Advanced Financial Accounting II Work sheet

1. Inventory is typically transferred to the branch at all of the following transfer prices except:
A. Cost to the home office.
B. Cost less an internal markup percentage.
C. Cost plus an internal markup percentage.
D. Retail or market value.
Use the following information for questions 2 and 3:
The home office bills merchandise shipped to the branch at 25 percent over home office cost.
Suppose the branch's beginning inventory, shipments from home, and ending inventory are
Br.50,000, Br.200,000, and Br.80,000 respectively, at billed prices.
2. Branch cost of goods sold on the branch's books and in the combined statements is:
A. Branch: Br.170,000; Combined: Br.136,000
B. Branch: Br.230,000; Combined: Br.184,000
C. Branch: Br.170,000; Combined: Br.127,500
D. Branch: Br.230,000; Combined: Br.172,500
3. Now, assume that freight costs incurred by the branch (not included in the inventory balances
presented above) amount to 2 percent of billed prices. Branch cost of goods sold on the
branch's books and in the combined statements is:
A. Branch: Br.170,000; Combined: Br.170,000
B. Branch: Br.173,400; Combined: Br.170,000
C. Branch: Br.173,400; Combined: Br.136,000
D. Branch: Br.173,400; Combined: Br.139,400
4. ABC Corp. establishes a branch in a nearby town. Transfers to the branch include cash
Br.65,000, Office supplies Br.2,000, and Furniture Br.23,000. The entry to record this transfer
on the books of the branch would include:
A. A debit of Br.90,000 to the Home Office account.
B. A credit of Br.90,000 to the Investment in Branch account.
C. A credit of Br.90,000 to the Home Office account.
D. A debit of Br.90,000 to the Investment in Branch account.
5. The home office marks up merchandise shipped to the branch at 25 % of billed price. If
merchandise costing Br.30,000 is shipped to the branch, w/c of the ff set of account balances
will result?
A. Shipments from Home: Br.37,500; Shipments to Branch: Br.30,000; Overvaluation of
Branch Inventory: Br.7,500
B. Shipments from Home: Br.40,000; Shipments to Branch: Br.30,000; Overvaluation of
Branch Inventory: Br.10,000
C. Shipments from Home: Br.30,000; Shipments to Branch: Br.22,500; Overvaluation of
Branch Inventory: Br.7,500
D. Shipments from Home: Br.40,000; Shipments to Branch: Br.32,500; Overvaluation of
Branch Inventory: Br.7,500
6. The home office marks up merchandise shipped to the branch by 40 percent of billed prices.
Assume the overvaluation account on the home office books had beginning and ending balances
of Br.4,400 and Br.6,000, respectively. If the branch was billed Br.180,000 for merchandise
shipped from home during the year, the branch books will show cost of goods sold of:
A. Br.178,400 B. Br.176,000 C. Br.174,000 D. Br.181,600
7. The home office accounts for shipments of merchandise to the branch as sales. The billed price
reflects a markup equal to 40 % of billed price. The branch reported beginning and ending
inventories at billed prices of Br.80,000 & Br.60,000, respectively. W/c of the ff statements is
false?
A. Home office beginning retained earnings is overstated by Br.32,000.
B. Unrealized intrafirm profit at the end of the year is Br.24,000.
C. The Overvaluation of Branch Inventory account balance at year-end is Br.8,000.
D. Working paper elimination entries will reduce combined cost of goods sold by Br.8,000.
8. At the end of the year, after adjusting and closing entries, the Overvaluation of Branch
Inventory account on the home office books will contain:
A. The markup on the branch's ending inventory.
B. The unrealized profit on branch sales for the year.
C. The markup on the branch's ending inventory less the markup on the branch's beginning
inventory.
 D. The markup on the branch's beginning inventory plus the markup on this year's shipments
to the branch.
9. If the branch pays the freight cost on merchandise shipments from the home office,
A. The home office will increase its Investment in Branch account.
B. The branch will decrease its Home Office account.
C. The home office will decrease its Investment in Branch account.
D. There is no effect on either the Investment in Branch or Home Office accounts.
10. In reconciling the reciprocal accounts between a home office and a branch, adjustments must
be made to bring these accounts into balance before eliminations can be made. Differences
in these balances can be due to all of the following except:
A. Shipments in transit at the end of the period which are recorded by the home office but
not by the branch.
B. Sales to customers by the home office at the end of the accounting period which were
not recorded by the branch.
C. Remittances from the branch mailed on the last day of an accounting period which are
not recorded by the home office.
D. Collections of home office receivables by the branch close to the end of a period
which is not recorded by the home office.
Use the following information to answer questions 11 - 13 below:
The home office ships merchandise to the branch at a markup of 20 percent above cost. At
the end of the year, preclosing account balances related to merchandise (periodic inventory)
are as follows:
Home Office books
Shipments to branch Br400,000
Overvaluation of branch inventory 86,000
Branch books
Beginning inventory Br 36,000
Shipments from home office 480,000
Ending inventory 48,000

