ACCT Final Exam
The City of Lincolnshire assesses a tax of 1 percent on all sales transactions. In November of Year One, sales were $1 million. $8,000 of the tax is collected by the city in December of Year One with the other $2,000 collected in January of Year Two. How is the derived tax revenue reported by the city?
$10,000 is reported in November of Year One.
Partners X and Y comprise the XY partnership and each have $75,000 capital balances. Partners X and Y share profits and losses 30% and 70%, respectively. Partner Z is admitted with a 25% ownership interest for a $90,000 contribution to the partnership business. If the goodwill method is employed to record partner Z's admission, partner X's capital balance will be
$111,000 $90,000/.25 = $360,000 implied partnership value. $360,000 - ($75,000 + $75,000 + $90,000) = $120,000 GW. $75,000 + (30% x $120,000 GW) = $111,000
Partners X and Y comprise the XY partnership and each have $75,000 capital balances. Partners X and Y share profits and losses 30% and 70%, respectively and the carrying amounts of the partnership net assets equal current fair values. Partner Z is admitted with a 25% ownership interest for a $90,000 contribution to the partnership business. If the goodwill method is employed to record partner Z's admission, goodwill will be recorded for
$120,000 $90,000/.25 = $360,000 implied partnership value. $360,000 - ($75,000 + $75,000 + $90,000) = $120,000
A local partnership has two partners, Jim and Pam. Jim has a capital balance of $150,000 and Pam has a capital balance of $125,000. These two partners share profits and losses 60 percent (Jim) and 40 percent (Pam). Cece invests $75,000 in cash in the partnership for a 25 percent ownership. The bonus method will be used. What is Jim's capital balance after this new investment?
$142,500
Partners X and Y comprise the XY partnership and each have $75,000 capital balances. Partners X and Y share profits and losses 30% and 70%, respectively. Partner Z is admitted with a 25% ownership interest for a $90,000 contribution to the partnership business. If the bonus method is employed to record partner Z's admission, Z's capital credit will be
$60,000 ($150,000 + $90,000) x 25% = $60,000
Partners A and B comprise the AB partnership and each has a $90,000 capital balance. The existing partnership's assets are stated at fair value, and partners A and B share profits and losses of 40% and 60%, respectively. Partner C is admitted with a 20% ownership interest for a $40,000 direct cash payment to the current partners. If the goodwill method is employed to record partner C's admission, Partner A's capital balance after C's admission will be:
$78,400. GW = ($40,000/0.2) − ($90,000 × 2) = $20,000. A's share of GW = 40% × 20,000 = $8,000. A's capital balance = $90,000 + $8,000 − ($90,000 + $8,000) × 20% = $78,400.
The City of Loving assesses $1 million in property taxes in Year One. Of the total, $500,000 is expected to be collected in Year One, $300,000 in the first 60 days of Year Two, $150,000 also in Year Two but not until 60-75 days into Year Two, and the rest will never be collected. This money can be legally spent as soon as it is received. Which of the following statements is true for government-wide financial statements?
$950,000 is reported as revenue in Year One on government-wide financial statements
Partners A and B comprise the AB partnership and each has $90,000 capital balances. The existing partnership's assets are stated at fair value, and partners A and B share profits and losses of 40% and 60%, respectively. Partner C is admitted with a 20% ownership interest for a $40,000 direct cash payment to the current partners. If the goodwill method is employed to record partner C's admission, goodwill is:
($40,000/0.2) − ($90,000 × 2) = $20,000.
How do the balance sheet and statement of revenues, expenditures, and changes in fund balances of governmental funds differ from the financial statement presentation for the governmental activities in the government-wide statement of net assets and statement of activities? 1. Internal service funds are not included in the fund financial statements of governmental funds but could be reported in the governmental activities of government-wide financial statements. 2. The economic resources measurement basis is used for fund financial statements of governmental funds and the current financial resources measurement basis is used for governmental activities in the government-wide financial statements. 3. Modified accrual accounting is used for fund financial statements of governmental funds to time revenues and expenditures and accrual accounting is used for governmental activities of government-wide financial statements. 4. The financial statements of governmental funds for fund financial statements are the same as governmental activities in government-wide financial statements but with different titles of the financial statements.
1 and 3.
Which of the following could be used as a basis to allocate profits among partners who are active in the management of the partnership? 1. Allocation of salaries. 2. The number of years with the partnership. 3. The amount of time each partner works. 4. The average capital invested.
1, 2, 3, and 4.
To account for a forward contract cash flow hedge of a foreign currency-denominated asset or liability at the balance sheet date:
1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income, 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported in Other Comprehensive Income, 3. Recognize a loss or gain related to the hedging instrument to offset the foreign exchange gain or loss on the hedged item recognized in 1, and 4.Recognize a portion of the forward points (discount or premium) in net income with the counterpart reported in Other Comprehensive Income.
