ACC 408 Final MC Review

The Jones family lost its home in a fire. On December 25, 2017, a philanthropist sent money to the Amer Benevolent Society, a private not-for-profit entity, specifically to purchase furniture for the Jones family. During January 2018, Amer purchased furniture for the Jones family. How should Amer report the receipt of the money in its 2017 financial statements?

As a liability.

What is the difference between Regulation S-K and Regulation S-X?

Regulation S-K establishes regulations for nonfinancial information filed with the SEC whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings.

Goodwill recognized in a business combination must be allocated among a firm's identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?

A goodwill impairment loss is recognized for the excess of a reporting unit's carrying amount over its fair value, not to exceed the carrying amount of goodwill.

A city issues a 60-day tax anticipation note to fund operations until taxes have been collected. What recording should it make?

A liability should be reported in the government-wide financial statements and in the fund financial statements.

Which of the following must be provided to every potential buyer of a new security?

A prospectus.

What is EDGAR?

A system designed by the SEC to allow electronic filings.

A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next year. In a step acquisition of this type, the original 32 percent acquisition should be

Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded.

A purchase order for $3,000 is recorded in the general fund for the purchase of a new computer. The computer is received at an actual cost of $3,020. Which of the following statements is correct?

An expenditure is increased by $3,020.

Top Company holds 90 percent of Bottom Company's common stock. In the current year, Top reports sales of $800,000 and cost of goods sold of $600,000. For this same period, Bottom has sales of $300,000 and cost of goods sold of $180,000. During the current year, Bottom sold merchandise to Top for $100,000. The parent still possesses 40 percent of this inventory at the current year-end. Bottom had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?

$1,000,000 and $696,000.

What is a statutory merger?

A business combination in which only one company continues to exist as a legal entity.

When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as

A deduction from the investment account.

Which of the following is a requirement of the Sarbanes-Oxley Act of 2002?

A monetary fee assessed on organizations issuing securities.

A foreign subsidiary of Thun Corporation has one asset (inventory) and no liabilities. The functional currency for this subsidiary is the yuan. The inventory was acquired for 100,000 yuan when the exchange rate was $0.16 = 1 yuan. Consolidated statements are to be produced, and the current exchange rate is $0.12 = 1 yuan. Which of the following statements is true for the consolidated financial statements?

A negative translation adjustment must be reported.

What is a registration statement?

A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public.

What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?

A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.

Which of the following statements is true for the translation process using the current rate method?

A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations.

A voluntary health and welfare entity receives $32,000 in cash from solicitations made in the local community. The charity receives an additional $1,500 from members in payment of annual dues. Members are assumed to receive benefits approximately equal in value to the amount of dues paid. How should this money be recorded?

Public support of $32,000 and revenue of $1,500.

A group of high school seniors performs volunteer services for patients at a nearby nursing home. The nursing home would not otherwise provide these services, such as wheeling patients in the park and reading to them. At the minimum wage rate, these services amount to $21,320, but their actual value is estimated to be $27,400. In the nursing home's statement of activities, what amount should be reported as public support?

$0

AB is a private not-for-profit entity. It acquires YZ, another private not-for-profit entity. The acquisition value is $1 million. YZ has net assets with a book value of $600,000 but a fair value of $700,000. Officials for AB expect that YZ will be predominantly supported by contributions in the future. After the acquisition, what amount of goodwill will be reported on the combined balance sheet?

$0

Top Company holds 90 percent of Bottom Company's common stock. In the current year, Top reports sales of $800,000 and cost of goods sold of $600,000. For this same period, Bottom has sales of $300,000 and cost of goods sold of $180,000. During the current year, Top sold merchandise to Bottom for $100,000. The subsidiary still possesses 40 percent of this inventory at the current year-end. Top had established the transfer price based on its normal gross profit rate. What are the consolidated sales and cost of goods sold?

$1,000,000 and $690,000.

A city creates a solid waste landfill. It assesses a charge to every person or company that uses the landfill based on the amount of materials contributed. In which of the following will the landfill probably be recorded?

Enterprise funds.

What does the term incorporation by reference mean?

Filing information with the SEC by indicating that the information is already available in another document.

Which of the following is a registration statement used by large companies that already have a significant following in the stock market?

