Accounting Final Exam

In order to avoid inequalities in the liquidation process the legal doctrine of setoff effectively treats loans from partners to the partnership as:

additional capital investments that can offset a deficit capital account balance.

According to UPA 1997, during partnership liquidation, loans the partners have made to the partnership have the same status as loans from third-party creditors. As a practical matter, most loans from partners:

are subordinated to third-party creditors.

ASC 280 uses a(n) ______ approach to the definition of segments.

management

Estimated gross profit rates may be used to estimate a company's cost of goods sold and its ending inventory for:

quarterly but not for annual financial statements

Which of the following observations is true of the discrete view of interim reporting?

Each interim period is considered as a basic accounting period to be evaluated as if it were an annual accounting period.

On a partner's personal statement of financial condition, how are assets valued?

Estimated current value

All of the following are differences between international standards and U.S. GAAP regarding operating segments, except:

IFRS requires disclosures about geographical segments, not business segments.

Which of the following statements best describes limited partnerships?

If the presumption of control by the general partner can be overcome, the partner would account for its investment using the equity method of accounting.

ASC 270 uses which view of interim reporting?

Integral

Which of the following observations is true of a S corporation?

It does not have the burden of double taxation of corporate income.

Reportable segments are not required to disclose which of the following?

Long-term debt

How would a company report a change in an accounting principle made on the last day of the third quarter?

Retrospective application to all pre-change interim periods reported

Which of the following statements best describes accounting for a partnership?

A partnership may use federal income tax rules to account for transactions in their journals and ledger accounts.

If a company changes the method it uses to compute the allowance for uncollectible accounts receivable because more recent information has become available, how is this change in method is accounted for?

All of the above are correct ways to account for the change

Five of eight internally reported operating segments of Rollins Company qualify under the standards set by ASC 280 for segment reporting. However, the five identified segments do not meet the 75 percent revenue test. ASC 280 prescribes that management:

select additional operating segments until the 75% threshold is met.

Transferable interest of a partner includes all of the following except:

the authority to transact any of the partnership's business operations.

The following information pertains to Aria Co. (Aria) and its operating segments for the year ended December 31, 20X6: Sales to unaffiliated customers $2,000,000 Intersegment sales of products $600,000 Interest earned on loans to other industry segments $40,000 Aria and all its divisions are engaged solely in manufacturing operations. Aria evaluates divisional performance based on controllable contribution by segments. Aria has a reportable segment if that segment's revenue exceeds:

$260,000

Operand Corporation reported consolidated revenues of $30,000,000 on its income statement for 20X4. The management of the corporation identified three industry segments, X, Y, and Z. These segments had the following intersegment sales and transfers during 20X4: Operating Segment Intersegment Sales and Transfers X $1,000,000 Y $3,000,000 Z $1,500,000 For Operand Corporation, the revenue test would be satisfied if any of its industry segments had revenue equal to or greater than which of the following?

$3,550,000

Biometric Corporation's revenue for the year ended December 31, 20X6, was as follows: Consolidated revenue per income statement $400,000 Intersegment sales 30,000 Intersegment transfers 20,000 Combined revenue of all industry segments $450,000 Biometric has a reportable operating segment if that segment's revenue exceeds:

$45,000

Tecumseh Co. (Tecumseh), a publicly owned corporation, assesses performance and makes operating decisions using the following information for its reportable segments: Total revenues $768,000 Total profit and loss $40,600 Included in the total profit and loss are intersegment profits of $6,100. In addition, Tecumseh has $500 of common costs for its reportable segments that are not allocated in reports used internally. For purposes of segment reporting, Tecumseh should report total combined segment profit of:

$46,700

Main Manufacturing Corporation reported consolidated revenues of $50,000,000 on its income statement for 20X8. The management of the corporation identified 3 industry segments, M, N, and O. These segments had the following intersegment sales and transfers during 20X8: Operating Segment Intersegment Sales and Transfers M $2,000,000 N $2,400,000 O $3,000,000 For Main Manufacturing Corporation, the revenue test would be satisfied if any of its industry segments had revenue equal to or greater than which of the following?