11. The elimination entries made at the end of the year will have the effect of reducing cost of
goods sold as reported by the branch to the correct amount of combined cost of goods sold.
The difference between branch cost of goods sold and combined cost of goods sold is:
A. br 2,000 B. br80,000 C. br 82,000 D. br 78,000
12. The elimination entries made at the end of the year to combine the home office and branch
accounts will include:
A. A debit to shipments from home office of br480,000.
B. A debit to overvaluation of branch inventory of br86,000.
C. A credit to shipments to branch of br400,000.
D. A credit to ending inventory of br48,000.
13. Now assume the home office accounts for shipments to the branch as sales rather than using
the shipments account. How will the elimination entry to remove unrealized intrafirm profit
from the branch's beginning inventory differ?
A. The debit is to cost of goods sold rather than to the overvaluation of branch inventory
account.
B. The credit is to beginning inventory rather than to the overvaluation of branch
inventory account.
C. The debit is to cost of goods sold rather than to the shipments to branch account.
D. The debit is to beginning retained earnings rather than to the overvaluation of branch
inventory account.
14. In accounting for branch transactions, it is improper for the home office to:
A. Credit cash received from a branch to the Investment in Branch ledger account.
B. Maintain Common Stock and Retained Earnings ledger accounts for only the home
office.
C. Debit shipments of merchandise to the branch from the home office to the Investment
in Branch ledger account.
D. Credit shipments of merchandise to the branch to the Sales ledger account.
15. Neither the Batu Branch nor the home office of Kufa Company had completed any
intracompany transactions during the last half of May, yet the credit balance of the branch's
Home Office ledger account on May 31 was larger than the debit balance of the home office's
Investment in Batu Branch account. The most likely reason for this discrepancy is:
A. The home office reported a net loss for the month of May.
B. The branch reported a net loss for the month of May.
C. The branch returned merchandise to the home office.
D. The branch reported a net income for the month of May.
16. Which of the following ledger accounts is displayed in the combined financial statements for
a home office and branch?
A. Shipments to Branch
B. Home Office
C. Dividends Declared
D. Allowance for Overvaluation of Inventories: Branch
17. A joint venture would not be organized as a(an):
A. Corporation C. Partnership
B. Proprietorship D. Undivided interest
18. Corporate joint ventures should be accounted for by the equity method, provided that the joint
venturer:
A. Cannot exercise significant influence over the joint venture.
B. Can participate in the overall management of the venture.
C. Owns more than 50% of the joint venture.
D. All of the above.
19. An investor in a corporate joint venture would be least likely to:
A. Be active in the management of the venture.
B. Have an ability to exercise significant influence.
C. Consent to each significant venture decision.
D. Hold title to a proportional share of joint venture assets.
20. Abebe, Ayele, and Teddy corporations own 60%, 25%, and 15%, respectively, of the common
stock of produce Corporation, a corporate joint venture that they organized for wholesaling
fruits and vegetables. Which of the corporations should report their joint venture interests
under the equity method?
A. Abebe, Ayele, and Teddy C. Ayele, and Teddy
B. Abebe, and Ayele D. Abebe and Teddy
21. Which of the following is a characteristic of a joint venture?
A. The partners all jointly share in managing and controlling the venture.
B. The partners can be individuals, but cannot be businesses.
C. Debt incurred by the venture is reported on the owners’ balance sheets.
D. The initial carrying value reported must equal the fair value of resources contributed.
22. If a company invests in a joint venture, one accounting consequence to the company is:
A. The investment is generally accounted for using the cost method.
B. The joint venture's assets and liabilities must be added in-to the company's assets and
liabilities, in proportion to ownership.
C. Off-balance sheet financing can occur since debt incurred by the venture is not usually
reported on the company's balance sheet.
D. The company's investment account must be carried at the fair value of assets transferred
to the joint venture.
23. Clark Corporation invested Br.100,000 in a real estate corporate joint venture on January 2,
2023. During 2023, Clark received Br.9,500 from the joint venture, and its share of joint
venture net income (after depreciation) was Br.12,000. The depreciation expense applicable
to Clark's share of net income was Br.4,000. Clark values its joint-venture investment in its
December 31, 2023, balance sheet (under the equity method of accounting) at:
A. Br.116,000 B. Br.112,000 C. Br.102,500 D. Br.100,000
24. Sunrise Corporation is a public enterprise that started its operation on January 1, 2023. The
initial capital was paid in cash, Br 7,500,000 on January 1. The enterprise incurred a net loss
of Br 300,000. In the end-of-period journal entries, disregarding income taxes:
A. Legal reserves is debited, Br 300,000
B. Other reserves is debited, Br 300,000
C. State dividend payable is credited 15,000
D. All of the above
Use the following information for questions 25 and 26:
X Company has a 50% ownership in XY joint venture. The beginning balance of the
'Investment in XY' account was a debit of Br 250,000. XY is unincorporated joint venture
and it reported Revenues of Br 700,000 and expenses of Br 300,000. X Company has
already recorded investment income of Br 200,000. At the end of the year, after closing
entries, assets of XY Joint Venture total Br 1,000,000 and liabilities total Br 100,000. X
uses the proportionate share method.
25. The end-of-period journal entries required under the proportionate consolidation method do
not include:
A. A debit to assets, Br 500,000
B. A debit to expenses, Br 150,000
 C. A credit to revenues, Br 350,000
D. None of the above
26. Under the equity method of accounting, the ending balance of the Investment in XY Joint
Venture account would be:
A. Br. 350,000 B. Br. 250,000 C. Br. 450,000 D. Br. 200,000 E. None
27. Lunar Corporation is a public enterprise that started its operation on January 31, 2023. The
enterprise earned net profit of Birr 300,000 and it has got authorization to retain Birr 100,000
from the profit of the year ending December 31, 2023. Which of the following end-of-period
journal entries is appropriate?
A. Income summary 300,000
Legal Reserve 15,000
Unappropriated Other Reserves 100,000
State Dividend Payable 185,000
B. Income summary 300,000
Retained Earnings 115,000
State Dividend Payable 185,000
C. Income summary 300,000
Legal Reserve 60,000
Retained Earnings 100,000
State Dividend Payable 140,000
D. Income summary 300,000
Legal Reserve 160,000
State Dividend Payable 140,000
28. Dalol Company, which began operations on January 2, Year 4, appropriately uses the
installment method of accounting. The following information is available for the year ended
December 31, Year 4.
Gross profit on sales……………………………….……….40%
Deferred gross profit, Dec. 31, Year 4………………….Br. 240,000
Cash collected, including down payments…………………450,000
What is the total amount of Dalol’s installment sales for the year ended December 31, Year 4?
A. Br. 600,000 C. Br. 850,000
B. Br. 690,000 D. Br. 1,050,000
29. For a retailing enterprise that appropriately uses the installment method of accounting for
installment sales of merchandise, doubtful installment receivables expense is recognized when:
A. A customer defaults on an installment contract.