Form S-3.

Government-wide financial statements make a distinction between program revenues and general revenues. How is that difference shown?

Program revenues are offset against the expenses of a specific function; general revenues are assigned to governmental activities and business-type activities in general.

What is a subsidiary's functional currency?

The currency in which the entity primarily generates and expends cash.

Brief, Inc., had a receivable from a foreign customer that is payable in the customer's local currency. On December 31, 2017, Brief correctly included this receivable for 200,000 local currency units (LCU) in its balance sheet at $110,000. When Brief collected the receivable on February 15, 2018, the U.S. dollar equivalent was $120,000. In Brief's 2018 consolidated income statement, how much should it report as a foreign exchange gain?

$10,000

An enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and noncontrolling interest of that entity if:

The enterprise has a controlling financial interest in the VIE.

BC and OP are both private not-for-profit entities. They are combined to create MN, a private not-for-profit with an entirely new board of directors. BC has land with a book value of $300,000 and a fair value of $400,000. OP has land with a book value of $500,000 and a fair value of $550,000. After MN has been formed, what is reported for land?

$800,000

Southwest is a private not-for-profit entity. It acquires Northeast, another private not-for-profit. The acquisition value is $980,000. Northeast has two assets (and no liabilities): equipment with a net book value of $120,000 but a fair value of $150,000 and a building with a net book value of $500,000 but a fair value of $800,000. Northeast expects to receive some support through donations and contributions. However, it is not expected to be predominantly supported by contributions and investment income. After the combination, what should be reported for goodwill?

$30,000

James Corporation owns 80 percent of Carl Corporation's common stock. During October, Carl sold merchandise to James for $250,000. At December 31, 40 percent of this merchandise remains in James's inventory. Gross profit percentages were 20 percent for James and 30 percent for Carl. The amount of intra-entity gross profit in inventory at December 31 that should be eliminated in the consolidation process is

$30,000.

On January 1, 2017, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2018, Neville reports revenues of $400,000 and expenses of $300,000 and Chamberlain reports revenues of $700,000 and expenses of $400,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to Chamberlain Corporation?

$351,000.

Mittelstaedt Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $212,000 but had a fair value of $549,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover?

$549,000.

Franklin purchases 40 percent of Johnson Company on January 1 for $617,100. Although Franklin did not use it, this acquisition gave Franklin the ability to apply significant influence to Johnson's operating and financing policies. Johnson reports assets on that date of $1,515,000 with liabilities of $548,000. One building with a seven-year remaining life life is undervalued on Johnson's books by $243,250. Also, Johnson's book value for its trademark (10-year life) is undervalued by $332,500. During the year, Johnson reports net income of $140,000 while declaring dividends of $70,000. What is the Investment in Johnson Company balance (equity method) in Franklin's financial records as of December 31?

$617,900

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2015. On that date, Paar's equipment (10-year life) has a book value of $472,500 but a fair value of $629,500. Kimmel has equipment (10-year life) with a book value of $283,000 but a fair value of $440,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 2017, Paar has equipment with a book value of $330,750 but a fair value of $530,250. Kimmel has equipment with a book value of $198,100 but a fair value of $409,100. What is the consolidated balance for the Equipment account as of December 31, 2017?

$638,750.

Parkette, Inc., acquired a 60 percent interest in Skybox Company several years ago. During 2017, Skybox sold inventory costing $160,000 to Parkette for $200,000. A total of 18 percent of this inventory was not sold to outsiders until 2018. During 2018, Skybox sold inventory costing $297,500 to Parkette for $350,000. A total of 30 percent of this inventory was not sold to outsiders until 2019. In 2018, Parkette reported cost of goods sold of $607,500 while Skybox reported $450,000. What is the consolidated cost of goods sold in 2018?

$716,050.

In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $749,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $3,928,000 with liabilities of $908,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 2017, Martes reported net income of $200,000. In 2018, Martes reported net income of $248,250. Dividends of $95,000 were declared in each of these two years. What is the equity method balance of Domingo's Investment in Martes, Inc., at December 31, 2018?

$771,650.

