
D
C
D
Page 91
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
B
C
A
B
B
C
C
A
B
C
D
C
D
C
D
D
C
C
C
B
C
C
D
C
B
A
B
D
C
C
A
C
D
B
A
A
D
A
C
C
B
A
D
B
C
C
Page 92
91.
92.
93.
94.
95.
96.
97.
98.
A
B
C
D
A
C
B
C
Page 93