Advanced Accounting midterm 1
The financial reporting for private not-for-profit entities primarily focuses on: - basic information for the organization as a whole. - standardization of the fund information that is reported. - inherent differences of various not-for-profit entities that impact reporting presentations. - distinctions between current fund and noncurrent fund presentations.
A
The general fund pays rent for two months. Which of the following is not correct? - Rent expense should be reported in the fund financial statements. - Rent expense should be reported in the government-wide financial statements. - An expenditure should eventually be reported in the fund financial statements. - If one month of rent is in the first year with the other month in the next year, either the purchases method or the consumption method can be used in fund financial statements.
A
Which of the following statements is correct about the reporting of governmental funds? - Government-wide financial statements measure economic resources. - Fund financial statements measure both economic resources and current financial resources. - Fund financial statements measure only economic resources. - Government-wide financial statements measure only current financial resources.
A
Which of the following statements is true concerning the recording of a budget? - A debit to the Budgetary Fund Balance account indicates an expected surplus for the period. - At the end of the year, a credit is made to Appropriations. - At the beginning of the year, a debit is made to Estimated Revenues. - At the beginning of the year, a debit is made to Appropriations.
C
Which of the following is not an example of an intangible asset? - Customer list - Database - Lease agreement - Broken equipment - Trademark
D
what are the three ways to repot investment in other companies?
fair value method (0-20%) equity method (20-50%) consolidation method (>50%)
A citizen donates investments valued at $22,000 to the City of Townsend. The citizen stipulates that the investments be held. Any resulting income must be used to help maintain the city's cemetery. In which fund should the city report this investment? General fund. Capital projects funds. Permanent funds. Special revenue funds.
permanent funds
What is a predistribution plan? Multiple Choice - A list of the procedures to be performed during a liquidation. - A determination of the final cash distribution to the partners on the settlement date. - A guide for the cash distributions to partners during a liquidation. - A detailed list of the transactions that will transpire in the reorganization of a partnership.
C
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 investor's share of the investee's profits. - A deduction from the stockholders' equity account, Dividends to Stockholders. - A deduction from the investment account. - Dividend income.
C
Which of the following statements about the reporting of functional expenses is not true? - A statement of functional expenses is now required of all private not-for-profit entities. - Functional expenses are divided between program services and supporting services. - Functional expenses can be reported as a footnote rather than as a separate statement of functional expenses. - Functional expenses can be reported within the statement of activities rather than as a separate statement of functional expenses.
A
An impairment model is used - To assess whether asset write-downs are appropriate for indefinite-lived assets. - To calculate the fair value of intangible assets. - To calculate the amortization of indefinite-lived assets over their useful lives. - To determine whether the fair value of assets should be recognized. - To determine the likelihood that the fair value of an assumed liability will increase.
A
At the end of the current year, a government reports $9,000 as a fund balance—assigned in connection with an encumbrance. What information does this balance convey? - The government has made $9,000 in commitments in one year that will be honored in the subsequent year. - Encumbrances exceeded expenditures by $9,000 during the current year. - A donor has given the government $9,000 that must be used in a specified fashion. - The government spent $9,000 less during the year than was appropriated.
A
During the current year, the City of Jones buys land for $80,000. Which of the following is not a possibility? - The land could be reported as an asset by the governmental funds in the fund financial statements. - The land could be reported as an asset by the governmental activities in the government-wide financial statements. - The land could be reported as an asset by the business-type activities in the government-wide financial statements. - The land could be reported as an asset by the proprietary funds in the fund financial statements.
A
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. - Hawkins will report the change as a component of accumulated other comprehensive income. - A retrospective adjustment is made to restate all prior years presented using the equity method. - A cumulative effect of an accounting change is shown in the current income statement.
A
In Year 6, a donor gives $112,000 to a private not-for-profit entity to enable it to buy a new bus for transportation purposes. Near the end of Year 7, this money is used for the stipulated purpose. The donor made no provisions about the accounting for this acquisition. Which of the following is true about the statement of activities for Year 7? - Net assets without donor restrictions increased by $112,000. - Net assets with donor restrictions did not change. - Net assets without donor restrictions did not change. - Net assets with donor restrictions goes up by $112,000 and also down by $112,000.
