Advanced Accounting 6e Testbank for Final

1. A company should always use the equity method to account for an investment if:
a. It has the ability to exercise significant influence over the operating policies of the investee.
b. It owns 30% of another company's stock.
c. It has a controlling interest (more than 50%) of another company's stock.
d. The investment was made primarily to earn a return on excess cash.
e. It does not have the ability to exercise significant influence over the operating policies of the investee.

2. Atlarge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly
influence the investee's operations and decision making. On January 1, 2013, the balance in the Investment in Ticker Co.
account was $402,000. Amortization associated with the purchase of this investment is $8,000 per year. During 2013,
Ticker earned income of $108,000 and paid cash dividends of $36,000. Previously in 2012, Ticker had sold inventory
costing $28,800 to Atlarge for $48,000. All but 25% of this merchandise was consumed by Atlarge during 2012. The
remainder was used during the first few weeks of 2013. Additional sales were made to Atlarge in 2013; inventory costing
$33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until 2014.
What amount of equity income would Atlarge have recognized in 2013 from its ownership interest in Ticker?
a. $19,792.
b. $27,640.
c. $22,672.
d. $24,400.
e. $21,748.

3. Clancy Incorporated, sold $210,000 of its inventory to Reid Company during 2013 for $350,000. Reid sold $224,000 of
this merchandise in 2013 with the remainder to be disposed of during 2014. Assume Clancy owns 30% of Reid and
applies the equity method.
What journal entry will be recorded at the end of 2013 to defer the unrealized intra-entity profits?

a. Entry A.
b. Entry B.
c. Entry C.
d. Entry D.
e. No entry is necessary.

4. Clancy Incorporated, sold $210,000 of its inventory to Reid Company during 2013 for $350,000. Reid sold $224,000 of
this merchandise in 2013 with the remainder to be disposed of during 2014. Assume Clancy owns 30% of Reid and
applies the equity method.
What journal entry will be recorded in 2014 to realize the intra-entity profit that was deferred in 2013?

a. Entry A.
b. Entry B.
c. Entry C.
d. Entry D.
e. No entry is necessary.

5. On January 1, 2012, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a
15% ownership of Cook. On January 1, 2013 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000.
This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January
1, 2012, was $1,000,000. The book value of Cook on January 1, 2013, was $1,150,000. Any excess of cost over book
value for this second transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the
years:

On April 1, 2014, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.
What is the balance in the investment account at December 31, 2012?
a. $150,000.
b. $172,500.
c. $180,000.
d. $157,500.
e. $170,000.

6. On January 1, 2012, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a
15% ownership of Cook. On January 1, 2013 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000.
This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January
1, 2012, was $1,000,000. The book value of Cook on January 1, 2013, was $1,150,000. Any excess of cost over book
value for this second transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the
years:

On April 1, 2014, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.
How much income did Mehan report from Cook during 2012?
a. $30,000.
b. $22,500.
c. $7,500.
d. $0.
e. $50,000.

7. On January 1, 2012, Mehan, Incorporated purchased 15,000 shares of Cook Company for $150,000 giving Mehan a
15% ownership of Cook. On January 1, 2013 Mehan purchased an additional 25,000 shares (25%) of Cook for $300,000.
This last purchase gave Mehan the ability to apply significant influence over Cook. The book value of Cook on January
1, 2012, was $1,000,000. The book value of Cook on January 1, 2013, was $1,150,000. Any excess of cost over book
value for this second transaction is assigned to a database and amortized over five years.
Cook reports net income and dividends as follows. These amounts are assumed to have occurred evenly throughout the
years:

On April 1, 2014, just after its first dividend receipt, Mehan sells 10,000 shares of its investment.
How much income did Mehan report from Cook during 2013?
a. $90,000.
b. $110,000.
c. $67,500.
d. $87,500.
e. $78,750.

8. On January 4, 2013, Bailey Corp. purchased 40% of the voting common stock of Emery Co., paying $3,000,000.
Bailey properly accounts for this investment using the equity method. At the time of the investment, Emery's total
stockholders' equity was $5,000,000. Bailey gathered the following information about Emery's assets and liabilities whose
book values and fair values differed:

Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Emery Co. reported net
income of $400,000 for 2013, and paid dividends of $200,000 during that year.
What is the amount of the excess of purchase price over book value?
a. $(2,000,000).
b. $800,000.
c. $1,000,000.
d. $2,000,000.
e. $3,000,000.