ABC partnership shares profits and losses 20% to A, 30% to B, and 50% to C. If C retires from the partnership and receives a $10,000 bonus, the bonus reduces the capital balances of A and B by
40% to A and 60% to B.
Two partners (X and Y) have equal balances in their capital accounts and have agreed to share profits and losses on a 55:45 basis, respectively. When partnership assets are liquidated, partner Y's capital account will be increased for
45% of gains on sales of partnership assets.
Two partners (A and B) have equal balances in their capital accounts and have agreed to share profits and losses on a 60:40 basis, respectively. When partnership assets are liquidated, partner A's capital account will be reduced for
60% of losses on sales of partnership assets.
Two partners (L and M) have equal balances in their capital accounts and have agreed to share profits and losses on a 70:30 basis, respectively. When the partnership is liquidated, partner L's capital account will be reduced for
70% of liquidation expenses.
Partners A, B,and C share profits and losses in a ratio of 50%, 40%, 10%, respectively. Simulated losses result in A having a deficit capital balance. The amount of A's deficit that should be allocated to B's capital account in a proposed statement of liquidation is
80%.
A city received a grant of $5,000,000 from a private agency. The money was to be used to build a new city library. In which fund should the money be recorded for the governmental fund financial statements?
A Capital Projects Fund.
Which of the following is not a characteristic of a partnership?
A partnership requires written Articles of Partnership.
Business-type activities is one of the two classifications within government-wide financial statements. What is included within the business-type activities?
All enterprise funds and some internal service funds
Governmental activities is a separate classification found on the government-wide financial statements. What is included in that category?
All governmental funds plus most of the internal service funds
The City of Armando begins a special assessment project. Money is borrowed and $200,000 is spent to add street lights to a local neighborhood. When the money is spent for this project, what reporting is made?
An asset is reported on government-wide financial statements. An expenditure is reported on fund financial statements. Need help? Review these concept resources.
Which of the following is not one of the steps to liquidate a partnership?
Any partnership cash remaining after paying liabilities and liquidation expenses is distributed to the individual partners on the basis of their seniority.
The City of Drexel receives a $100,000 cash grant from the state government to help finance the operation of a health clinic mandated by the state. How is this revenue reported by the city?
As a government-mandated nonexchange transaction
The City of Sokolova issues a $2 million 10-year bond near the end of Year One in order to build a new school. In recording its liabilities, how is this bond payable reported by the city?
As a noncurrent liability on the government-wide financial statements although no liability is reported on the fund financial statements.
The City of Burke receives a $500,000 grant from the state government to street lights around a local school. How is the receipt of this grant reported by the city?1
As a voluntary nonexchange transaction
The City of Alberidge assesses and collects $2 million in property taxes. In preparing financial statements for the city, how is this amount reported?
As an imposed nonexchange revenue
The City of Smith recently issued a $7 million 5-year bond with the proceeds to be used for a new road system. How is this bond issuance reported in the fund financial statements?
As an other financing source on the statement of revenues, expenditures, and other changes in fund balances
Bay City received a federal grant to provide health care services to low-income mothers and children. When should the revenues be recognized?
As health care services are provided
The County of Harlan receives a grant from an organization to provide school books for children living in poverty. The grant is approved in February. The county receives the money in May. The money can be expended in August. The amount is actually spent in October. In what month should the grant revenue be recognized?
August
Which of the following are financial statements reported by the governmental funds to be found within the fund financial statements?
Balance sheet and statement of revenues, expenditures, and changes in fund balance.
At the end of a partnership liquidation, how is any remaining cash distributed to the partners?
Based on the individual partners' final capital balances.
Trapper City issued 30-year bonds for the purpose of building a new City Hall. The proceeds of the bonds are deposited in the General Fund. For the governmental fund financial statements, in what fund will Bonds Payable appear?
Bonds Payable do not appear in governmental fund financial statements
Under the temporal method, which accounts are remeasured using current exchange rates?
Cash, receivables, and most liabilities
Which is a true statement regarding the fundamental requirement of accounting for derivatives?
Changes in derivative fair value are included in comprehensive income.
Which of the following is not a basic difference between a city government entity and a business enterprise?
City governments are more likely to go bankrupt
Under the current rate method, inventory at net realizable value would be translated for the balance sheet at what rate?
Current rate
Under the current rate method, property, plant and equipment would be translated at what rate?
Current rate
Under the temporal method, inventory at net realizable value would be remeasured for the balance sheet at what rate?