$5,740,000

All of the following situations require a retrospective application of a change in a reporting entity except for:

Presenting foreign subsidiaries in addition to domestic subsidiaries.

Zeus Corporation has determined that it has 15 reportable operating segments. In order to comply with the standard for segment disclosures, Zeus Corporation should do which of the following?

Report 10 reportable segments by combining the most closely related segments.

In 20X6 and 20X7, each of Putney Company's four operating segments met one of the three quantitative tests for segment reporting. In 20X8, Segment B failed to qualify under the prescribed tests because of abnormal financial conditions. The other three segments qualified for reporting. For 20X8, Segment B:

should be included in the segment disclosures at the discretion of management.

Which of the following characteristics would render the operating unit "reportable"? The operating unit comprises at least:

10 percent of the revenues of the company as a whole.

A limited liability company (LLC): I. is governed by the laws of the state in which it is formed. II. provides liability protection to its investors. III. does not offer pass-through taxation benefits of partnerships.

Both I and II

On a partner's personal statement of changes in net worth, what type(s) of income is(are) recognized? I. Realized II. Unrealized

Both I and II

When a partnership is formed, noncash assets contributed by partners should be recorded: I. at their respective book values for income tax purposes. II. at their respective fair values for financial accounting purposes.

Both I and II

The management approach to the definition of segments for financial reporting expects a company to: I. Report disaggregated information on the same organizational basis as used by the company's internal decision makers. II. Report disaggregated information for at least ten segments.

I

The personal financial statements of a partner include which of the following? I. Statement of financial condition. II. Statement of changes in net worth. III. Statement of cash flows.

I and II

In the computation of a partner's Loss Absorption Power (LAP), which of the following statements is incorrect? I. The computation of LAPs for all partners allows cash to be distributed before all partnership assets have been sold and all creditors have been paid. II. The computation of LAPs for all partners indicates the relative strength of each partner's net capital position so that available cash is distributed in respective loss-sharing ratios.

Neither I nor II

The key to reporting accounting information by segments is determining what constitutes a segment. Of the following, which is not a method of determining a reportable segment?

Number of employees

Stone Company reported $100,000,000 of revenues on its 20X8 income statement. During the year ended December 31, 20X8, Stone made sales of $8,000,000 to external customers in Western Europe. In addition, Stone made sales of $10,000,000 to the U.S. government and $4,000,000 of sales to various state governments. In the footnotes to its financial statements for 20X8, in reporting enterprisewide disclosures, Stone is required to disclose: Segment Reporting the Revenue Identity of Each Major Customer A) Yes No B) Yes Yes C) No Yes D) No No

Option A

The CRT partnership has decided to terminate operations and to liquidate the partnership assets. There are no partner loans, and all partners have positive capital balances. Gains and losses on liquidation and cash distributions to partners should be allocated as follows: Gains and Losses Cash Distributions A) In profit and loss ratio Based on capital balances B) Based on capital balances In profit and loss ratio C) In profit and loss ratio In profit and loss ratio D) Based on capital balances Based on capital balances

Option A

In the computation of a partner's Loss Absorption Power (LAP), the individual partner's capital balance and profit-and-loss percentage are used in which of the following ways? Partner's Net Capital Balance Profit-and-Loss Percentage A) Denominator Numerator B) Numerator Not used C) Numerator Denominator D) Not used Denominator

Option C

When a new partner is admitted into a partnership and the new partner receives a capital credit less than the tangible assets contributed, which of the following explains the difference? I. The new partner's goodwill has been recognized. II. The old partners received a bonus from the new partner.

II only

Crisfield Company has two reportable segments, C and D. Segment C made $4,000,000 of sales to external customers and $400,000 of sales to other operating segments. Segment D, on the other hand, made sales of $8,000,000 to external customers and $1,600,000 of sales to other operating segments. Crisfield Company reported $13,200,000 of revenues on its consolidated income statement. What calculation below correctly determines whether Crisfield Company's reportable segments satisfy the 75% revenue test?

$12,000,000/$13,200,000

When a new partner is admitted into a partnership and the old partners' goodwill is recognized, the goodwill is allocated to: I. all the partners in their profit-and-loss-sharing ratio. II. the old partners in their profit and loss sharing ratio.

