Advance Accounting- Auditing Exam

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//for all the questions check the attached file//



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1. (TCO A) Which of the following results in an increase in the equity in investee income account when applying the equity method? (Points : 5)

[removed] Unrealized gain on intercompany inventory transfers for the prior year
[removed] Amortizations of purchase price over book value on date of purchase for the prior year
[removed] Amortizations of purchase price over book value on date of purchase
[removed] Extraordinary gain of the investor
[removed] Sale of a portion of the investment at a loss


Question 2.2. (TCO B) Which of the following is a characteristic of a business combination that should be accounted for as a purchase? (Points : 5)

[removed] The combination must involve the exchange of equity securities only.
[removed] The acquired subsidiary must be smaller in size than the acquiring parent.
[removed] The two companies may be about the same size and it is difficult to determine the acquired company and the acquiring company.
[removed] The transaction may be considered to be the uniting of the ownership interests of the companies involved.
[removed] The transaction clearly establishes an acquisition price for the company being acquired.


Question 3.3. (TCO C) Under the equity method of accounting for an investment, (Points : 5)

[removed] the investment account remains at initial value.
[removed] dividends received are recorded as revenue.
[removed] income reported by the subsidiary increases the investment account.
[removed] goodwill is amortized over 20 years.
[removed] dividends received increase the investment account.



Question 4.4. (TCO C) Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination? (Points : 5)

[removed] Initial value or book value
[removed] Initial value, equity, or partial equity
[removed] Initial value, equity, or book value
[removed] Initial value, lower-of-cost-or-market value, or equity
[removed] Initial value, lower-of-cost-or-market value, or partial equity


Question 5.5. (TCO D) All of the following statements regarding the sale of subsidiary shares are true except which of the following? (Points : 5)

[removed] The use of specific identification based on serial number is acceptable.
[removed] The use of the FIFO assumption is acceptable.
[removed] The use of the specific LIFO assumption is acceptable.
[removed] The use of the averaging assumption is acceptable.
[removed] The parent company must determine whether consolidation is still appropriate for the remaining shares owned.


Question 6.6. (TCO D) When Timber Co. acquired 75% of the common stock of Woody Corp., Woody owned land with a book value of $70,000 and a fair value of $100,000. What amount of excess land allocation would be included for the calculation of noncontrolling interest, according to SFAS 141(R)? (Points : 5)

[removed] $70,000
[removed] $25,000
[removed] $17,500
[removed] $7,500
[removed] $0


Question 7.7. (TCO E) An intercompany sale took place whereby the transfer price exceeded the book value of a depreciable asset. Which statement is true for the year following the sale? (Points : 5)

[removed] A worksheet entry is made with a debit to gain for a downstream transfer.
[removed] A worksheet entry is made with a debit to gain for an upstream transfer.
[removed] A worksheet entry is made with a debit to retained earnings for a downstream transfer.
[removed] A worksheet entry is made with a debit to investment in the subsidiary for a downstream transfer when the parent uses the equity method.
[removed] No worksheet entry is necessary.


Question 8.8. (TCO F) A net asset balance sheet exposure exists and the foreign currency appreciates. Which of the following statements is true? (Points : 5)

[removed] There is a transaction gain.
[removed] There is a transaction loss.
[removed] There is no translation adjustment.
[removed] There is a negative translation adjustment.
[removed] There is a positive translation adjustment.


Question 9.9. (TCO G) Cline, Watters, and Nettles formed a partnership on January 1, 20X1, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to
(1) an interest of 10% of the beginning capital balance each year;
(2) an annual compensation of $10,000 to Watters; and
(3) sharing the remainder of the income or loss in a ratio of 20% for Cline and 40% each for Watters and Nettles.
Net income was $150,000 in 20X1 and $180,000 in 20X2. Each partner withdrew $1,000 for personal use every month during 20X1 and 20X2.
What was Cline’s share of income for 20X1? (Points : 5)

[removed] $63,000
[removed] $58,000
[removed] $53,000
[removed] $51,000
[removed] $29,000



Question 10.10. (TCO G) The partnership of Jewel, Maggie, and Waters was insolvent and will be unable to pay $50,000 in liabilities currently due. What recourse is available to the partnership’s creditors? (Points : 5)

[removed] They must present their claims to the three partners in the order of the partners’ capital account balances.
[removed] They must try to obtain a payment from the partner with the largest capital account balance.
[removed] They may seek remuneration from any partner they choose.
[removed] They cannot seek remuneration from the partners as individuals.
[removed] They must present equal claims to the three partners as individuals.













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