Current rate
The City of Manchester collects $1.2 million in cash from sales taxes. For reporting purposes, this amount is recorded as what type of revenue?
Derived tax revenue
During a partnership liquidation, how are gains and losses recorded?
Directly to the partners' capital accounts, allocated on the partners' profit and loss ratio.
Why does a government record encumbrances in the financial accounts of its governmental funds?
Encumbrances are recorded for purchase commitments and contracts to help ensure that amounts are not spent greater than has been approved.
Which of the following is correct about the recording of encumbrances?
Encumbrances are recorded when a purchase commitment or contract is signed and removed when it becomes an obligation.
The City of Brimington bought a new police car this year at a cost of $80,000 in cash. It has an expected life of 5 years and no expected residual value. In reporting the governmental funds within fund financial statements, which of the following would be reported for this acquisition?
Expenditure of $80,000
The City of Seville spends $400,000 to buy a building and $100,000 to rent another building for two months. In preparing fund financial statements for its governmental funds, how are these two transactions reported?
Expenditures of $500,000
Which of the following would be considered a derived tax revenue?
FICA is withheld from the employee pay.
A government holds $6 million as part of a pension plan program that must be paid to school teachers when they retire. In which of the following fund categories will this money be reported?
Fiduciary funds
The reporting of the fund balance of governmental funds will result in a maximum of how many categories?
Five
Which set of financial statements of a state or local government emphasizes the individual activities of the government during the current period of time?
Fund financial statements
The Governmental Accounting Standards Board (GASB) requires state and local governments to prepare two sets of financial statements which include which of the following?
Fund financial statements and government-wide financial statements.
Which of the following describes proprietary funds?
Funds used to account for a government's ongoing activities that are similar to those operated by for-profit organizations.
Which set of financial statements of a state or local government emphasizes the financial reporting of the overall government as a whole?
Government-wide financial statements
Which of the following statements is false regarding government-wide financial statements?
Government-wide financial statements focus on the short-term instead of the long-term.
Each separate financial statement within the government-wide financial statements divides all reported activities into two distinct categories. What are those categories?
Governmental activities and business-type activities
Which group of financial statements is prepared using the "modified accrual accounting" approach?
Governmental fund financial statements.
A government has funds that account for activities financed by taxes and other general revenue sources that are carried out primarily for the benefit of citizens. What label is applied to these funds?
Governmental funds
What are the broad classifications of funds for a governmental entity such as a city?
Governmental, proprietary, and fiduciary funds.
Which of the following statements is true concerning hedge accounting?
Hedges of foreign currency firm commitments are used for future sales or purchases.
Which one of the following statements is correct?
If a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the profit and loss ratio of those partners.
In March, the City of Elizabeth receives a grant to pay for street lights around the local school. The money will be conveyed to the city after appropriate payments have been made. In May, the city council authorizes the acquisition of the street lights. In August, the new street lights are bought and installed. In October, the city receives the money from the grant. When should the city record the revenue from this grant?
In August
In March, a city council passes a resolution for an election to approve the issue of bonds with the proceeds to be used to construct a new fire station. In May, a grant is received from the state to help in the construction of the fire station. The grant will not be conveyed until the bond has been approved in the election. In July, the election is held and the bond issuance is approved. In October, the bonds are issued. When should the grant revenue be recognized by the city?
In July
Which of the following has most of the characteristics of a general partnership except that it significantly reduces the partners' liability?
Limited Liability Partnership
Which of the following is true for encumbrances incurred by a governmental fund?
Many governments record encumbrances in the governmental funds at the time a purchase commitment is made.
The City of D'andre records and reports a special revenue fund. Which of the following is the most likely reason for that reporting?
Money has been legally restricted for use by the police department.
Which of the following government activities is least likely to be reported within the governmental funds?
Municipal golf course
The citizens of the City of Hatley have asked that sidewalks be constructed with a cost of $1 million. The city issues long-term debts for that amount and constructs the sidewalks. A special assessment tax will be charged to the citizens to pay the debts as they come due. How is this reported in the city's fund financial statements?
Neither the sidewalk nor the debt are reported on the balance sheet for the governmental funds.
Which of the following funds is most likely created with an endowed gift?
Permanent Fund
Which item is not shown on the statement of partnership liquidation?
Personal assets of the partners.
A city has a municipal subway system and all trips cost $3. That amount is set to cover the cost of the trip. In which fund classification is this subway system most likely to be reported?
Proprietary funds
Which of the following fund categories is not included within the governmental funds?
Proprietary funds
Which of the following is least likely to be reported as a proprietary fund?
Public library
Dilty Corporation owned a subsidiary in France. Dilty concluded that the subsidiary's functional currency was the U.S. dollar. What must Dilty do to ready the subsidiary's financial statements for consolidation?