B. An estimate of doubtful installment receivables is made at the end of an accounting period.
 C. There are uncollected deferred gross profits and carrying charges on an installment
receivable.
D. Reconditioning costs for repossessed merchandise are incurred.
30. An overallowance on a trade-in on an installment sale is debited to:
A. Cost of installment sales.
B. Over allowances on trade-ins expense.
C. Inventories (trade-ins).
D. None of the foregoing ledger accounts.
31. Deferred gross profit on installment sales is generally treated as a(n)
A. Deduction from installment accounts receivable.
B. Deduction from installment sales.
C. Unearned revenue and classified as a current liability.
D. Deduction from gross profit on sales.
32. The installment-sales method of recognizing profit for accounting purposes is acceptable if
A. Collections in the year of sale do not exceed 30% of the total sales price.
B. An unrealized profit account is credited.
C. Collection of the sales price is not reasonably assured.
D. The method is consistently used for all sales of similar merchandise.
33. The method most commonly used to report defaults and repossessions is
A. Provide no basis for the repossessed asset thereby recognizing a loss.
B. Record the repossessed merchandise at fair value, recording a gain or loss if appropriate.
C. Record the repossessed merchandise at book value, recording no gain or loss.
D. None of these.
34. Under the installment-sales method,
A. Revenue, costs, and gross profit are recognized proportionate to the cash that is received
from the sale of the product.
B. Gross profit is deferred proportionate to cash uncollected from sale of the product, but total
revenues and costs are recognized at the point of sale.
C. Gross profit is not recognized until the amount of cash received exceeds the cost of the
item sold.
 D. Revenues and costs are recognized proportionate to the cash received from the sale of the
product, but gross profit is deferred until all cash is received.
35. The realization of income on installment sales transactions involves
A. Recognition of the difference between the cash collected on installment sales and the cash
expenses incurred.
B. Deferring the net income related to installment sales and recognizing the income as cash is
collected.
C. Deferring gross profit while recognizing operating or financial expenses in the period
incurred.
D. Deferring gross profit and all additional expenses related to installment sales until cash is
ultimately collected.
36. A manufacturer of large equipment sells on an installment basis to customers with
questionable credit ratings. Which of the following methods of revenue recognition is least
likely to overstate the amount of gross profit reported?
A. At the time of completion of the equipment (completion of production method)
B. At the date of delivery (sales method)
C. The installment-sales method
D. The cost–recovery method
37. Under the cost-recovery method of revenue recognition,
A. Income is recognized on a proportionate basis as the cash is received on the sale of the
product.
B. Income is recognized when the cash received from the sale of the product is greater than
the cost of the product.
C. Income is recognized immediately.
D. None of these.
38. Oliver Co. uses the installment-sales method. When an account had a balance of $8,400, no
further collections could be made and the dining room set was repossessed. At that time, it
was estimated that the dining room set could be sold for Br2,400 as repossessed, or for
Br3,000 if the company spent Br300 reconditioning it. The gross profit rate on this sale was
70%. The gain or loss on repossession was a:
A. Br5,880 loss. B. Br6,000 loss. C. Br600 gain. D.Br180 gain.
39. Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon discovery of water,
Winser does not recognize any revenue from water sales until the sales exceed the costs of
exploration, the basis of revenue recognition being employed is the
A. Production basis. C. Cash (or collection) basis.
B. Sales (or accrual) basis. D. Cost recovery basis.
40. Seeman Furniture uses the installment-sales method. No further collections could be made on
an account with a balance of $18,000. It was estimated that the repossessed furniture could be
sold as is for $5,400, or for $6,300 if $300 were spent reconditioning it. The gross profit rate
on the original sale was 40%. The loss on repossession was
A. $4,800. B. $4,500. C. $12,000. D.$12,600.
41. Wagner Company sold some machinery to Granger Company on January 1, 2007. The cash
selling price would have been $568,620. Granger entered into an installment sales contract
which required annual payments of $150,000, including interest at 10%, over five years. The
first payment was due on December 31, 2007. What amount of interest income should be
included in Wagner's 2008 income statement (the second year of the contract)?
A. $15,000 B. $47,548 C. $30,000 D. $41,862
42. Singer Company sells plasma-screen televisions on an installment basis and appropriately
uses the installment-sales method of accounting. A customer with an account balance of
$5,600 refuses to make any more payments and the merchandise is repossessed. The gross
profit rate on the original sale is 40%. Singer estimates that the television can be sold as is for
$1,750, or for $2,100 if $140 is spent to refurbish it. The loss on repossession is
A. $3,850. B. $2,240. C. $1,610. D. $1,400.
Use the following information for questions 43-44.
During 2022, Steele Corporation sold merchandise costing $1,500,000 on an installment basis
for $2,000,000. The cash receipts related to these sales were collected as follows: 2022,
$800,000; 2009, $700,000; 2010, $500,000.
43. What is the rate of gross profit on the installment sales made by Steele Corporation during
2022?
A. 75% B. 60% C. 40% D. 25%
44. If expenses, other than the cost of the merchandise sold, related to the 2022 installment sales
amounted to $90,000, by what amount would Steele’s net income for 2022 increase as a result
of installment sales?
A. $110,000 B. $177,500 C. $200,000 D. $710,000
45. On January 1, 2021, Dole Co. sold land that cost $210,000 for $280,000, receiving a note
bearing interest at 10%. The note will be paid in three annual installments of $112,595 starting
on December 31, 2021. Because collection of the note is very uncertain, Dole will use the
cost-recovery method. How much revenue from this sale should Dole recognize in 2021?
A. $0 B. $21,000 C. $28,000 D. $70,000
46. A credit balance may appear in:
A. A consignment out ledger account but not a consignment in account.
B. A consignment in ledger account but not a consignment out account.
C. Both a consignment in ledger account and a consignment out account.
D. Neither a consignment in ledger account nor a consignment out account.
47. Freight costs of Br840 were paid by consignee company on April 30, Year 4, on a shipment of
merchandise on consignment from Consignor Company. Consignee Company’s appropriate
journal entry on April 30, Year 4, is:
A. Freight in…………………………………………….840
Cash……………………………………………….....840
B. Accounts Receivable-Consignor Company…………840
Cash………………………………………………….840
C. Accounts payable-Consignor Company……………840
Cash………………………………………………….840
D. None of the foregoing
48. In consignment sales, the consignee:
A. Records the merchandise as an asset on its books.
B. Records a liability for the merchandise held on consignment.
C. Recognizes revenue when it ships merchandise to the consignor.
D. Prepares an “account report” for the consignor which shows sales, expenses, and cash
receipts.
49. Revenue is recognized by the consignor when the
A. Goods are shipped to the consignee.
B. Consignee receives the goods.
C. Consignor receives an advance from the consignee.
D. Consignor receives an account sales from the consignee.