Angela, Inc., holds a 90 percent interest in Corby Company. During 2017, Corby sold inventory costing $77,000 to Angela for $110,000. Of this inventory, $40,000 worth was not sold to outsiders until 2018. During 2018, Corby sold inventory costing $72,000 to Angela for $120,000. A total of $50,000 of this inventory was not sold to outsiders until 2019. In 2018, Angela reported separate net income of $150,000 while Corby's net income was $90,000 after excess amortizations. What is the noncontrolling interest in the 2018 income of the subsidiary?

$8,200.

Baton Company estimates that the amounts for total depreciation expense for the year ending December 31 will be $120,000 and for year-end bonuses to employees will be $200,000. What total amount of expense relating to these two items should Baton report in its quarterly income statement for the three months ended March 31?

$80,000.

In computing the noncontrolling interest's share of consolidated net income, how should the subsidiary's net income be adjusted for intra-entity transfers?

The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation.

In accounting for foreign currency transactions, which of the following approaches is used in the United States?

Two-transaction perspective; accrue foreign exchange gains and losses.

On December 25, 2017, Mr. Jones gives Charity A 1,000 shares of stock that he bought originally for $9,000. No restrictions were placed on this donation. The governing board does not want to speculate on investments. Thus, it has a policy to sell all donated investments as soon as received. These 1,000 shares are sold on December 26, 2017, for their fair value of $28,000. How does the charity report these events on a statement of cash flows?

As a $28,000 cash inflow from an operating activity.

Which of the following statements is true concerning the recording of a budget?

At the beginning of the year, debit Estimated Revenues

Which of the following is not a way by which the Sarbanes-Oxley Act attempts to ensure auditor independence from an audit client?

Audit fees must be approved by the Public Company Accounting Oversight Board.

The financial reporting for private not-for-profit entities primarily focuses on

Basic information for the organization as a whole.

On October 1, 2017, Tile Co., a U.S. company, purchased products from Azulejo, a Portuguese company, with payment due on December 1, 2017. If Tile's 2017 operating income included no foreign exchange gain or loss, the transaction could have

Been denominated in U.S. dollars.

What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?

Capitalize as an asset.

The City of Huble has a defined benefit pension plan for a number of its employees. Which of the following is not included immediately in the determination of pension expense that this government should recognize in its government-wide financial statements?

Changes in pension liability as a result of a change in economic or demographic assumptions.

Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?

Changes in the fair value of the investor's ownership shares of the investee.

A government expects to receive revenues of $400,000 but has approved expenditures of $430,000. The anticipated shortage will have an impact on which of the following terms?

Interperiod equity.

A government buys equipment for its police department at a cost of $54,000. Which of the following is not true?

Depreciation in connection with this equipment will be reported in the fund financial statements.

An income tax is an example of which of the following?

Derived tax revenue.

What information about revenues by geographic area should a company present?

Disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas.

Which of the following statements is correct about the reporting of governmental funds?

Government-wide financial statements measure economic resources.

When should a consolidated entity recognize a goodwill impairment loss?

If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.

The City of Wilson receives a large sculpture valued at $240,000 as a gift to be placed in front of the municipal building. Which of the following is true for reporting the gift within the government-wide financial statements?

If conditions are met, recording the sculpture as a capital asset is optional.

Which of the following is the best theoretical justification for consolidated financial statements?

In form the companies are separate; in substance they are one entity.

The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized?

In the owners' equity section.

If no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's assigned value is allocated to expense over which of the following?

Indefinitely (no amortization) with an annual impairment review until its life becomes finite.

In the accounting for health care providers, what are third-party payors?

Insurance companies and other groups that pay a significant portion of the medical fees in the United States.

Which of the following is not a governmental fund?

Internal Service Fund.

Which of the following is true about the management's discussion and analysis (MD&A)?

It adds a verbal explanation for the numbers and trends presented in the financial statements.

Which of the following does U.S. GAAP not consider to be an objective of segment reporting?

It helps users make comparisons between a segment of one enterprise and a similar segment of another enterprise.

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?

It is a relatively easy method to apply.

Which of the following is not necessary for a special purpose local government to be viewed as a primary government for reporting purposes?

It must have specifically defined geographic boundaries.

Which of the following is most likely to be true about the financial reporting of a public college or university?

It resembles the financial reporting made by a proprietary fund within the fund financial statements for a state or local government.

Which of the following does not represent a primary motivation for business combinations?