Remeasure them.
The functional currency of Bertrand, Incorporated's Irish subsidiary is the euro. Bertrand borrowed euros as a partial hedge of its investment in the subsidiary. Since then, the euro has decreased in value. Bertrand's negative translation adjustment on its investment in the subsidiary exceeded its foreign exchange gain on its euro borrowing. How should Bertrand report the effects of the negative translation adjustment and foreign exchange gain in its consolidated financial statements?
Report the translation adjustment less the foreign exchange gain in accumulated other comprehensive income on the balance sheet.
What was the impact on fund accounting when state and local governments were required to prepare government-wide financial statements?
Separate funds were still maintained within most state and local governments for internal purposes.
The advantages of the partnership form of business organization, compared to corporations, include which of the following?
Single taxation
The City of Prospero imposes a special tax to finance the operations of the local community center. The community center is most likely to be recorded and reported in which type of fund?
Special revenue fund
Which of the following is not one of the categories for reporting fund balances of governmental funds?
Spendable
Which of the following make up the government-wide financial statements?
Statement of net position and statement of activities
Which of the following is not a primary beneficiary of the financial statements prepared by a state or city government?
Stockholders
For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation?
Temporal Method.
In the translated financial statements, which method of translation maintains the underlying valuation methods used in preparing the foreign currency financial statements?
Temporal method
Which method is used for remeasuring a foreign subsidiary's financial statements?
Temporal method
The City of Sampson operates a fire department for public safety. Which fund category is most likely to monitor the current financial resources received and expended by the fire department?
The General Fund
According to GASB Concepts Statement Number 1, what are the three groups of primary users of external state and local governmental financial reports?
The citizenry, legislative and oversight bodies, and investors and creditors
Which of the following statements is true concerning the distribution of safe payments?
The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership.
A fiduciary fund is most likely to be used in accounting for monies within a state or local government fund in which of the following cases?
The money is held for others and cannot be used by the government.
How many separate funds are maintained within a state or local government?
The number can vary significantly between state and local governments.
Which of the following statements is correct regarding the admission of a new partner?
The right to participate in management of the business cannot be conveyed without the consent of other existing partners.
When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?
The transaction is denominated in U.S. dollars.
In general, when are derived tax revenues such as sales taxes and income taxes recognized by a state or local government?
They are recognized when the underlying event occurs
Which of the following is true in connection with a statement of revenues, expenditures, and other changes in fund balance?
This statement is reported for governmental funds in the fund financial statements
Withdrawals from the partnership capital accounts are typically not used in which of the following situations?
To record interest earned on a partner's capital balance.
A business entity normally prepares a single set of financial statements intended to satisfy all potential decision-makers. How many sets of financial statements are prepared and reported by a state or local government unit?
Two
When using the current rate method, the translation adjustment from translating a foreign subsidiary's financial statements should be shown as
a component of stockholders' equity in the consolidated balance sheet.
When a city holds pension monies for city employees, the monies should be recorded in
a fiduciary fund.
A U.S. exporter sells goods to a foreign customer who pays in foreign currency in 90 days. The difference between the U.S. dollar value of the transaction at the date of sale and at the date cash is collected is recognized as
a foreign exchange gain or loss in net income.
A U.S. importer has a foreign currency-denominated import purchase. With regard to the difference in the amount of U.S. dollars that could have been paid on the date of purchase and the amount of U.S. dollars actually paid on the date of payment, the U.S. importer should recognize
a foreign exchange gain or loss in net income.
The change in fair value of a foreign currency forward contract used as a fair value hedge of a foreign currency denominated asset or liability is recognized as
a foreign exchange gain or loss in net income.
The change in fair value of a foreign currency option used as a fair value hedge of a foreign currency denominated asset or liability is recognized as
a foreign exchange gain or loss in net income.
A company accrues interest payable on a foreign currency borrowing at the end of the year. When the foreign currency-denominated interest is paid, the difference in the amount of accrued interest and the amount actually paid resulting from a change in the exchange rate should be recognized as
a foreign exchange gain or loss.
When partnership assets are sold on a piecemeal basis over time and cash is distributed to partners after each sale of assets,
a new proposed schedule of liquidation should be prepared before each distribution of cash to partners.
In accounting, the term translation refers to
a procedure to prepare a foreign subsidiary's financial statements for consolidation.
At the time of partnership termination, Partner A is personally insolvent and has a negative capital balance. Partners B and C must absorb A's deficit through
a reduction in their capital accounts.
At the balance sheet date, a foreign currency payable arising from an import purchase should be reported on the balance sheet in home country currency at
a revalued amount to reflect the change in foreign currency exchange rate since the date of purchase.