II only

Trimester Corporation's revenue for the year ended December 31, 20X8, was as follows: Consolidated revenue per income statement $600,000 Intersegment sales 45,000 Intersegment transfers 10,000 Combined revenue of all industry segments $655,000 Trimester has a reportable operating segment if that segment's revenue exceeds:

$65,500

Dragon Company has two reportable segments, A and B. Segment A made $3,000,000 of sales to external customers and $200,000 of sales to other operating segments. Segment B made sales of $5,000,000 to external customers and $1,200,000 of sales to other operating segments. Dragon Company reported $9,600,000 of revenues on its consolidated income statement. What calculation below correctly determines whether Dragon Company's reportable segments satisfy the 75% revenue test?

$8,000,000/$9,600,000

When the old partners receive a bonus upon admission of a new partner into a partnership, the bonus is allocated to: I. all the partners in their profit and loss sharing ratio. II. the existing partners in their profit and loss sharing ratio.

II only

Which of the following items are important in the determination of safe installment payments to partners? I. Deficits created in capital accounts are distributed to the remaining partners. II. All unsold noncash assets are assumed to be worthless.

Both I and II

Davis Company uses LIFO for all of its inventories. During its second quarter of 20X9, Davis experienced a LIFO liquidation. Davis fully expects to replace the liquidated inventory in the early part of the third quarter. How should Davis report the inventory temporarily liquidated on its income statement for the second quarter?

Cost of goods sold for the second quarter should include the expected replacement cost of the goods temporarily liquidated.

Which of the following accounts is not maintained for each partner in its accounting records?

Earnings account

Cott Co.'s four business segments have revenues and identifiable assets expressed as percentages of Cott's total revenues and total assets as follows: Revenues Assets Ebon 64% 66% Fair 14% 18% Gel 14% 4% Hak 8% 12% 100% 100% Which of these business segments are deemed to be reportable segments?

Ebon, Fair, Gel, and Hak

When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account, which of the following explains the difference? I. The retiring partner is receiving a bonus from the other partners. II. The retiring partner's goodwill is being recognized.

Either I or II

ASC 280 requires certain disclosures about major customers. All of the following statements about those disclosures are true with the exception of which statement?

For applying the disclosure test a threshold of 10 percent of total revenues is mandated.

A partnership is a(n): I. accounting entity. II. taxable entity.

I only

When a new partner is admitted into a partnership and the capital of the old partners decreases, which of the following explains the reason for the decrease? I. Undervalued liabilities were written up to their fair values. II. Undervalued assets were written up to their fair values.

I only

When a partnership is liquidated on a piecemeal basis and cash has been distributed properly to all partners as noncash assets have been turned into cash, all future cash distributions should be made: I. In the profit and loss ratio. II. According to the balances in the partners' capital accounts.

I only

When is a partnership considered to be insolvent? I. When the total of all partners' capital accounts results in a debit balance. II. When at least one of the partners is personally insolvent.

I only

Which of the following accounts could be found in the PQ partnership's general ledger? I. Due from P II. P, Drawing III. Loan Payable to Q

I, II, and III

A joint venture may be organized as a: I. Partnership. II. Corporation. III. Undivided interest.

I, II, or III

On a partner's personal statement of financial condition, assets and liabilities are presented: I. As current and noncurrent. II. In order of liquidity and maturity.

II

On a partner's personal statement of financial condition, how should liabilities be valued? I. Present value II. Lower of present value or cash settlement amount

II

The computation of a safe installment payment for the XYZ partnership resulted in only partner Z receiving cash. Which of the following statements is correct? I. Partner Z lent the partnership cash, and the partnership had to pay back the loan to Z before distributing cash to X and Y. II. After assuming all noncash assets were potentially worthless and that assumed capital deficits created in X's and Y's capital balances were losses to be allocated to Z; Z's capital balance was the only capital balance left with a credit.

II only

When a new partner is admitted into a partnership and the new partner receives a capital credit greater than the tangible assets contributed, which of the following explains the difference? I. The old partners' goodwill is being recognized. II. The new partner's goodwill is being recognized.

II only