Larger firms are less likely to fail.

Which of the following is an example of an interactivity transaction?

Money is transferred from the General Fund to the Enterprise Fund.

Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2018, Perez sold goods with a 40 percent gross profit to Senior, which sold all of these goods in 2018. How should Perez report the effect of the intra-entity sale on its 2018 income statement?

No adjustment is necessary.

Hawkins Company has owned 10 percent of Larker, Inc., for the past several years. This ownership did not allow Hawkins to have significant influence over Larker. Recently, Hawkins acquired an additional 30 percent of Larker and now will use the equity method. How will the investor report change?

No change is recorded; the equity method is used from the date of the new acquisition.

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2015. On that date, Paar's equipment (10-year remaining life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year remaining life) with a book value of $272,000 but a fair value of $400,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 2017, Paar has equipment with a book value of $294,000 but a fair value of $445,200. Kimmel has equipment with a book value of $190,400 but a fair value of $357,000. The consolidated balance for the Equipment account as of December 31, 2017 is $574,000. What would be the impact on consolidated balance for the Equipment account as of December 31, 2017 if the parent had applied the initial value method rather than the equity method?

No effect: The method the parent uses is for internal reporting purposes only and has no impact on consolidated totals.

A voluntary health and welfare entity sends a mailing to all of its members including those who have donated in the past and others who have never donated. The mailing, which had a total cost of $22,000, asks for monetary contributions to help achieve the charity's stated mission. In addition, 80 percent of the material included in the mailing is educational in nature, providing data about the entity's goals. Which of the following is true?

No part of the $22,000 should be reported as a program service cost because there is no specific call to action.

A city provides a local business with a tax abatement so that real estate taxes will be avoided for the next five years. In exchange, the business agrees to construct a new facility to hire 50 or more individuals. How is this reported?

Only as a footnote disclosure.

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?

Operating results appearing on the parent's financial records reflect consolidated totals.

FASB ASC 805, Business Combinations, provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:

Recognized as an ordinary gain from a bargain purchase.

For interim financial reporting, a gain from the sale of land occurring in the second quarter should be

Recognized in the second quarter.

The General Fund pays rent for two months. Which of the following is not correct?

Rent expense should be reported in the General Fund.

Plume Company has a paper products operating segment. Which of the following items does it not have to report for this segment?

Research and development expense.

Under current U.S. accounting guidelines, which of the following items of information is a company not required to disclose, even if it were material in amount?

Revenues generated from export sales.

Which of the following items is not required to be reported in interim financial statements for each material operating segment?

Segment assets.

A voluntary health and welfare entity produces a statement of functional expenses. What is the purpose of this statement?

Separates program service expenses from supporting service expenses.

A government reports that its public safety function had expenses of $900,000 last year and program revenues of $200,000 so that its net expenses were $700,000. On which financial statement is this information presented?

Statement of activities.

The accountants for a city are attempting to determine the proper reporting for a new transaction so that the financial statements are in conformity with generally accepted accounting principles. No authoritative answer can be found. What should happen next?

The accountants should study other nonauthoritative sources such as GASB Concepts Statements and the official standards produced by FASB.

Which of the following is not correct with regard to the Public Company Accounting Oversight Board?

The board members must be appointed by Congress.

Theresa Johnson does volunteer work for a local not-for-profit entity as a community service. She replaces without charge an administrator who would have otherwise been paid $31,000. Which of the following statements is true?

The charity should recognize a contribution of $31,000 as an increase in unrestricted net assets as well as salary expense of $31,000.

What is a prospectus?

The first part of a registration statement that a company must furnish to all potential buyers of a new security.

When an equity method investment account is reduced to a zero balance

The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses

Which of the following does not indicate an investor company's ability to significantly influence an investee?

The investor owns 30 percent of the investee but another owner holds the remaining 70 percent.

Which of the following information items with regard to a major customer must be disclosed?

The operating segment making sales to the major customer.

An acquired firm's financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary?

The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separately identifiable assets acquired and liabilities assumed.

In comparing the current rate and temporal methods of translation, which of the following is true?

The reported balance of accounts receivable is normally the same under both methods.

What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?

When intra-entity sales remain in ending inventory, control of the goods has not changed.