In consolidating a foreign subsidiary, the excess of fair value over book value must be translated into the parent's currency and
a translation adjustment related to the excess must be recognized in the consolidation worksheet.
Under the goodwill method to record a new partner's admission to a partnership, recognition of goodwill to the original partners is equitably allocated:
according to the profit and loss percentages.
Translation adjustments included in other comprehensive income are
accumulated in a stockholders' equity account on the consolidated balance sheet.
At the beginning of a liquidation, a loan made by an individual partner to the partnership would be
added to that partner's capital account.
The exchange rate mechanism for the U.S. dollar can best be described as being
allowed to float independently of central bank intervention.
A transaction exposure to foreign exchange risk exists when an exporter
allows a foreign customer to pay in a foreign currency and allows the customer time to pay for its purchases.
When a city collects admission fees from citizens who use the public swimming pool, the money should be recorded in
an enterprise fund.
Salaries and wages that have been earned by governmental employees that have not yet been paid are recorded in the general fund as
an expenditure.
In accounting for a foreign currency option used as a cash flow hedge of a foreign currency denominated asset or liability, the change in the time value of the option is recognized as
an expense in net income over the life of the option.
A city operates a central data processing facility. The expenses of this facility would be accounted for using
an internal service fund.
The term "current financial resources" refers to
assets that are available to be used for current expenditures.
When a balance sheet date falls between the date of a foreign currency denominated export sale and the date cash is collected on the foreign currency account receivable, the foreign currency account receivable is reported on the U.S. exporter's balance sheet
at a U.S. dollar amount to reflect the change in exchange rate since the date of sale.
A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and capital accounts
at periodic intervals.
Grace Company had a Chinese yuan payable resulting from imports from China and a Mexican peso receivable resulting from exports to Mexico. Grace recorded foreign exchange losses related to both its yuan payable and peso receivable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?
b. Increase // Decrease
Translating a foreign currency balance sheet account at the current exchange rate gives rise to
balance sheet exposure to foreign exchange risk.
In preparing a proposed schedule of liquidation, the deficit in a partner's capital account resulting from simulated losses should be allocated to the other partners' capital accounts
based on their relative profit and loss ratios.
When a forward contract is used to hedge a foreign currency firm commitment, hedge accounting requires the forward contract and the firm commitment to
be recognized on the balance sheet at their fair values.
In determining remeasurement gains and losses under the temporal method, the focus is on determining the impact that exchange rate changes have on the
beginning balance and changes in net monetary assets and liabilities.
In determining the translation adjustment when the current rate method is used, the foreign entity's net asset balance at the beginning of the year is translated using the
beginning-of-the-year exchange rate.
The maximum amount of loss that can be absorbed by an individual partner is calculated
by dividing the partner's capital balance by their profit and loss allocation.
In determining the amount to pay a partner upon withdrawal, the partnership employs current assessments for both land and goodwill, This payment therefore
can be accounted for using either the goodwill, bonus, or hybrid method.
Preparation of a proposed schedule of liquidation is based on the assumption that the partnership's noncash assets
cannot be sold for cash.
Hedges of forecasted foreign currency-denominated transactions can be designated as a
cash flow hedge.
The fair value of a foreign currency forward contract is determined by reference to
changes in the forward rate over the life of the forward contract.
With regard to the corporate strategy used to hedge foreign exchange risk
companies follow a variety of different strategies.
The accounts of a foreign subsidiary are translated into the parent's currency using a combination of
current and historical exchange rates.
Under the temporal method, cost of goods sold (COGS) in foreign currency (FC) is translated into parent company currency by
decomposing COGS in FC into components and then multiplying each of these components by its appropriate historical exchange rate.
U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except
deferred foreign currency gains and losses.
When the U.S. dollar price for a foreign currency decreases from one date to the next, the foreign currency is said to have
depreciated against the U.S. dollar.
The amount recognized as cost of goods sold related to imported goods that are paid for in a foreign currency is
determined by the spot rate on the date of purchase with no further adjustments.
The procedures involved in terminating and liquidating a partnership include
distributing partnership cash to individual partners after partnership liabilities and liquidation expenses have been paid.
he procedures involved in terminating and liquidating a partnership include
distributing partnership cash to individual partners after partnership liabilities and liquidation expenses have been paid.
The functional currency of a foreign entity located in a highly inflationary country
does not need to be identified because the entity's foreign currency financial statements must be translated using the temporal method.
To determine whether a country has a hyperinflationary economy, IFRS
does not provide a specific threshold but instead provides a list of indicators indicative of hyperinflation.
When an asset carried at historical cost on a foreign currency balance sheet is translated into parent company currency using the current rate method the resulting parent currency amount for that asset
does not represent either the historical cost nor the fair value of that asset in parent currency.