Use the following information for questions 50 and 51.

On May 1, 2020, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost Br270. Freight on the
shipment paid by Ed’s TV was Br600. On July 10, TV Inc. received an account sales and
Br12,900 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted:
Freight Br600
Commission (20% of sales price) ?
Advertising 390
Delivery 210
50. The total sales price of the TVs sold by Ed's TV was
A. Br15,375. C. Br16,125.
B. Br 16,388. D. Br 17,625.
51. The inventory of TVs will be reported on whose balance sheet and at what amount?
Balance Sheet of Amount of Inventory
A. TV Inc. Br 13,875
B. TV Inc. Br 13,500
C. Ed's TV Br 13,875
D. Ed's TV Br 13,500
52. Which of the following is false regarding consignments:
A. The commissions earned should be reported as item of operating income.
B. The Consignment In account is essentially a reflection of a bilateral debtor-creditor
relationship.
C. The consignment In account balance should be reported as a current liability or a current
asset item
D. None of the above.
53. The debit balance of the consignee’s Consignment In ledger account typically is:
 A. The same as a debit balance in the consignor’s Consignment Out ledger account
B. Less than a debit balance in the consignor’s Consignment Out ledger account
C. Less than a credit balance in the consignor’s Consignment Out ledger account
D. The same as the credit balance in the consignor’s Consignment Out ledger account
54. In the books of the consignor, the Consignment Out account is credited for:
A. The cost of goods shipped on consignment.
B. Expenses related to consignment reported by the consignee.
C. Consignee’s commission on the consigned goods sold.
D. Cost of goods sold on consignment.
55. M and N enter into a joint venture where M supplies goods worth Br.6000 and spends Br.300
on expenses. N sells the entire lot for Br 7,800 meeting selling expenses amounting to Br.300.
Profit sharing ratio equal. N remits to M the amount due. The amount of remittance will be:
A. Br.6,900 C. Br.6,300
B. Br.7,500 D Br.6,600
56. When unsold stock is taken away by a co-venture, then account is debited:
A. Joint Stock C. Joint e Bank Account
B. Joint Venture D. Co – venturers capital account
57.. Goods sent by the head office at the end of the year but not received by Branch before the
year ended is known as
A. Goods in transit C. Shortage.
B. loss by fire D. Loss
58. Complete consolidation as a class of business combination may include
A. Mergers and acquisition C. Trusts and holding companies
B. Pools and cartels D. Trade associations and Chambers of commerce
59. A combination of firms in successive stage of the same industry may be referred to as
A. Horizontal integrations C. Forward integrations
B. Vertical integrations D. Backward integration
60. Shares issued as consideration in an acquisition are recorded at:

A .Their fair value as at the date when the acquirer obtains control over the net
assets and operations on the acquire.
B. At cost
 C. At cost or fair value whichever is lower
D. At cost or fair value whichever is higher
61. A controlling interest in a company implies that the parent company
A. Owns all of the subsidiary stock.
B. Has as influence over a majority of subsidiary’s assets.
C. Has a paid cash for a majority of the subsidiary stock.
D. Has transferred common stock for a majority of the subsidiaries outstanding
bonds and debentures.
62 . An investor prepares a single set of financial statement which encompasses the financial result for both it and its
investee because
A. The investors has a controlling interest on investee
B. The investor has a passive interest in its investee
C. The investor has an influential interest in its investee
D. the investor has an active interest in its investee
63. Which of the following is not true of the consolidation process for a stock acquisition
A. Journal entries for the elimination process are made on the parents or subsidiaries books
B. The investment account balance on parent book will be eliminated
C. The balance sheet of two companies are combined in to a single balance sheet
D. The shareholders equity account of subsidiaries are eliminated
.64. X Company purchased 80% of voting common stock of Y Company for $900,000 there are no
liabilities. The following book and fair value are available for Y

Book value Fair value

Current asset $ 100,000 $ 200,000
Land and building 200,000 200,000
Machinery 300,000 600,000
Good will 100,000 ?
The machinery will appear on the consolidated balance sheet at___________
A. 600,000 B. 540,000 C.480,000 D. 300,000
65 .The price of one currency in terms of other currency is called :
A..Foreign exchange Rate C. Current rate of exchange
B. Flexible rate of exchange D. Balance sheet exchange rate
66. The decrease in the value of domestic currency in relation to foreign currency due to
fluctuations in the foreign exchange rate is
A. Devaluation C. Depreciation
B. Appreciation D. Amortization