A
What is goodwill? - An intangible asset representing the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination - An expense that an acquiring firm recognizes for the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination - A concept representing synergies resulting from a business combination but not recognized for financial reporting purposes - An internally developed intangible asset that is recognized on a business firm's balance sheet as the business generates profits in excess of a normal rate of return on its identifiable net assets
A
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. - The investor should establish a negative investment account balance for any future losses reported by the investee. - Future losses are reported as unusual items in the investor's income statement. - The investor should discontinue using the equity method until the investee begins paying dividends.
A
Which of the following has the least amount of official authority for the financial reporting of state and local governments? GASB Concepts Statements GASB Statements of Governmental Accounting Standards GASB Implementation Guides GASB Technical Bulletins
A
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. - In form, the companies are one entity; in substance, they are separate. - In form and substance, the companies are separate. - In form and substance, the companies are one entity.
A
A city creates a solid waste landfill. It assesses a charge to every individual or company that uses the landfill based on the amount of materials added. In which of the following will the landfill probably be recorded? Special revenues funds. Enterprise fund. General fund. Internal service funds.
enterprise fund
Patrick has a capital balance of $120,000 in a local partnership, and Caitlin has a $90,000 balance. These two partners share profits and losses by a ratio of 60 percent to Patrick and 40 percent to Caitlin. Camille invests $60,000 in cash in the partnership for a 20 percent ownership. The goodwill method will be used. What is Caitlin's capital balance after this new investment? Multiple Choice $102,000 $99,600 $126,000 $112,000
102,000
A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically: Henry (50%)$135,000Thomas (30%) 85,000Catherine (20%) 80,000 Anne is going to invest $125,000 into the business to acquire a 40 percent ownership interest. Goodwill is to be recorded. What will be Anne's beginning capital balance? Multiple Choice $245,000 $125,000 $200,000 $170,000
200,000
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. - Equipment will increase by $54,000 in the government-wide financial statements. - The equipment will not appear within the reported assets in the fund financial statements. - An expenditure for $54,000 will be reported in the fund financial statements.
A
A partnership has the following capital balances with partners' profit and loss percentages indicated parenthetically: Burks (35%)$280,000Donovan (40%) 300,000Watkins (25%) 170,000 Ranzilla agrees to pay a total of $245,000 directly to these three partners to acquire a 25 percent ownership interest from each. The partnership will record goodwill based on the new partner's payment. What is Donovan's capital balance after the transaction? Multiple Choice $225,000 $392,000 $294,000 $398,000
294,000
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 Multiple Choice $20,000. $75,000. $24,000. $30,000.
30,000
The capital balance for Maxwell is $110,000 and for Russell is $40,000. These two partners share profits and losses 70 percent (Maxwell) and 30 percent (Russell). Evan invests $50,000 in cash into the partnership for a 30 percent ownership. The bonus method will be used. What is Russell's capital balance after Evan's investment? Multiple Choice $40,000 $43,000 $35,000 $37,000
37,000
A private not-for-profit entity receives a gift of new furniture from a retail department store. The furniture has a fair value of $2,100. The entity holds the furniture for several weeks. After a flood, the entity gives the furniture to several needy families. How should the NFP entity record these conveyances? - No entries are required. - Record contribution revenue of $2,100 and community assistance expense of $2,100. - Record only a community assistance expense of $2,100. - Record only a contributed revenue of $2,100.
B
A private not-for-profit entity sends a mailing to all of its current and former members regardless of whether they have ever donated money or not. The mailing has a total cost of $22,000. It asks for monetary contributions to help achieve the charity's stated mission. In addition, 80 percent of the mailed material is educational in nature, providing information about the entity's goals. Which of the following is true? - Some part of the $22,000 should be reported as a program service cost because of the educational materials included. - No part of the $22,000 should be reported as a program service cost because there is no specific call to action. - No part of the $22,000 should be reported as a program service cost because the mailing was sent to both current and former members regardless of their donation history. - Some part of the $22,000 should be reported as a program service cost because more than 50 percent of the material was educational in nature.