9. According to GAAP, the pooling of interest method for business combinations

a. Is preferred to the purchase method.
b. Is allowed for all new acquisitions.
c. Is no longer allowed for business combinations after June 30, 2001.
d. Is no longer allowed for business combinations after December 31, 2001.
e. Is only allowed for large corporate mergers like Exxon and Mobil.

10. Acquired in-process research and development is considered as

a. a definite-lived asset subject to amortization.
b. a definite-lived asset subject to testing for impairment.
c. an indefinite-lived asset subject to amortization.
d. an indefinite-lived asset subject to testing for impairment.
e. a research and development expense at the date of acquisition.

11. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair
value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's
accounts:

Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of
Vicker's outstanding stock. In this acquisition transaction, how much goodwill should be recognized?
a. $144,000.
b. $104,000.
c. $64,000.
d. $60,000.
e. $0.

12. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair
value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's
accounts:

Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value of $500,000 for all of the
outstanding shares of Vicker in an acquisition business combination. What will be the balance in the consolidated
Inventory and Land accounts?
a. $440,000, $496,000.
b. $440,000, $520,000.
c. $425,000, $505,000.
d. $400,000, $500,000.
e. $427,000, $510,000.

13. Which of the following statements is true regarding a statutory consolidation?

a. The original companies dissolve while remaining as separate divisions of a newly created company.
b. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the
acquiring company.
c. The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.
d. The acquiring company acquires the stock of the acquired company as an investment.
e. A statutory consolidation is no longer a legal option.

14. On January 1, 2013, the Moody Company entered into a transaction for 100% of the outstanding common stock of
Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock
having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers
for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to
these transactions, the balance sheets for the two companies were as follows:

Note: Parentheses indicate a credit balance.

In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by
$10, Land by $40, and Buildings by $60.
Compute the amount of consolidated inventories at date of acquisition.
a. $1,080.
b. $1,350.
c. $1,360.
d. $1,370.
e. $290.

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15. Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in
a business combination?
a. initial value or book value.
b. initial value, lower-of-cost-or-market-value, or equity.
c. initial value, equity, or partial equity.
d. initial value, equity, or book value.
e. initial value, lower-of-cost-or-market-value, or partial equity.

16. Push-down accounting is concerned with the

a. impact of the purchase on the subsidiary's financial statements.
b. recognition of goodwill by the parent.
c. correct consolidation of the financial statements.
d. impact of the purchase on the separate financial statements of the parent.
e. recognition of dividends received from the subsidiary.

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17. On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation.
Cale used the equity method to account for the investment. The following information is available for Kaltop's assets,
liabilities, and stockholders' equity accounts on January 1, 2012:

Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.
In Cale's accounting records, what amount would appear on December 31, 2012 for equity in subsidiary earnings?
a. $77,000.
b. $79,000.
c. $125,000.
d. $127,000.
e. $81,800.

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18. On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation.
Cale used the equity method to account for the investment. The following information is available for Kaltop's assets,
liabilities, and stockholders' equity accounts on January 1, 2012:

Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.
At the end of 2012, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to
Investment in Kaltop Co. for
a. $124,400.
b. $126,000.
c. $127,000.
d. $76,400.
e. $0.

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19. Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of
Green's accounts have been omitted.

Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair
value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by
$30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year
life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated
with this investment.
Compute the December 31, 2015, consolidated revenues.
a. $1,400,000.
b. $800,000.
c. $500,000.
d. $1,590,375.
e. $1,390,375.

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20. Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of
Green's accounts have been omitted.

Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair
value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by
$30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year
life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated
with this investment.
Compute the December 31, 2015, consolidated common stock.
a. $450,000.
b. $530,000.
c. $555,000.
d. $635,000.
e. $525,000.

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21. Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of
Green's accounts have been omitted.

Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair
value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by
$30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year
life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated
with this investment.
Compute the December 31, 2015, consolidated additional paid-in capital.
a. $210,000.
b. $75,000.
c. $1,102,500.
d. $942,500.
e. $525,000.

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22. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A
contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500
or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next
year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a
probability weighted approach, is $3,461.
What will Beatty record as its Investment in Gataux on January 1, 2012?
a. $500,000.
b. $503,461.
c. $512,000.
d. $515,461.
e. $526,500.

23. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000
and a fair value of $100,000.
What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?
a. $52,500.
b. $70,000.
c. $75,000.
d. $92,500.
e. $100,000.

24. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000
and a fair value of $100,000.
What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?
a. $0.
b. $30,000.
c. $22,500.
d. $25,000.
e. $17,500.

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25. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000
and a fair value of $100,000.
What is the amount of excess land allocation attributed to the non-controlling interest at the acquisition date?
a. $0.
b. $30,000.
c. $22,500.
d. $7,500.
e. $17,500.

26. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was
$1,850,000, and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not actively
traded.
What is the dollar amount of fair value over book value differences attributed to Perch at the date of acquisition?
a. $120,000.
b. $150,000.
c. $280,000.
d. $350,000.
e. $370,000.

27. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2014. For 2014, Kailey reported
revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of
amortization related to this acquisition was $15,000.
What is the amount of the non-controlling interest's share of Kailey's income for 2014?
a. $22,000.
b. $24,000.
c. $48,000.
d. $66,000.
e. $72,000.

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28. Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock
of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were
undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was
attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:

Assume the EQUITY METHOD is applied.

Compute the non-controlling interest in the net income of Demers at December 31, 2014.
a. $20,000.
b. $12,000.
c. $18,600.
d. $10,600.
e. $14,400.

29. Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock
of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were
undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was
attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:

Assume the EQUITY METHOD is applied.

Compute the non-controlling interest in the net income of Demers at December 31, 2016.
a. $20,400.
b. $24,600.
c. $26,000.
d. $14,000.
e. $12,600.

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30. On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and
was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land
realized?
a. Proportionately over a designated period of years.
b. When Wood Co. sells the land to a third party.
c. No gain can be recognized.
d. As Wood uses the land.
e. When Wood Co. begins using the land productively.

31. Edgar Co. acquired 60% of Stendall Co. on January 1, 2013. During 2013, Edgar made several sales of inventory to
Stendall. The cost and selling price of the goods were $140,000 and $200,000, respectively. Stendall still owned
one-fourth of the goods at the end of 2013. Consolidated cost of goods sold for 2013 was $2,140,000 because of a
consolidating adjustment for intra-entity sales less the entire profit remaining in Stendall's ending inventory.
How would non-controlling interest in net income have differed if the transfers had been for the same amount and cost,
but from Stendall to Edgar?
a. Non-controlling interest in net income would have decreased by $6,000.
b. Non-controlling interest in net income would have increased by $24,000.
c. Non-controlling interest in net income would have increased by $20,000.
d. Non-controlling interest in net income would have decreased by $18,000.
e. Non-controlling interest in net income would have decreased by $56,000.

32. Gentry Inc. acquired 100% of Gaspard Farms on January 5, 2012. During 2012, Gentry sold Gaspard Farms for
$625,000 goods which had cost $425,000. Gaspard Farms still owned 12% of the goods at the end of the year. In 2013,
Gentry sold goods with a cost of $800,000 to Gaspard Farms for $1,000,000, and Gaspard Farms still owned 10% of the
goods at year-end. For 2013, cost of goods sold was $5,400,000 for Gentry and $1,200,000 for Gaspard Farms. What
was consolidated cost of goods sold for 2013?
a. $6,600,000.
b. $6,604,000.
c. $5,620,000.
d. $5,596,000.
e. $5,625,000.

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33. Justings Co. owned 80% of Evana Corp. During 2013, Justings sold to Evana land with a book value of $48,000. The
selling price was $70,000. In its accounting records, Justings should
a. not recognize a gain on the sale of the land since it was made to a related party.
b. recognize a gain of $17,600.
c. defer recognition of the gain until Evana sells the land to a third party.
d. recognize a gain of $8,000.
e. recognize a gain of $22,000.

34. Norek Corp. owned 70% of the voting common stock of Thelma Co. On January 2, 2012, Thelma sold a parcel of
land to Norek. The land had a book value of $32,000 and was sold to Norek for $45,000. Thelma's reported net income
for 2012 was $119,000. What is the non-controlling interest's share of Thelma's net income?
a. $35,700.
b. $31,800.
c. $39,600.
d. $22,200.
e. $26,100.