Periodic cash withdrawals from the partnership by individual partners are recorded initially as a credit to cash and a debit to a
drawing account.
When a forward contract is used to hedge a foreign currency firm commitment, the fair value of the firm commitment is
equal to the fair value of the forward contract.
The procedures required by IFRS and U.S. GAAP to account for foreign currency transactions are
essentially the same.
The net asset balance sheet exposure related to a French subsidiary can be hedged with a
euro note payable.
In determining the translation adjustment when the current rate method is used, dividends declared by the foreign entity in the current year are translated using the
exchange rate on the date the dividends are declared.
The price at which foreign currency can be sold for U.S. dollars is known as the foreign currency
exchange rate.
U.S. GAAP requires hedges to be recognized as fair value hedges or cash flow hedges. IFRS requires hedges to be recognized as
fair value hedges or cash flow hedges.
A foreign currency forward contract is always reported on the balance sheet either as an asset or as a liability at its
fair value.
A foreign currency option is always reported on the balance sheet at its
fair value.
A partner contributes a building to her partnership that has appreciated in value. The partnership's valuation basis for the building should be
fair value.
After simulating a series of losses that reduces each partner's capital account to a zero balance, the partner whose capital account balance is reduced to zero last is the partner who will be
first to receive a cash distribution as partnership assets are sold.
According to the Internal Revenue Code, partnership income
flows through to the individual tax returns of the individual partners.
A company anticipates that it will make a sale denominated in foreign currency to a regular foreign customer in six months. Even though the customer has not yet placed an order, the company acquires an option to sell the foreign currency when it is expected to be received. The option is a hedge of a(n)
forecasted foreign currency denominated transaction.
The exchange rate today at which a foreign currency can be purchased or sold on a specific future date is the
forward rate.
One possible approach to government financial reporting is to report each event based on the:
fund financial statement model.
The accounting system must keep track of the acquisition date exchange rates related to those assets that are translated at
historical exchange rates under the temporal method.
Under the temporal method of translation, assets carried on the foreign entity's balance sheet at historical cost are translated using
historical exchange rates.
The functional currency of a foreign entity is the currency of the country in which the entity is located. A gain on forward contract designated as a hedge of the net investment in this foreign entity is reported
in accumulated other comprehensive income on the consolidated balance sheet.
In accounting for a forward contract used as a cash flow hedge of a foreign currency denominated asset or liability, the original discount or premium on the forward contract is recognized
in net income over the life of the forward contract.
Assume the articles of partnership specify that profits are to be allocated 60% to partner A and 40% to partner B. If, however the articles of partnership are silent concerning the allocation of a partnership loss, then any loss is allocated
in the same manner as partnership profits.
Amortization of a forward contract premium over the life of the forward contract results in a(n):
increase in net income.
For governmental entities, the accrual basis of accounting is used for
internal service funds.
At year end, a partner's drawing account
is closed to the partner's capital account.
A company enters into a forward contract to sell foreign currency in the following year. This forward contract will have a positive fair value when the forward rate on the balance sheet date for a contract that matures on the same future date
is lower than the forward rate on the contract entered into.
In applying the equity method, the current year's negative translation adjustment calculated by reference to changes in net assets and a depreciation in the foreign currency
is recognized as a credit to the Investment in Foreign Subsidiary account
When a derivative financial instrument is used to hedge a foreign currency firm commitment, the firm commitment
is recognized as an asset or liability at its fair value.
The emergence of several alternative partnership forms derives from the desire to avoid double taxation and
limit the personal liability exposure of individual partners.
A statement of partnership liquidation discloses
liquidation transactions already carried out.
During a partnership liquidation, debits are made to individual partners' capital accounts to recognize each partner's share of
losses on sales of partnership assets.
In preparing a proposed schedule of liquidation, the accountant assumes that liquidation expenses will be the
maximum amount in the range of probable future expenses.
In assessing the effectiveness of a forward contract as a hedge, forward points
may be excluded.
The foreign currency financial statements of a foreign entity located in a highly inflationary economy
must be translated using the temporal method.
Balance sheet exposure under the current rate method of translation is equal to a foreign operation's
net asset position.
Preparation of a proposed schedule of liquidation is based on the assumption any partner with a deficit capital balance will
not make any cash contribution to the partnership to cover their deficit.
A partnership's accountant determines that Partner A has a "maximum loss that can be absorbed" of $50,000. If the partnership incurs a loss of $50,000 in liquidating noncash assets, Partner A will
not receive any cash distribution from the partnership liquidation.
An analysis of the change in cumulative translation adjustment may be presented in the
notes to financial statements.
