Multiple Choice Answers

Question 1
Accounting terminology that differs between IFRS and US GAAP include all of the following except
the use by IFRS of “turnover” for revenue
the use by IFRS of “share premium” for additional paid-in-capital.
the use by IFRS of “other capital reserves” for retained earnings.
the use by IFRS of “issued capital” for common stock.

Question 2
Which of the following reporting practices is permissible for interim financial reporting?
Use of the gross profit method for interim inventory pricing.
Use of the direct costing method for determining manufacturing inventories.
Deferral of unplanned variances under a standard cost system until year-end.
Deferral of inventory market declines until year-end.

Question 3
Under push down accounting, the workpaper entry to eliminate the investment account includes a
debit to Goodwill.
debit to Revaluation Capital.
credit to Revaluation Capital.
debit to Revaluation Assets.
Question 4
The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased:
at a price equal to book value.
at a price below book value.
at a price above book value.
will not show an increase.

Question 5
A parent company may increase its ownership interest in a subsidiary by
buying additional subsidiary shares from third parties.
buying additional subsidiary shares from the subsidiary.
having the subsidiary purchase its shares from third parties.
all of these.

Question 6
P Corporation purchased an 80% interest in S Corporation on January 1, 2010, at book value for $300,000. S’s net income for 2010 was $90,000 and no dividends were declared. On May 1, 2010, P reduced its interest in S by selling a 20% interest, or one-fourth of its investment for $90,000. What would be the balance in the Investment of S Corporation account on December 31, 2010?
$300,000.
$225,000.
$279,000.
$261,000.

Question 7

A Statement of Affairs is a report designed to show:
an estimated amount that would be received by each class of creditor’s claims in the event of liquidation.
a balance sheet prepared on the going-concern assumption.
assets and liabilities classified as current and noncurrent.
assets and liabilities reported at their current book values.

Question 8
Layne Corporation entered into a troubled debt restructuring agreement with their local bank. The bank agreed to accept land with a carrying amount of $360,000 and a fair value of $540,000 in exchange for a note with a carrying amount of $765,000. Ignoring income taxes, what amount should Layne report as a gain on its income statement?
$0.
$180,000.
$225,000.
$405,000.
Question 9
A bankruptcy petition filed by a firm is a:
chapter petition.
involuntary petition.
voluntary petition.
chapter 11 petition.

Question 10

The first step in the liquidation process is to
convert noncash assets into cash.
pay partnership creditors
compute any net income (loss) up to the date of dissolution.
allocate any gains or losses to the partners.
Question 11
Property, plant and equipment are valued at
historical cost under both IFRS and US GAAP.
historical cost or revalued amounts under both IFRS and US GAAP.
revalued amounts under IFRS.
historical cost under US GAAP while IFRS allows the assets to be valued at either historical cost or revalued amounts.

Question 12
The major difference between IFRS and US GAAP in accounting for inventories is that
US GAAP prohibits the use of specific identification.
IFRS requires the use of the LIFO cost flow assumption.
US GAAP prohibits the use of the LIFO cost flow assumption
US GAAP allows the use of the LIFO cost flow assumption.

Question 13
The exchange rate quoted for future delivery of foreign currency is the definition of a(n):
direct exchange rate.
indirect exchange rate.
spot rate.
forward exchange rate.

Question 14

On November 30, 2010, Pulse Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge ‘s balance sheet at November 30, 2010, showed a book value of $8,000,000. Additionally, the fair value of Surge’s property, plant, and equipment on November 30, 2010, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption “Goodwill” in the November 30, 2010, consolidated balance sheet of Pulse Incorporated, and its wholly owned subsidiary, Surge Company?
$0.
$800,000.
$1,200,000.
$2,000,000.
Question 15

A transaction gain or loss on a forward contract entered into as a hedge of an identifiable foreign currency commitment may be:
included as a separate item in the stockholders’ equity section of the balance sheet.
recognized currently in the determination of net income.
deferred and included in the measurement of the related foreign currency transaction.
none of these.

Question 16
In a business combination accounted for as an acquisition, how should the excess of fair value of identifiable net assets acquired over implied value be treated?
Amortized as a credit to income over a period not to exceed forty years.
Amortized as a charge to expense over a period not to exceed forty years.
Amortized directly to retained earnings over a period not to exceed forty years.
Recognized as an ordinary gain in the year of acquisition.