B
A private not-for-profit university charges student tuition of $1 million for the current year. Financial aid grants total $220,000. The school also receives a $100,000 grant restricted for faculty salaries. Of that amount, $30,000 is spent appropriately this year. In preparing a statement of activities, which of the following is not true? - Net assets without donor restrictions should show an increase of $30,000 for net assets reclassified. - Net assets without donor restrictions should report revenue of $1 million. - Net assets without donor restrictions should report expenses of $30,000. - Net assets without donor restrictions should report a direct reduction of $220,000 in reporting the tuition revenue.
B
A purchase order for $3,000 is recorded in the general fund for the purchase of a new computer. The computer is received, but the actual cost is $3,020 because of a sales tax. Which of the following statements is correct for fund financial statements? - An expenditure is recorded only for the additional $20. - An expenditure is increased by $3,020. - An encumbrance account is reduced by $3,020. - Machinery is increased by $3,020.
B
According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be - Written off over a five-year maximum useful life. - Recorded as an expense in the period the merger takes place. - Capitalized as part of the overall fair value acquired in the merger. - Included in recognized goodwill.
B
City government officials are analyzing a complicated financial transaction. A GASB Implementation Guide seems to provide one reporting answer. A GASB Concepts Statement seems to provide a different answer. What reporting is most appropriate? - The government can use either method and still be in conformity with U.S. GAAP. - Government officials should follow the guidance provided by the GASB Implementation Guide. - The city's financial statements must be in conformity with the GASB Concepts Statement. - The city's accountants should seek some type of compromise that takes both of these pronouncements into consideration.
B
James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31 consolidated income statement, how should James account for Mark-Right's revenues and expenses that occurred before April 1? - Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income. - Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals. - Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses. - Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income.
B
Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated? $300,000. $400,000. $100,000. $0
B
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? $337,000. $549,000. $127,200. $421,800.
B
Perez, Inc., applies the equity method for its 25 percent investment in Senior, Inc. During 2021, Perez sold goods with a 40 percent gross profit to Senior, which sold all of these goods in 2021. How should Perez report the effect of the intra-entity sale on its 2021 income statement? - Investment income should be reduced by 25 percent of the gross profit on the amount of intra-entity sales. - No adjustment is necessary. - Sales and cost of goods sold should be reduced by the amount of intra-entity sales. - Sales and cost of goods sold should be reduced by 25 percent of the amount of intra-entity sales.
B
The capital balance for Messalina is $210,000 and for Romulus is $140,000. These two partners share profits and losses 60 percent (Messalina) and 40 percent (Romulus). Claudius invests $100,000 in cash in the partnership for a 20 percent ownership. The bonus method will be used. What are the capital balances for Messalina, Romulus, and Claudius after this investment is recorded? Multiple Choice $222,000, $148,000, $80,000 $216,000, $144,000, $90,000 $240,000, $160,000, $100,000 $218,000, $142,000, $88,000
B
Under the initial value method, the parent recognizes income when - Dividends are received from the investee. - Dividends are declared by the investee. - The related expense has been incurred. - The related contract is signed by the subsidiary. - It is earned by the subsidiary.
B
What are the three types of restricted net assets? Current, noncurrent, structural Purpose, time, permanent Immediate, longer than one year, longer than five years Monetary, nonmonetary, leveraged
B
What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination? - Expense upon acquisition. - Capitalize as an asset. - Expense if there is no alternative use for the assets used in the research and development and technological feasibility has yet to be reached. - Expense until future economic benefits become certain and then capitalize as an asset.
B
What is the purpose of enterprise funds? - To account for asset transfers. - To account for operations financed in whole or in part by outside user charges. - To account for ongoing activities such as the police and fire departments. -To account for operations that provide services to other departments within a government.
B
When a partnership is liquidated, how is the final distribution of partnership cash made to the partners? Equally According to the final capital account balances According to the profit and loss ratio According to the initial investment made by each of the partners
B
Which of the following is not a reason for the popularity of partnerships as a legal form for businesses? - In some cases, losses may be used to offset gains for tax purposes. - Partnerships can more easily generate significant amounts of capital. - Partnerships may be formed merely by an oral agreement. - Partnerships avoid the double taxation of income that is found in corporations.