35. Pot Co. holds 90% of the common stock of Skillet Co. During 2013, Pot reported sales of $1,120,000 and cost of
goods sold of $840,000. For this same period, Skillet had sales of $420,000 and cost of goods sold of $252,000.
Included in the amounts for Pot's sales were Pot's sales of merchandise to Skillet for $140,000. There were no sales from
Skillet to Pot. Intra-entity sales had the same markup as sales to outsiders. Skillet still had 40% of the intra-entity sales as
inventory at the end of 2013. What are consolidated sales and cost of goods sold for 2013?
a. $1,400,000 and $952,000.
b. $1,400,000 and $966,000.
c. $1,540,000 and $1,078,000.
d. $1,400,000 and $1,022,000.
e. $1,540,000 and $1,092,000.

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36. On January 1, 2013, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a
carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the
carrying value and the purchase price in the consolidated financial statements for 2013?
a. The difference is added to the carrying value of the debt.
b. The difference is deducted from the carrying value of the debt.
c. The difference is treated as a loss from the extinguishment of the debt.
d. The difference is treated as a gain from the extinguishment of the debt.
e. The difference does not influence the consolidated financial statements.

37. Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the
carrying value of the bonds. According to the most practical view of this intra-entity transaction, to whom would the loss
be attributed?
a. To Safire because the bonds were issued by Safire.
b. The loss should be allocated between Safire and Regency based on the purchase price and the original face
value of the debt.
c. The loss should be amortized over the life of the bonds and need not be attributed to either party.
d. The loss should be deferred until it can be determined to whom the attribution can be made.
e. To Regency because Regency is the controlling party in the business combination.

38. A variable interest entity can take all of the following forms except a(n)
a. Trust.
b. Partnership.
c. Joint venture.
d. Corporation.
e. Estate.

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39. Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a
controlling financial interest in a variable interest entity?
a. The power to direct the most significant economic performance activities.
b. The power through voting or similar rights to direct activities which significantly impact economic
performance.
c. The obligation to absorb potentially significant losses of the entity.
d. No ability to make decisions about the entity's activities.
e. The right to receive potentially significant benefits of the entity.

40. Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2013. Pigskin received
payment of 35,000 British pounds on May 8, 2013. The exchange rate was 1 = $1.54 on April 8 and 1 = 1.43 on May
8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)
a. $10,500 loss
b. $10,500 gain
c. $1,750 loss
d. $3,850 loss
e. No gain or loss should be recognized.

41. Norton Co., a U.S. corporation, sold inventory on December 1, 2013, with payment of 10,000 British pounds to be
received in sixty days. The pertinent exchange rates were as follows:

What amount of foreign exchange gain or loss should be recorded on December 31?
a. $300 gain.
b. $300 loss.
c. $0.
d. $941 loss.
e. $941 gain.

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42. Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000
foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as
follows:

How much U.S. $ will it cost Brisco to finally pay the payable on June 7?
a. $1,666,667.
b. $2,440,000.
c. $2,520,000.
d. $2,500,000.
e. $2,400,000.

43. Which of the following approaches is used in the United States in accounting for foreign currency transactions?
a. One-transaction perspective; defer foreign exchange gains and losses.
b. Two-transaction perspective; accrue foreign exchange gains and losses.
c. Three-transaction perspective; defer foreign exchange gains and losses.
d. One-transaction perspective; accrue foreign exchange gains and losses.
e. Two-transaction perspective; defer foreign exchange gains and losses.

44. When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign
exchange gain or loss?
a. The transaction is denominated in U.S. dollars.
b. The option strike price to sell foreign currency is less than the spot rate of the currency.
c. The option strike price to buy foreign currency is less than the spot rate of the currency.
d. The foreign currency appreciated in value relative to the U.S. dollar.
e. The foreign currency depreciated in value relative to the U.S. dollar.

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45. According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign
subsidiary's financial statements into the parent's reporting currency?
a. the temporal method.
b. the current rate method.
c. the current/noncurrent method.
d. the monetary/nonmonetary method.
e. the noncurrent rate method.

46. Gunther Co. established a subsidiary in Mexico on January 1, 2013. The subsidiary engaged in the following
transactions during 2013:

What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement
for 2013?
a. $800,000 gain.
b. $760,000 gain.
c. $320,000 loss.
d. $280,000 loss.
e. $440,000 loss.

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47. A subsidiary of Porter Inc., a U.S. company, was located in a foreign country. The functional currency of this
subsidiary was the Stickle (), the local currency where the subsidiary is located. The subsidiary acquired inventory on
credit on November 1, 2012, for 120,000 that was sold on January 17, 2013 for 156,000. The subsidiary paid for the
inventory on January 31, 2013. Currency exchange rates between the dollar and the Stickle were as follows:

What amount would have been reported for this inventory in Porter's consolidated balance sheet at December 31, 2012?
a. $24,000.
b. $26,400.
c. $22,800.
d. $27,600.
e. $28,800.