Which of the following is not a purpose of a governmental budget?
offers a means of supporting criticism for government officials
At the time of partnership termination, Partner A is personally insolvent and has a negative capital balance. Partners B and C must absorb A's deficit
on the basis of their respective profit and loss ratios.
When a predistribution plan is used to determine distributions of cash to partners, distributions are made to partners on the basis of their original profit and loss percentages
only after all partners begin to receive cash based on the predistribution plan.
A statement of partnership liquidation reports updated balances in the partnership's assets, liabilities, and
partners' capital accounts.
Gains on sales of partnership assets are allocated to individual partners' capital accounts based on
partners' relative profit and loss ratios.
Liquidation expenses are allocated to individual partners' capital accounts on the basis of
partners' relative profit and loss ratios.
The ending balances in individual partners' capital accounts is the basis for allocating
partnership cash that remains after payment of partnership liabilities.
If the articles of partnership are silent with regard to partnership income distribution to the individual partners, then
partnership income is allocated equally among all partners.
The steps to prepare worldwide consolidated financial statements include all but which of the following?
prepare a common-size financial statement for the foreign company
In determining the functional currency of a foreign subsidiary, IFRS
provides a hierarchy of primary and other factors to be considered.
A foreign currency option giving its holder the right to sell foreign currency in the future at a predetermined price is a
put option.
In applying the equity method to account for the investment in a foreign subsidiary, the current year's positive translation adjustment calculated by reference to changes in net assets and an appreciation in the foreign currency is
recognized as a credit to the Cumulative Translation Adjustment account on the parent company's books.
When the gain on the financial instrument used to hedge a net investment in foreign operation exceeds the translation adjustment being hedged, the difference is
recognized as a gain in net income.
When a derivative financial instrument is used for speculation, the change in fair value of the derivative is
recognized as a gain or loss in net income.
A company makes a credit sale denominated in a foreign currency. On the date of sale the company enters into a forward contract to sell the foreign currency when it is received. The forward contract is a hedge of a(n)
recognized foreign currency denominated asset.
In consolidating a foreign subsidiary, the current translation adjustment on the excess of fair value over book value related to that foreign subsidiary must be
recognized through an adjusting entry on the consolidation worksheet.
Gains and losses incurred from the sale of assets during a partnership liquidation are
recorded directly in partners' capital accounts rather than being recognized as gains and losses in net income.
Under the bonus method any excess payment to a withdrawing partner beyond his/her capital balance
reduces the capital balances of the remaining partners.
Similar to U.S. GAAP, IFRS requires the gain or loss on a financial instrument used to hedge a net investment in foreign operation to be
reported in accumulated other comprehensive income along with the translation adjustment being hedged.
When an asset carried at historical cost on a foreign currency balance sheet is remeasured into parent company currency using the temporal method the resulting parent currency balance for that asset
represents the historical cost of the asset in parent currency.
When the hybrid method is used to record the withdrawal of a partner, the partnership
revalues assets and liabilities but does not record goodwill.
A foreign currency call option gives the holder of the option the
right but not the obligation to purchase foreign currency at a predetermined price.
A safe payment is the amount that can be distributed to an individual partner during the liquidation process while ensuring that the partner's capital account maintains a
safe balance.
A foreign currency put option gives the option holder the right to
sell foreign currency at a predetermined price.
The procedures involved in terminating and liquidating a partnership include
selling partnership assets to convert them into cash.
Comparability of financial statements across companies within an industry is made more difficult by
some companies identifying local currencies as functional currency and other companies identifying the U.S. dollar as functional currency.
At the beginning of a liquidation, a loan made by the partnership to an individual partner would be
subtracted from that partner's capital account.
Under the temporal method, a gain on the sale of land in foreign currency (FC) is translated into parent company currency by multiplying the cash proceeds from the sale in FC by the exchange rate in effect on the date of sale and
subtracting the product of multiplying the cost of the land in FC by the exchange rate in effect when the land was acquired.
A partner's safe capital balance is the amount
that must remain in that partner's capital account to absorb any future losses.
When a partner has a negative capital balance, but is personally solvent:
that partner makes a capital contribution to the partnership.
Cash can be safely distributed to an individual partner in a preliminary distribution of partnership assets only if
that partner's capital balance is large enough to absorb all possible future losses.
A partner with a negative capital balance should make a contribution to the partnership in an amount equal to
that partner's negative capital balance.
In calculating the translation adjustment when the current rate method is used, the focus is on determining the impact that exchange rate changes have on
the beginning balance and changes in net assets.
In translating foreign currency financial statements into parent company currency using the current rate method, a translation adjustment can be calculated as a balancing amount. This balancing amount is
the cumulative translation adjustment.