B
Why is a private not-for-profit entity more likely to use the direct method of reporting operating activity cash flows than a for-profit business would be? - The direct method is the traditional approach for private not-for-profit entities. - An indirect method reconciliation does not have to be included as it does with for-profit entities. - The indirect method does not conform as easily with a private not-for-profit entity and its operations. - The direct method is likely to show a more positive amount of operating activity cash inflows.
B
A city agrees to allow the Jones Company to operate within its geographical boundaries without having to pay real estate taxes for the next 10 years. In exchange, Jones agrees to continue employing at least 120 people at all times during this period. For this tax abatement, which of the following does the city not have to disclose? Dollar amount of taxes abated. The tax being abated. The party receiving the tax abatement The purpose of the tax abatement program.
C
A private not-for-profit entity has the following activities performed by volunteers who work at no charge. In which case should no contribution be reported? - A carpenter builds a porch on the back of one building so that patients can sit outside. - An accountant does the organization's financial reporting. - A local librarian comes each day to read the newspaper to the patients. - A computer expert repairs the organization's computer.
C
A statement of activities shows account balances in two separate columns. How are those columns labeled? rev: 11_08_2019_QC_CS-189533 Current and noncurrent Temporary and permanent Without donor restrictions and with donor restrictions Contributed funds and funds from exchange transactions
C
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 tests the preexisting goodwill for impairment before recording the goodwill as part of the acquisition. - Preexisting goodwill is excluded from the identifiable assets acquired unless the subsidiary can demonstrate its continuing value. - The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separately identifiable assets acquired and liabilities assumed. - The parent includes the preexisting goodwill as an identified intangible asset acquired.
C
Craft Corp. acquired all of the common stock of Pitts Co. in 2019. Pitts maintained its incorporation. Which of Craft's account balances would vary between the equity method and the initial value method? - Goodwill, Investment in Pitts Co., and Retained Earnings. - Expenses, Investment in Pitts Co., and Equity in Subsidiary Earnings. - Investment in Pitts Co., Equity in Subsidiary Earnings, and Retained Earnings. - Common Stock, Goodwill, and Investment in Pitts Co. - Expenses, Goodwill, and Investment in Pitts Co.
C
During a liquidation, if a partner's capital account balance drops below zero, what should happen? - The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses. - The partner with the highest capital balance contributes sufficient assets to eliminate the deficit. - The partner with a deficit contributes enough assets to offset the deficit balance. - The other partners file a legal suit against the partner with the deficit balance.
C
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 - Treated as goodwill and tested for impairment on an annual basis. - Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years. - Recognized as an ordinary gain from a bargain purchase. - Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific non-current assets of the acquired firm.
C
How does partnership accounting differ from corporate accounting? - Revenues are recognized at a different time by a partnership than is appropriate for a corporation. - The matching principle is not considered appropriate for partnership accounting. - Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting. - Partnerships report all assets at fair value as of the latest balance sheet date.
C
In Year 6, a donor gives $112,000 to a private not-for-profit entity to enable it to pay the salary of a new doctor to be hired by the organization. Near the end of Year 7, this money is used for the stipulated purpose. Which of the following is true about the statement of activities for Year 7? - Net assets with donor restrictions increased by $112,000. - Net assets with donor restrictions did not change. - Net assets without donor restrictions goes up by $112,000 and also down by $112,000. - Net assets with donor restrictions goes up by $112,000 and also down by $112,000.
C
Pat, Jean Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, which of the following best justifies the amount of MaryAnn's investment? - MaryAnn is apparently bringing goodwill into the partnership, and her capital account will be credited for the appropriate amount. - Assets of the partnership were overvalued immediately prior to MaryAnn's investment. - The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment. - MaryAnn will receive a bonus from the other partners upon her admission to the partnership.
C
The City of Huble has a defined benefit pension plan for a significant number of its employees. Which of the following does the city not include immediately in the determination of pension expense in its government-wide financial statements? - Changes in pension liability as a result of a change in benefit terms - Interest on total pension liability - Changes in pension liability as a result of a change in economic or demographic assumptions - Service cost
C
The governing board of a private not-for-profit entity votes to set $400,000 in cash aside in an investment fund so that this money and future interest will be available in five years, when a new building is scheduled for construction. Which of the following is not true? - The investments are reported on the statement of financial position as net assets without donor restrictions. - The acquisition of the investments is not reported on the statement of activities. - Board-designated funds will appear in the net asset section of the statement of financial position as net assets with donor restrictions. - Income earned by these investments appears on the statement of activities under net assets without donor restrictions.