67. When is the Partnership Act enforced?

A. Where there is a partnership deed, but there are differences of opinion between the partners.
B. When capital contribution by the partners varies.
C. When the partner’s salary and interest on capital are not incorporated in the partnership
deed.
D. When there is no partnership deed.
68. When a Goodwill Account is raised, the credit is given to the old partner’s capital account in
A. Old profit sharing ratio. C. New profit sharing ratio.
B. Gaining ratio. D. None of the options are correct.
69. Which one of the following is NOT an essential feature of a partnership?
A. There must be a business.
B. The business must be carried on for profits.
C. The business must be carried on by all the partners.
D. There must be an agreement.
70. Public enterprises are owned by:
A. Government C. Private entrepreneur's
B. Joint Stock Company D. Multinational corporations
71. Which of the following is not a form of organization of public sector enterprises?
A. Departmental undertaking C. Statutory corporation
B. Government Company D. Sole proprietorship
72. .A government company is a company in which the paid up capital held by the government is
not less than:
A. 50 per cent C. 75 per cent
B. 51 per cent D. 26 per cent
73.The interference of the government in the day-to-day working is the highest in case of:
A. Departmental undertaking C. Statutory corporation
B. Government Company D. None of the above
74.Which of the following is not a feature of global enterprise?
 A. Its operations are spread out in several countries.
B. It attempts to maximize profits world-over
C. it is of huge size and has control over large assets.
D. It operates on a small scale
75. 1. A business organized as a separate legal entity is a
A. corporation. C. government unit.
B . proprietor. D. partnership
76. Which of the following is not one of the three forms of business organization?
A. Corporations C. Proprietorships
B. Partnerships D. Investors
77. Which of the following would not be considered an internal user of accounting data for the
Company?
A. President of the company
B. Production manager
C. Merchandise inventory clerk
D. President of the employees' labor union
78. The liability created by a business when it purchases coffee beans and coffee cups on credit
from suppliers is termed a(n)
A. account payable. C. revenue.
B. account receivable. D. expense.
79. The right to receive money in the future is called a(n)
A. account payable. C. liability.
B. account receivable. D. revenue.
80. The cost of assets consumed or services used is also known as
A. a revenue. C. a liability.
B. an expense. D. an asset.
81. The best definition of assets is the
A. cash owned by the company.
B.collections of resources belonging to the company and the claims on these resources.
C. owners’ investment in the business.
D. resources belonging to a company that have future benefit to the company.
82. Dividends are reported on the
A. income statement. C. balance sheet.
B. retained earnings statement. D. income statement and balance sheet.
83. Which of the following is an asset?
A. Accounts Receivable C. Common Stock
B. Accounts Payable D. Dividends
84. To show how successfully your business performed during a period of time, you would
report its revenues and expenses in the
A. balance sheet. C. statement of cash flows.
B. income statement. D. retained earnings statement.
11. Beka’s Accessory Shop started the year with total assets of $210,000 and total liabilities of
$120,000. During the year the business recorded $330,000 in revenues, $165,000 in expenses,
and dividends of $60,000. The net income reported by Ashley’s Accessory Shop for the year
was
A. $120,000. C. $195,000.
B. $150,000. D. $165,000
85. Rodgers Company compiled the following financial information as of December 31, 20XX:
Sales revenue ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,$1,120,000
Common stock ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,240,000
Buildings ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,320,000
Operating expenses,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 1,000,000
Cash ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,280,000
Dividends,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 80,000
Inventory ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,40,000
Accounts payable,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 160,000
Accounts receivable,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 120,000
Retained earnings, 1/1/20XX 600,000
Rodger’s assets on December 31, 20XX are
A. $1,880,000. C. $640,000.
B. $1,360,000. D. $760,000
.
86. As of January 1, 20XX, Elena’s Store had a balance in its retained earnings account of
$100,000. During the year Elena’s Store had revenues of $80,000 and expenses of $45,000.
In addition, the business paid cash dividends of $20,000. What is the balance in Retained
Earnings at December 31, 20XX for Elena’s Store?
A. $100,000 C. $135,000
B. $115,000 D. $155,000
87. Which of the following financial statements is concerned with the company at a point in
time?
A. Balance sheet C. Retained earnings statement
B. Income statement D. Statement of cash flows
88. An income statement
A. summarizes the changes in retained earnings for a specific period of time.
B. reports the changes in assets, liabilities, and stockholders’ equity over a period of time.
C. reports the assets, liabilities, and stockholders’ equity at a specific date.
D. presents the revenues and expenses for a specific period of time.
89. Under the cost model of accounting for an investment, changes to the carrying
amount of the investment occur if:
A. the investee earns post-acquisition profits or losses;
B. goodwill included in the investment is amortised;
C. the investment is impaired
D. Dividends are received from the investee.
90.The method of accounting that applies to an investor and associate relationship is
the:
A. cost method; C. consolidation method
B. fair value method; D. equity method.
91. For the purposes of equity accounting an associate is a business entity including:
A. an unincorporated entity C. a subsidiary
B. a joint venture; D. venture capital organisations
92. For the purposes of equity accounting, significant influence is regarded as the
power of an investor to:
A.control the financial and operating policies of an associate;
B. participate in the financial and operating policy decisions of an investee;
C. participate in the day-to-day management of a joint venture interest;
D.dominate the financing decisions of an entity.
93. The application of the equity accounting method of accounting is based on the
investor owning:
A. more than 50% of the voting power in an associate;
B. more than 20% of the voting power in an associate
C. less than 20% of the voting power in an associate
D. part of the share capital of an associate whether or not there are voting rights
attached.
94.The equity method of accounting need not be applied where the investment:
A. represents more than 20% of the voting shares of an associate;
B. does not provide the investor with significant influence;
C. is held exclusively with a view to its disposal within 12 months;
D. is made by an investor who has no subsidiaries.
95.Where all of the following conditions apply an investor need not apply the equity
method of accounting:
I. The investor is a wholly owned subsidiary or a partly owned subsidiary and its
owners do not object to the method not being used.
II. The investor's debt or equity securities are not traded in a public market.
III. The investor has not filed financial statements with a regulatory organization
for the purpose of issuing any class of securities in a public market.
IV. The ultimate parent of the investor publishes consolidated financial
statements that comply with IFRS.
A. I and IV only;
B. II and III only
C. I, II and III only;
D. I, II, III and IV.
96. In respect to the equity method of accounting, where an investor has no
subsidiaries the investor must apply the:
 A. cost method of accounting for investments in associates;
B. consolidated financial reporting
C. equity method in its own accounting records
D. net present value method to measuring the expected cash flows from an
associate
97. The 'one-line' equity accounting method is used when accounting for an
investment in:
A. a subsidiary C. a joint venture;
B. a unit trust D. an associate
98. The equity method of accounting for an investment in an associate includes the
following steps:
I II III IV
Recognise the initial investment at cost Yes Yes No No
Recognise the initial investment at fair value Yes No Yes No
Reduce the carrying amout by any distributions No Yes No Yes
Adjust the carrying amount by the investor's share of the No Yes Yes No
associate's profit or loss