Question 17
When the functional currency is identified as the U.S. dollar, land purchased by a foreign subsidiary after the controlling interest was acquired by the parent company should be translated using the:
historical rate in effect when the land was purchased.
current rate in effect at the balance sheet date.
forward rate.
average exchange rate for the current period.

Question 18
In preparing consolidated financial statements of a U.S. parent company and a foreign subsidiary, the foreign subsidiary’s functional currency is the currency:
of the country the parent is located.
of the country the subsidiary is located.
in which the subsidiary primarily generates and spends cash.
in which the subsidiary maintains its accounting records.
Question 19
If the functional currency is determined to be the U.S. dollar and its financial statements are prepared in the local currency, SFAS 52, requires which of the following procedures to be followed?
Translate the financial statements into U.S. dollars using the current rate method.
Remeasure the financial statements into U.S. dollars using the temporal method.
Translate the financial statements into U.S. dollars using the temporal method.
Remeasure the financial statements into U.S. dollars using the current rate method.

Question 20
For interim financial reporting, a company’s income tax provision for the second quarter of 2011 should be determined using the
statutory tax rate for 2011.
effective tax rate expected to be applicable for the full year of 2011 as estimated at the end of the first quarter of 2011.
effective tax rate expected to be applicable for the full year of 2011 as estimated at the end of the second quarter of 2011.
effective tax rate expected to be applicable for the second quarter of 2011.

Question 21
When a company issues interim financial statements, extraordinary items should be
allocated to the current and remaining interim periods of the current year on a pro rata basis.
deferred and included only in the annual income statement.
included in the determination of net income in the interim period in which they occur.
charged or credited directly to retained earnings so that comparisons of interim results of operations will not be distorted.

Question 22
If a cumulative effect type accounting change is made during the first interim period of a year
no cumulative effect of the change should be included in net income of the period of change.

the cumulative effect of the change on retained earnings at the beginning of the year should be included in net income of the first interim period.
the cumulative effect of the change should be allocated to the current and remaining interim periods of the year.
none of these.

Question 23
Newlin, Vick, and Morton are partners in a plumbing service. The business reported net income of $108,000 for 2011. The partnership agreement provides that profits and losses are to be divided equally after Vick receives a $60,000 salary, Morton receives a $24,000 salary, and each partner receives 10% interest on his beginning capital balance. Beginning capital balances were $40,000 for Newlin, $48,000 for Vick, and $32,000 for Morton. Vick’s share of partnership income for 2011 is:
$68,800.
$36,000.
$31,200.
$27,200.

Question 24
Steve and Robby are partners operating an electronics repair shop. For 2011, net income was $50,000. Steve and Robby have salary allowances of $90,000 and $60,000, respectively, and remaining profits and losses are shared 4:6.
The division of profits would be:
$20,000 and $30,000
$50,000 and $-0-
$30,000 and $20,000
$25,000 and $25,000

Question 25
The profit and loss sharing ratio should be
in the same ratio as the percentage interest owned by each partner.
based on relative effort contributed to the firm by the partners.
a weighted average of capital and effort contributions.
based on any formula that the partners choose.

Question 26
At December 31, 2011, Barb and Kim are partners with capital balances of $250,000 and $150,000, and they share profits and losses in the ratio of 2:1, respectively. On this date, Jack invests $125,000 cash for a one-fifth interest in the capital and profit of the new partnership. The partners agree that the implied partnership goodwill is to be recorded simultaneously with the admission of Jack. The total implied goodwill of the firm is
$25,000.
$20,000.
$45,000.
$100,000.
Question 27
During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of $150,000, accumulated depreciation of $70,000, and a current fair value of $110,000. The partners share net income and loss equally. The net debit to Karr’s account (including any gain or loss on disposal of the machine) is
$90,000.
$100,000.
$110,000.
$150,000.

Question 28
If a partner with a debit capital balance during liquidation is personally solvent, the

partner must invest additional assets in the partnership.
partner’s debit balance will be allocated to the other partners.
other partners will give the partner enough cash to absorb the debit balance.
partnership will loan the partner enough cash to absorb the debit balance.
Question 29
Offsetting a partner’s loan balance against his debit capital balance is referred to as the
marshaling of assets.
right of offset.
allocation of assets.
liquidation of assets.

Question 30
A forward exchange contract is transacted at a discount if the current forward rate is:
less than the expected spot rate.
more than the expected spot rate.
less than the current spot rate.
more than the current spot rate.