C
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 a mezzanine section between liabilities and owners' equity. - The noncontrolling interest is not recognized in the consolidated balance sheet. - In the owners' equity section. - In the liability section.
C
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? - Revenues and COGS must be recognized for all intra-entity sales regardless of whether the sales are upstream or downstream. - Gross profits must be deferred indefinitely because sales among affiliates always remain in the consolidated group. - When intra-entity sales remain in ending inventory, control of the goods has not changed. - Intra-entity sales result in gross profit overstatements regardless of amounts remaining in ending inventory.
C
Under the partial equity method, the parent recognizes income when - Dividends are received from the investee. - Dividends are declared by the investee. - The related expense has been incurred. - The related contract is signed by the subsidiary. - It is earned by the subsidiary.
E
Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination? - Goodwill. - Equipment. - Retained Earnings. - Common Stock. - Equity in Subsidiary Earnings.
E
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition? - The amount ultimately paid under the contingent consideration agreement is added to goodwill when and if the performance metrics are met. - The fair value of the contingent consideration is expensed immediately at acquisition date. - The fair value of the contingent consideration is included in the overall fair value of the consideration transferred. - The fair value of the contingent consideration is recorded as a reduction of the otherwise determinable fair value of the acquired firm.
C
Which of the following does not represent a primary motivation for business combinations? - Cost savings can be achieved through elimination of duplicate facilities and staff. - Synergies may be available through quick entry for new and existing products into markets. - Larger firms are less likely to fail. - Combinations are often a vehicle to accelerate growth and competitiveness.
C
Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination? - Initial value or book value. - Initial value, lower-of-cost-or-market-value, or equity. Initial value, equity, or partial equity. - Initial value, equity, or book value. - Initial value, lower-of-cost-or-market-value, or partial equity.
C
Which of the following statements is true concerning the accounting for a partnership going through liquidation? - Within a liquidation, all gains and losses are divided equally among the partners. - A separate income statement is created to measure only the profit or loss generated during liquidation. - Gains and losses are reported directly as increases and decreases in the appropriate capital account. - Because gains and losses rarely occur during liquidation, no special accounting treatment is warranted.
C
Which of the following statements is true? There are three different types of fiduciary funds. There are five different types of fiduciary funds. There are five different types of governmental funds. There are three different types of proprietary funds.
C
Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination? - Goodwill. - Equipment. - Investment in Subsidiary. - Common Stock. - Additional Paid-In Capital.
C
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 adjustment to additional paid-in capital. - Maintained at its initial value. - Adjusted to its equity method balance at the date of the second acquisition. - Adjusted to fair value at the date of the second acquisition with any resulting gain or loss recognized.
D
A private not-for-profit entity spends $100,000 to send a mailing that solicits donations and provides educational and other information about the charity. Which of the following is true? - No part of the $100,000 can be reported as a program service expense. - Some part of the $100,000 must be reported as a program service expense. - No authoritative guidance exists, so the entity can allocate the cost as it believes best. - Under certain circumstances, the entity should allocate a portion of the $100,000 to program service expenses.
D
City officials provide a tax abatement to a local business so that it can avoid paying real estate taxes for the next five years. In exchange, the business agrees to construct a new facility and hire 50 or more individuals. How does the city report this decision? Only on the government-wide financial statements On both the government-wide and fund financial statements Only on the fund financial statements Only as a footnote disclosure.
D
Consolidated financial statements are typically prepared when one company has - Accounted for its investment in another company by the equity method. - Dividend income from another company. - Significant influence over the operating and financial policies of another company. - Control over another company.
D
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 not adjusted for the impact of transfers prior to computing the noncontrolling interest's allocation. - The subsidiary's reported net income is adjusted for the impact of downstream transfers prior to computing the noncontrolling interest's allocation. - The subsidiary's reported net income is adjusted for the impact of all transfers prior to computing the noncontrolling interest's allocation. - The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation.