A. I; C. III;
B. II; D. IV

99.Mandy Limited acquired a 30% share in Sandy Limited for $27 000. Mandy
Limited has no other investments. At the date on which it became an associate,
Sandy Limited had the following equity items: Share capital $50 000, Retained
earnings $40 000. At the end of the financial year following acquisition, Sandy
Limited generated a profit of $6 000. The carrying amount of the investment in
Sandy Limited at the end of the financial year is:

A. $25 200 C. $28 800;

B. $27 000; D. $33 000
100. Codger Limited acquired a 40% investment in Lodger Limited for $50 000.
Lodger declared and paid a dividend of $10 000. Codger Limited does not
 prepare consolidated financial statements. The appropriate entry for the investor
to record this dividend is:
A. DR Cash $4 000
CR Investment in associate $4 000;
B. DR Dividends payable $4 000
CR Cash $4 000;
C. DR Cash $4 000
CR Dividend revenue $4 000;
D. DR Investment in associate $4 000
CR Dividend revenue $4 000.
101. Investor Limited acquired a 25% interest in Investee Limited for $15 000. Investor
holds other equity investments but does not prepare consolidated financial
statements. Investee Limited revalued its buildings class of assets by $50 000
during the current financial period. The balance of the investment in associate
account at the end of the current financial period is:
A.$12 500; C. $16 250;
B. $15 000 D. $27 500.

102. Tea Limited acquired a 35% investment in Cup Limited for $20 000. Tea Limited
also owns two subsidiaries and prepares consolidated financial statements. Cup
Limited declared and paid a dividend of $5 000 during the current financial year.
The appropriate consolidation adjustment to record this transaction will include the
following entry:
A. DR Investment in associate; C. DR Dividend revenue;
B. DR Cash; D. DR Share of profit of associate.
103. Company A acquired a 30% interest in an associate, Company B, for $25 000.
Company A is part of a consolidated group. In the financial period immediately
following the date on which it became an associate, Company B revalued assets by
 $4 000, generated profits of $10 000 and declared a dividend of $5 000. The
balance in the investment account after equity accounting has been applied is:
A. $26 200; C. $28 000;
B. $27 700 D. $29 200
104. Where goodwill is acquired on an investment in an associate the goodwill is
A. amortized across the useful life of the goodwill;
B. written off immediately against the carrying amount of the investment;
C. carried as a separate asset in the accounting records of the investor
D. not subject to amortization.
105. When an associate declares and pays a dividend out of pre-acquisition profits the
application of the equity method results in the investor making the following
adjustment:
A. DR Investment in associate; C. CR Dividend revenue
B. Cr Cash; D. No adjustment
106.If an associate incurs losses the investor is required to:

A. ignore the losses for the purposes of equity accounting adjustments;

B. recognize losses only to the point where the carrying amount is equal to the initial
investment;
C. recognize losses to the point where the carrying amount of the investment is zero;
D. Reclassify the investment as a current asset.

107..Where an investor has discontinued the use of the equity method because the associate has
incurred losses it must disclose the:

A. unrecognised share of current period and cumulative losses of the associate;

B. reason why it has discontinued the method;
C. accounting policy it has adopted in place of the equity method;
D. effect on the statement of changes in equity if it had continued to use the method
108.Investments in associates accounted for using the equity method are presented in the
statement of financial position amongst:

A. equity; C. current assets;

B. non-current liabilities; D. non-current assets
109.In accounting for branch transactions, it is improper for the home office to:
A. .Credit cash received from a branch to the Investment in Branch ledger account.
B. .Maintain Common Stock and Retained Earnings ledger accounts for only the home office.
C. Debit shipments of merchandise to the branch from the home office to the Investment in
Branch ledger account.
D. .Credit shipments of merchandise to the branch to the Sales ledger account.
110. When a home office ships merchandise to Branch A which is later shipped to Branch B, the
additional freight charged to ship the merchandise form Branch A to Branch B should:
A. .Treated as an expense on the Home Office books
B. .Included as part of the cost of merchandise to Branch
C. Included as part of the cost of merchandise to Branch B
D. .Both B and C are correct
111. For a home office that uses the periodic inventory system of accounting for shipments of
merchandise to the branch, the credit balance of the Shipments to Branch ledger account is
displayed in the home office separate:
A. Income statement as an offset to purchase
B. Balance sheet as an offset to Investment in Branch
C. Balance sheet as an offset to inventories
D. Income statement as revenue
112.A branch journal entry debiting Home Office and crediting Cash may be prepared for:
A. The branch’s transmittal of cash to the Home Office
B. The branch’s acquisition for cash of plant assets to be carried in the home office accounting
records only
C. Either (a) or (b)
D. Neither (a) nor (b)
113..In a working paper for combined financial statements of the home office and the branch of a
business enterprise, an elimination that debits Shipments to Branch and credits Shipments
from Home Office is required under:
A. The periodic inventory system only
B. perpetual inventory system only
C .Both the perpetual inventory system and the periodic inventory system
D. Neither the perpetual inventory nor the periodic inventory system
114. if the branch has collected money from a customer of a head office then (in the head office
books) which the remittance were made
A. Branch account is credited C. Debtor account is debited
B. Branch account is debited D. None of the above