Exposure to translation adjustment exists for those foreign currency balances that are translated at
the current exchange rate.
Under the temporal method of translation, assets carried on the foreign entity's balance sheet at a current or future value are translated using
the current exchange rate.
Some of the ratios calculated from a foreign entity's foreign currency financial statements will have the same value in parent company currency when the foreign financial statements are translated using
the current rate method.
The earliest date at which some partnership cash can be distributed to partners is
the date of termination.
Angela, Barb, and Chris have decided to terminate their partnership. A $100,000 loss would reduce Angela's capital account balance to zero, an additional $50,000 loss would reduce Barb's capital account to zero, and a further $20,000 loss would reduce Chris's capital account to zero. As cash becomes available for distribution to partners,
the first $20,000 should be paid to Chris.
The cumulative change in fair value of a hedging instrument used to hedge a forecasted foreign currency denominated transaction is transferred from accumulated other comprehensive income to net income on the date that
the forecasted transaction was originally projected to occur.
A safe payment is the amount that can be distributed to an individual partner during the liquidation process while ensuring that future liquidation transactions cannot result in
the partner having a deficit capital balance.
Some amount of partnership cash can be safely distributed to partners at the date of partnership termination if
the partnership is solvent.
The forward rate may be defined as
the price today at which a foreign currency can be purchased or sold in the future.
An historical exchange rate for common stock of a foreign subsidiary is best described as
the rate when the common stock was originally issued for the acquisition transaction.
The original discount (or premium) on a forward contract is determined by the difference in the spot rate on the date the forward contract is signed and
the spot rate on the date the forward contract is signed.
The methods used in valuing assets on the foreign currency financial statements of a foreign entity are maintained in the translated parent company currency financial statements when
the temporal method is used to translate the foreign financial statements.
Each of the ratios calculated from a foreign entity's foreign currency financial statements will have a different value in parent company currency when the foreign financial statements are translated using:
the temporal method.
Once all partners have begun to receive cash based on a predistribution plan, additional amounts of cash generated from the liquidation of noncash assets can be distributed to partners based on
their original profit and loss ratios.
Gains and losses on the sale of assets during a partnership liquidation are recorded directly in partners' capital accounts
to keep track of changes in partners' capital balances.
In preparing a proposed schedule of liquidation, the accountant assumes that all future partnership transactions will result in
total losses.
The disadvantages of the partnership form of business organization, compared to corporations, include
unlimited liability for the partners.
A company accepts a sales order from a foreign customer and will receive payment in foreign currency when it ships goods to the foreign customer in three months. On the date the order is accepted, the company enters into a forward contract to sell the foreign currency when it is received. The forward contract is a hedge of a(n)
unrecognized foreign currency firm commitment.
The dissolution of a partnership occurs
when there is any change in the individuals who make up the partnership.
The partner with the smallest "maximum loss that can be absorbed" is the partner
who is least likely to receive any cash from liquidation of the partnership.
Under the temporal method, depreciation expense and accumulated depreciation on property, plant, and equipment are translated
using the historical exchange rate when the property, plant, and equipment was acquired.
Under both IFRS and U.S. GAAP, the cumulative translation adjustment related to a foreign subsidiary and the cumulative gain or loss on the net investment hedge of that subsidiary are transferred from accumulated other comprehensive income to net income
when the foreign subsidiary is sold.
In accordance with U.S. GAAP, which translation combination is appropriate for a foreign operation whose functional currency is the U.S. dollar?
D. Temporal // Gain or loss in net income
Assuming a forward contract was entered into on December 16, how would the forward contract be reflected on Jackson's December 31, 2024, balance sheet?
Forward contract (asset)
When preparing a consolidation worksheet for a parent and its foreign subsidiary accounted for under the equity method, which of the following statements is false?
The allocations of excess of fair value over book value at the date of acquisition are eliminated.
The current rate method of translation assumes that a foreign subsidiary is
a net asset that is exposed to foreign exchange risk.
The value of the euro can best be described as being
allowed to float freely against other currencies.
A U.S.-based company has a foreign subsidiary that has the Mexican peso as its functional currency. The Mexican subsidiary recognizes in its Mexican peso income statement a foreign exchange gain on a Colombian peso account receivable. In preparing its consolidated income statement, the U.S. parent company should translate the Mexican subsidiary's foreign exchange gain into U.S. dollars using the
average-for-the-year exchange rate between the Mexican peso and U.S. dollar.
In translating the financial statements of a foreign entity located in a hyperinflationary economy, IFRS requires
the foreign financial statements to be restated for inflation and then all restated balances are translated at the current rate.
Net cash from operations reported in the translated statement of cash flows
will be the same regardless of whether the current rate method or temporal method is used.