D
The City of Bagranoff holds $90,000 in cash that will be used to make a bond payment when the debt comes due early next year. The assistant treasurer initially made the decision to set this money aside for this purpose. Just before the end of the current year, the city council formally approved using the money in this way. The city council is the highest level of decision-making authority for this government. What impact does the council's action have on the reporting of fund financial statements? - Fund balance—unassigned goes down and fund balance—assigned goes up. - Fund balance—unassigned goes down and fund balance—restricted goes up. - Fund balance—assigned goes down and fund balance—restricted goes up. - Fund balance—assigned goes down and fund balance—committed goes up.
D
The accountants for a city are attempting to determine the proper reporting for a new transaction so that financial statements will be in conformity with U.S. generally accepted accounting principles. They are unable to find any authoritative answer. What should happen next? - The city will receive a qualified audit report on its financial statements. - The accountants can report the transaction in the way that they believe is best. - The city will separate the transaction and report it separately in such a way as to draw attention to the method of reporting that was followed. - The accountants should study other nonauthoritative sources such as GASB Concepts Statements and the official standards produced by FASB.
D
The equity method tends to be most appropriate if - An investment represents 50 percent or more of the voting stock of an investee. - Majority ownership of the investee is concentrated among a small group of shareholders who operate the investee without regard to the views of the investor. - The investor is unable to obtain representation on the investee's board of directors. - An investment enables the investor to influence the operating and financial decisions of the investee.
D
Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee? - Intra-entity profits from upstream sales. - Other comprehensive income reported by the investee. - The investee's reported income adjusted for excess cost over book value amortizations. - Changes in the fair value of the investor's ownership shares of the investee.
D
What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest? - Consolidated financial statements should be primarily for the benefit of the parent company's stockholders. - Consolidated financial statements should be produced only if both the parent and the subsidiary are in the same basic industry. - Consolidated financial statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent company. - A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.
D
What is a statutory merger? -An acquisition involving the purchase of both stock and assets - A takeover completed within one year of the initial tender offer - A merger approved by the Securities and Exchange Commission - A business combination in which only one company continues to exist as a legal entity
D
What is the purpose of a special revenue fund? - To account for the cost of long-lived assets bought with designated funds. - To account for ongoing activities. - To account for gifts when only subsequently earned income can be expended. - To account for revenues legally or externally restricted as an operating expenditure.
D
When does gain recognition accompany a business combination? - In a combination created in the middle of a fiscal year. - When the amount of a bargain purchase exceeds the value of the applicable noncurrent assets (other than certain exceptions) held by the acquired company. - In an acquisition when the value of all assets and liabilities cannot be determined. - When a bargain purchase occurs.
D
Which of the following best describes the articles of partnership agreement? - The articles of partnership are an agreement that limits partners' liability to partnership assets. - The purpose of the partnership and partners' rights and responsibilities are required elements of the articles of partnership. - The articles of partnership are a legal covenant and must be expressed in writing to be valid. - The articles of partnership are a legal covenant that may be expressed orally or in writing, and form the central governance for a partnership's operations.
D
Which of the following statements is correct about the reporting of governmental funds? - Government-wide financial statements measure revenues and expenditures based on accrual accounting. - Fund financial statements measure revenues and expenses based on accrual accounting. - Government-wide financial statements measure revenues and expenses based on modified accrual accounting. - Fund financial statements measure revenues and expenditures based on modified accrual accounting.
D
Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment? - The amount of consolidated net income. - Total assets on the consolidated balance sheet. - Total liabilities on the consolidated balance sheet. - The balance in the investment account on the parent's books.
D
How does the partial equity method differ from the equity method? - In the total assets reported on the consolidated balance sheet. - In the treatment of dividends. - In the total liabilities reported on the consolidated balance sheet. - Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account. - Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.
E
Which of the following is not a governmental fund? Debt Service Fund. Special Revenue Fund. Capital Projects Fund. Internal Service Fund.
internal service fund
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? Modified accrual accounting. Consumption accounting. Account groups. Interperiod equity.
interperiod equity