48. Under the current rate method, inventory at market would be translated at what rate?
a. Beginning of the year rate.
b. Average rate.
c. Current rate.
d. Historical rate.
e. Composite amount.

49. Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The
accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two
separate entities. What method would the accountant have used for recording the admission of Quincy to the
partnership?
a. the bonus method.
b. the equity method.
c. the goodwill method.
d. the proportionate method.
e. the cost method.

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50. The disadvantages of the partnership form of business organization, compared to corporations, include
a. the legal requirements for formation.
b. unlimited liability for the partners.
c. the requirement for the partnership to pay income taxes.
d. the extent of governmental regulation.
e. the complexity of operations.

51. The dissolution of a partnership occurs

a. only when the partnership sells its assets and permanently closes its books.
b. only when a partner leaves the partnership.
c. at the end of each year, when income is allocated to the partners.
d. only when a new partner is admitted to the partnership.
e. when there is any change in the individuals who make up the partnership.

52. Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They admitted
Zell to a 30% interest in the partnership, and the total amount of goodwill credited to the original partners was $700.
What amount did Zell contribute to the business?
a. $900.
b. $560.
c. $600.
d. $590.
e. $630.

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53. Which of the following statements is correct regarding the admission of a new partner?
a. A new partner must purchase a partnership interest directly from the business.
b. The right of co-ownership in the business property can be transferred to a new partner without the consent
of other existing partners.
c. The right to participate in management of the business cannot be conveyed without the consent of other
existing partners.
d. The right to share in profits and losses can be sold to a new partner without the consent of other existing
partners.
e. A new partner always pays book value.

54. Withdrawals from the partnership capital accounts are typically not used
a. to reward partners for work performed in the business.
b. to reduce the partners' capital account balances at the end of an accounting period.
c. to record interest earned on a partner's capital balance.
d. to reduce the basic investment that has been made in the business.
e. to record the partnership's payment of a partner's personal expense such as income tax.

55. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his capital account
balance was only $60,000. The four partners shared net income and losses equally. The journal entry to record the effect
on John's capital due to Danny's withdrawal would include:
a. $6,667 debit to John, Capital.
b. $6,667 credit to John, Capital.
c. $20,000 debit to John, Capital.
d. $5,000 debit to John, Capital.
e. $5,000 credit to John, Capital.

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56. Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital
balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of
the business and its property estimates the fair value to be $200,000. Land with a book value of $30,000 has a fair value
of $45,000. Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation. At what amount
should land be recorded on the partnership books?
a. $20,000.
b. $30,000.
c. $45,000.
d. $50,000.
e. $200,000.

57. When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to:
a. declare personal bankruptcy.
b. initiate legal proceedings against the partnership.
c. contribute cash to the partnership.
d. deliver a note payable to the partnership with specific payment terms.
e. None of these. The partner has no legal responsibility to cover the capital deficit balance.

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58. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet:

Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be
$12,000.
If the noncash assets were sold for $234,000, what amount of the loss would have been allocated to Bartle?
a. $43,200.
b. $46,800.
c. $40,000.
d. $42,400.
e. $43,100.

59. Which standard issued by the Governmental Accounting Standards Board in 1999 required two distinct sets of
financial statements for state and local governments?
a. GASB Statement No. 32.
b. GASB Statement No. 33.
c. GASB Statement No. 34.
d. GASB Statement No. 35.
e. GASB Statement No. 36.

60. Which group of governmental financial statements reports all revenues and all costs of providing services each year?
a. GAAP-Based Financial Statements.
b. Fund Financial Statements.
c. Cost-Based Financial Statements.
d. Government-Wide Financial Statements.
e. General Fund Financial Statements.

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61. Governmental funds are

a. Funds used to account for the activities of a government that are carried out primarily to provide services to
citizens.
b. Funds used to account for a government's ongoing organizations and activities that are similar to those
operated by for-profit organizations.
c. Funds used to account for monies held by the government in a trustee capacity.
d. Funds used to account for all financial resources except those required to be accounted for in another fund.
e. Funds used to account for revenues that have been legally restricted as to expenditure.