115. Which of the following statement about an account is true?

A. The right side of an account is the debit, or increase side.
B. An account is an individual accounting record of increases and decreases in specific assets,
liability,and stockholders equity items.
C. There are separate accounts for specific assets and liabilities but only one account for
stockholders ‘equity items.
D. The left side of an account is the credit, or decrease, side.
116. Which of the following are part of the recording process?
A. Analyzing transactions C. Posting journal entries
B. Entering Transactions in a journal D. All of the above
117.. The right side of a t-account is
A. the balance of an account. C.the credit side.
B. the debit side. D. blank.
118.. Powers Corporation received a cash advance of $500 from a customer. As a result of this
event,

A. assets increased by $500 (Debited).

B equity increased by $500 (Credited).

C. liabilities decreased by $500 (Debited).

D. Both assets and equity increased by $500 (Debited and Credited).

119. Debits
A. increase both assets and liabilities.
B. decrease both assets and liabilities.
C increase assets and decrease liabilities.
D. decrease assets and increase liabilities.
120. A debit is NOT the normal balance for which account listed below?
A.Revenue C.. Accounts Receivable
B.. Cash D. Dividends
121. Which of the following describes the classification and normal balance of the Unearned
Rent Revenue account?
A. Asset, debit C. Revenues, credit
B. Liability, credit D. Expense, debit
122. Which accounts normally have credit balances?
A. Revenues, liabilities, and dividends
B. Revenues, liabilities, and assets
C. Revenues, liabilities, and retained earnings
D. Revenues, liabilities, and expenses
123.Which of the following accounts is increased with a debit?
A. Land C. Interest Payable
B. Service Revenue D. Common Stock
124. When a company performs a service but has not yet received payment, it
A. debits Service Revenue and credits Accounts Receivable.
B. debits Accounts Receivable and credits Service Revenue.
C. debits Service Revenue and credits Accounts Payable.
D. makes no entry until cash is received.

126. At November 1, 20XX, Johnson Inc. had an Accounts Receivable balance of $200,000.
During the month, the company made sales on account of $300,000. In addition, Johnson Inc.
collected $400,000 from customers that owed them money. At November 30, 2018, the
Accounts Receivable balance is
A. $100,000 debit B.$100,000 credit
 C. $500,000 debit D. $300,000 credit
127. Which of the following steps in the accounting process is done after analyzing business
Transactions?
A. Preparing the financial statements
B. Preparing a trial balance
C. Entering transactions in a journal
D. Posting journal entries
128. On July 7, 20XX, Shireman Enterprises received cash $1,400 for services rendered. The
entry to record this transaction will include
A. a debit to Service Revenue of $1,400.
B. a credit to Accounts Receivable of $1,400.
C. a debit to Cash of $1,400.
D. a credit to Accounts Payable of $1,400.
129. The primary purpose of the trial balance is to
A. disclose the complete effect of a transaction in one place.
B. make sure a journal entry is not posted twice.
C. transfer journal entries to the ledger accounts.
D.prove the equality of the debit and credit amounts after posting
130. The installment method of recognizing revenue

A. should be used only in cases in which no reasonable basis exists for estimating the
collectability of receivables.
B. is not a generally accepted accounting principle under any circumstances.
C. should be used for book purposes only if it is used for tax purposes.
D. is an acceptable alternative accounting principle for a firm that makes installment sale

.131. Used Cars sells pre-owned cars on the installment basis and carries its own notes because
its customers typically cannot qualify for a bank loan. Default rates tend to be high or
unpredictable. However, in the event of nonpayment, Slick's can usually repossess the
carswithout loss. The revenue method Slick would use is the:

A. Installment sales method. C. Cost recovery method

B. Point of sales method. D. Completed contract method
132. The installment method of recognizing profit for accounting purposes is acceptable if
A. collections in the year of sale do not exceed 30% of the total sales price.
B. an unrealized profit account is credited.
C. collection of the sales price is not reasonably assured.
D. the method is consistently used for all sales of similar merchandise.

133. Which of the following is not a reason for a company to expand through a combination,
rather than by building new facilities?

A .A combination might provide cost advantages.

B .A combination might provide fewer operating delays.
C A combination might provide easier access to intangible assets.
D. A combination might provide an opportunity to invest in a company with
out having to take responsibility for its financial results
134. A business merger differs from a business consolidation because
A. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of
the prior entities
B. a consolidation dissolves all but one of the prior entities, but a merger dissolves all of
the prior entities.
C. a merger is created when two entities join, but a consolidation is created when more
than two entities join.
D. a consolidation is created when two entities join, but a merger is created when more
than two entities join.

135. Following the accounting concept of a business combination, a business combination occurs
when a company acquires an equity interest in another entity and has

A. at least 20% ownership in the entity.

B. more than 50% ownership in the entity.
C. 100% ownership in the entity.
D. control over the entity, irrespective of the percentage owned.