62. The term "current financial resources" refers to

a. Those assets that can quickly be converted into cash.
b. Monetary assets available to meet the government's needs.
c. The government's current assets and current liabilities.
d. The current value of all net assets owned by the governmental unit.
e. Financial resources used to provide electricity to local citizens.

63. What are the broad types or classifications of funds for a governmental entity such as a city?
a. general, governmental, and trust funds.
b. governmental, proprietary, and fiduciary funds.
c. revenue, trust, and governmental funds.
d. enterprise, revenue, and fiduciary funds.
e. governmental, agency, and enterprise funds.

64. Revenue from property taxes should be recorded in the General Fund
a. when received.
b. when there is an enforceable legal claim.
c. when they are available for recognition.
d. in the period for which they are required or permitted to be used.
e. in the period in which the tax bills are mailed.

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65. 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 Fund Financial Statements?
a. the General Fund.
b. an Expendable Trust Fund.
c. a Capital Projects Fund.
d. an Agency Fund.
e. a Permanent Fund.

66. According to GASB Concepts Statement No. 1, what are the three groups of primary users of external state and local
governmental financial reports?
a. The Securities Exchange Commission, the citizenry, and legislative and oversight bodies.
b. The Securities Exchange Commission, legislative and oversight bodies, and investors and creditors.
c. The Securities Exchange Commission, the citizenry, and investors and creditors.
d. The citizenry, legislative and oversight bodies, and investors and creditors.
e. The citizenry, management, and the Governmental Accounting Office.

67. Jones College, a public institution of higher education, must prepare financial statements
a. As if the college was an enterprise fund.
b. Following the same rules as state and local governments.
c. According to GAAP.
d. As if the college was a fiduciary fund.
e. In the same manner as private colleges and universities.

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68. According to the GASB (Governmental Accounting Standards Board), which one of the following is not a criterion for
determining whether a government is legally separate?
a. The government can determine its own budget.
b. The government can issue debt.
c. The government has corporate powers including the right to sue and be sued.
d. The government has the power to levy taxes.
e. The government can issue preferred stock.

69. Which of the following is not a criterion of a capital lease?

a. The lease transfers ownership of the property to the lessee by the end of the lease term.
b. The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the
leased property, net of lessor's investment tax credit.
c. The lease contains an option to purchase the leased property at a bargain price.
d. The lease contains an option to renew.
e. The lease term is equal to or greater than 75 percent of the estimated economic life of the leased property.

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70. A five-year lease is signed by the City of Wachovia for equipment with a seven-year life. The asset will be returned to
the lessor at the end of the lease. The present value of the lease is $20,000, and annual payments of $5,411.41 are payable
beginning on the date the lease is signed. The interest portion of the second payment is $1,604.75. The equipment is to
be used in City Hall and was purchased from appropriated funds of the General Fund.
What should be recorded in the General Fund on the date the lease is signed?

a. Option A
b. Option B
c. Option C
d. Option D
e. Option E

71. Which of the following is a section of the general purpose external financial statements of a state or local
government?
(1) Management's discussion and analysis (MD&A).
(2) Required supplementary information (other than MD&A).
(3) Basic financial statements and notes to financial statements.
a. 1 and 2.
b. 2 and 3.
c. 1 and 3.
d. 3 only.
e. 1, 2, and 3.

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72. What are the three broad sections of a state or local government's CAFR?
a. Introductory, financial, and statistical.
b. Financial statements, notes to the financial statements, and component units.
c. Introductory, statistical, and component units.
d. Component units, financial, and statistical.
e. Financial statements, notes to the financial statements, and statistical.

73. Which of the following is a financial statement of a proprietary fund?

a. Balance sheet.
b. Statement of Operations.
c. Statement of Changes in Cash Flows.
d. Statement of Net Assets.
e. Statement of Revenues, Expenditures, and Changes in Fund Balance.

74. Which statement is false regarding the government-wide Statement of Net Assets?
a. the purpose of the Statement of Net Assets is to report the economic resources of the government as a
whole.
b. assets are reported excluding capital assets.
c. capital assets are reported net of depreciation.
d. investments are reported at fair value rather than historical cost.
e. Business-type activities include Enterprise Funds.

75. The city operates a public pool where each person is assessed a $2 entrance fee. Which fund is most appropriate to
record these revenues?
a. General Fund.
b. Enterprise Fund.
c. Special Revenue Fund.
d. Internal Service Fund.
e. Capital Projects Fund.

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