136. Historically, much of the controversy concerning accounting requirements for business
combinations involved the ________ method.
 A. purchase C. equity
B. pooling of interests D. acquisition
137. Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.
Pitch will treat the $50,000 as
A. an expense for the current year.
B. a prior period adjustment to retained earnings.
C. additional cost to investment of Slope on the consolidated balance sheet.
D. a reduction in additional paid-in capital.
138. Picasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire
shares of Seurat Company in an all-stock transaction. Picasso paid the investment bankers
$35,000 and will treat the investment banker fee as
A. an expense for the current year.
B. a prior period adjustment to Retained Earnings.
C. additional goodwill on the consolidated balance sheet.
D. a reduction to additional paid-in capital.
139. Durer Inc. acquired Sea Corporation in a business combination and Sea Corp went out of
existence. Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent
office filing cost. In recording the combination,
A. fair value is not assigned to the patent because the research and development costs
have been expensed by Sea Corp.
B. Sea Corp's prior expenses to develop the patent are recorded as an asset by Durer at
purchase.
C. the patent is recorded as an asset at fair market value.
D. the patent's market value increases goodwill.

140. In a business combination, which of the following will occur?

A. All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
B. All identifiable assets and liabilities are recorded at book value at the date of acquisition.
C. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value
of the net assets acquired.
D. None of the above is correct.
141. According to FASB Statement 141R, which one of the following items may not be
accounted for as an intangible asset apart from goodwill?
A. A production backlog
B. A talented employee workforce
C. Non contractual customer relationships
D. Employment contracts
10) Under the provisions of FASB Statement No. 141R, in a business combination,

142. when the fair value of identifiable net assets acquired exceeds the investment cost, which of
the following statements is correct?

A. A gain from a bargain purchase is recognized for the amount that the fair value of the
identifiable net assets acquired exceeds the acquisition price.
B. The difference is allocated first to reduce proportionately (according to market value)
non-current assets, then to non-monetary current assets, and any negative remainder is
classified as a deferred credit.
C. The difference is allocated first to reduce proportionately (according to market value)
non-current assets, and any negative remainder is classified as an extraordinary gain.
D. The difference is allocated first to reduce proportionately (according to market value)
non-current, depreciable assets to zero, and any negative remainder is classified as a
deferred credit.
143. With respect to goodwill, an impairment
A. will be amortized over the remaining useful life.
B. is a two-step process which analyzes each business reporting unit of the entity.
C. is a one-step process considering the entire firm.
D. occurs when asset values are adjusted to fair value in a purchase.

Use the following information to answer the question(s) below.

Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock
with a fair market value of $20 per share for all of the outstanding $5 par value common
stock of Spot Inc. and Spot is then dissolved. Polka paid the following costs and expenses
 related to the business combination: Costs of special shareholders' meeting to vote on the
merger$12,000 Registering and issuing securities 10,000 Accounting and legal fees
18,000Salaries of Polka's employees assigned to the implementation of the merger
27,000Cost of closing duplicate facilities13,000

144. In the business combination of Polka and Spot

A. the costs of registering and issuing the securities are included as part of the purchase price
for Spot.
B. the salaries of Polka's employees assigned to the merger are treated as expenses.
C. all of the costs except those of registering and issuing the securities are included in the
purchase price of Spot.
D. only the accounting and legal fees are included in the purchase price of Spot.
145. In the business combination of Polka and Spot,
A. all of the items listed above are treated as expenses.
B. all of the items listed above except the cost of registering and issuing the securities are
included in the purchase price
C. the costs of registering and issuing the securities are deducted from the fair market value of
the common stock used to acquire Spot.
D. only the costs of closing duplicate facilities, the salaries of Polka's employees assigned to the
merger, and the costs of the shareholders' meeting would be treated as expenses.
146. Which of the following methods does the FASB consider the best indicator of fair values in
the evaluation of goodwill impairment?
A. Senior executive's estimates
B. Financial analyst forecasts
C. Market value
D. The present value of future cash flows discounted at the firm's cost of capital

147. Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then
dissolved. Salt had no liabilities. The fair values of Salt's assets were $3,750,000. Salt's
only non-current assets were land and buildings with book values of $100,000 and
 $520,000, respectively, and fair values of $180,000 and $730,000, respectively. At what
value will the buildings be recorded by Pepper?

A. $730,000 C. $210,000
B. $520,000 D. $0
148. According to FASB Statement No. 141, liabilities assumed in an acquisition will be valued
at the ________.

A. estimated fair value

B. historical book value
C. current replacement cost
D. present value using market interest rates

149. In reference to the FASB disclosure requirements about a business combination in the
period in which the combination occurs, which of the following is correct?

A. Firms are not required to disclose the name of the acquired company.
B. Firms are not required to disclose the business purpose for a combination.
C. Firms are required to disclose the nature, terms and fair value of consideration
transferred in a business combination.
D. All of the above are correct.
150. Goodwill arising from a business combination is
A. charged to Retained Earnings after the acquisition is completed.
B. amortized over 40 years or its useful life, whichever is longer.
C.amortized over 40 years or its useful life, whichever is shorter.
D. never amortized.

151. In reference to international accounting for goodwill, U.S. companies have complained that
past U.S. accounting rules for goodwill placed them at a disadvantage in competing against
foreign companies for merger partners. Why?

A. Previous rules required immediate write off of goodwill which resulted in a one
time expense that was not required under international rules.
B. Previous rules required amortization of goodwill which resulted in an ongoing expense
that was not required under international rules.
 C. Previous rules did not permit the recording of goodwill, thus resulting in a lower asset
base than international counterparts would recognize.
D. All of the above are correct.

152. When considering an acquisition, which of the following is NOT a method by which one
company may gain control of another company?

A. Purchase of the majority of outstanding voting stock of the acquired company.

B. Purchase of all assets and liabilities of another company.
C. Purchase the assets, but not necessarily the liabilities, of another company previously
in bankruptcy.
D. All of the above methods result in a company gaining control over another company.