ADVANCED FINANCIAL ACCOUNTING AND REPORTING

QUIZBOWL

EASY
1. Trustees in a bankruptcy cases have the duty to
a. nullify affiliate transactions.
b. relegate tax payments to an unsecured status.
c. provide payments to creditors and customers.
d. call creditor meetings on liquidation proceedings.

2. On June 30, 2006, the Warle, Xin, and Yates partnership had the
following fiscal year-end balance sheet:

Cash $ 4,000 Accounts payable $ 7,000

Accounts receivable 6,000 Loan from Xin 5,000
Inventory 14,000 Warle, capital(20%) 14,000
Plant assets-net 12,000 Xin, capital(30%) 10,000
Loan to Warle 6,000 Yates, capital(50%) 6,000
Total assets $ 42,000 Total liab./equity $ 42,000

The percentages shown are the residual profit and loss sharing
ratios. The partners dissolved the partnership on July 1, 2006,. and
began the liquidation process. During July the following events
occurred:

* Receivables of $3,000 were collected.

* The inventory was sold for $4,000.
* All available cash was distributed on July 31, except for
$2,000 that was set aside for contingent expenses.

The book value of the partnership equity (i.e., total equity of

the partners) on June 30, 2006 is _________.

Warle capital $14,000

Xin capital 10,000
Yates capital 6,000
Loan from Xin 5,000
Loan to Warle (6,000)
Total $29,000

3. Which of the following techniques can be used to measure hedge

effectiveness?

a. Contribution margin analysis.

b. Present value analysis.
c. Critical term analysis.
d. Breakeven analysis.

4. Bart Company purchased a 30% interest in Simpson Corporation on

January 1, 2016, and Bart accounted for its investment in Simpson
under the equity method for the next 3 years. On January 1,
2019, Bart sold one-half of its interest in Simpson after which it
could no longer exercise significant influence over Simpson. Bart
should
a. continue to account for its remaining investment in Dak
under the equity method for the sake of consistency.
d. account for the remaining investment under the cost method,
using the investment in Simpson account balance immediately after the
sale as the new cost basis.
c. adjust the investment in Simpson account to one-half of its
original amount and account for the remaining 15% interest using the
equity method.
d. adjust the investment account to one-half of its original
amount (one-half of the purchase price in 2016), and account for
the remaining 15% investment under the cost method.

5. Which of the following observations refers to the term differential?

a. Excess of consideration exchanged over book value of net identifiable

assets.
b. Excess of consideration exchanged over fair value of net identifiable
assets.
c. Excess of fair value over book value of net identifiable assets.

d. Excess of fair value over historical cost of net identifiable assets.

6. Percy Company owns 80% of the common stock of Smyth Company. Percy sells merchandise to
Smyth at 20% above cost. During 2011 and 2012, intercompany sales amounted to $1,080,000 and
$1,200,000 respectively. At the end of 2011, Smyth had one-fifth of the goods purchased that year from
Percy in its ending inventory. Smyth’s 2012 ending inventory contained one-fourth of that year’s
purchases from Percy. There were no intercompany sales prior to 2011.

Percy reported net income from its own operations of $720,000 in 2011 and $760,000 in 2012.
Smyth reported net income of $400,000 in 2011 and $460,000 in 2012. Neither company declared
dividends in either year.

Calculate controlling interest in consolidated net income for 2012.

Percy’s Income from independent operations $760,000
Less: Unrealized profit in ending inventory (50,000)
Add: Unrealized profit in beginning inventory 36,000
Percy’s Income Realized in Transactions with third parties 746,000
Percy’s Share of Subsidiary Income $368,000
Controlling Interest in Consolidated Net Income $1,114,000

7. On October 15, 20X5, Ibis Corporation, a French company, ordered

merchandise listed on the Internet for 20,000 Euros from Spoonbill
Corporation, a US corporation, which immediately accepted the order.
The Euro rate was $1.20 US on October 15. On November 15, 20X5
Spoonbill shipped the goods and billed Ibis the purchase price of
20,000 Euros when the Euro rate was $1.30 US. Ibis paid the bill on
December 10, 20X5. Three days later Spoonbill exchanged the 20,000
Euros for US dollars when the Euro rate was $1.28US.
Compute the foreign currency gains or losses on the December 31, 20X5
financial statements and show your calculations.
Accounts Receivable 20,000
Divided by:
10/15/x5 1.20
12/13/x5 (1.28) (0.08)
Foreign Currency Loss (1,042)

8. In situations where there are routine inventory sales between

parent companies and subsidiaries, when preparing the
consolidation statements, which of the following line items is
indifferent to the sales being either upstream or downstream?

a. Consolidated retained earnings.

b. Consolidated gross profit.
c. Noncontrolling interest expense.
d. Consolidated net income

9. On February 1, 2005, Flores, Gilroy, and Hansen began a partnership

in which Flores and Hansen contributed cash of $25,000; Gilroy
contribute property with a fair value of $50,000 and a tax basis
$40,000. Gilroy receives a 5% bonus of partnership income. Flores
and Hansen receive salaries of $10,000 each. The partnership
agreement of Flores, Gilroy, and Hansen provides all partners to
receive a 5% interest on capital and that profits and losses be
divided of the remaining income be distributed to Flores, Gilroy, and
Hansen by a 1:3:1 ratio.

Assuming the partnership earned a Net Income of $50,000, how much is

to be distributed to Flores?
 Income Flores Gilroy Hansen
Net income $ 25,000
Bonus to Gilroy ( 1,250 ) $ 1,250
Salaries ( 20,000 ) $ 10,000 $ 10,000
Interest ( 5,000 ) 1,250 2,500 1,250
Residual loss ( 1,250 )
Loss allocation 1,250 $ (250) (750) (250)
Allocation $ 0 $ 11,000 $ 3,000 $ 11,000

10. A Statement of Affairs is a report designed to show:

a. an estimated amount that would be received by each class of creditor’s claims in the event
of liquidation.
b. a balance sheet prepared on the going-concern assumption.
c. assets and liabilities classified as current and noncurrent.
d. assets and liabilities reported at their current book values.

DIFFICULT

1. When the bankruptcy court grants an order for relief

a. the reorganization plan was accepted by creditors having at
least one-half of the total number of claims and the claims
represent at least two-thirds of the total amount owed.
b. the bankruptcy court confirms that the reorganization plan
is fair and equitable to creditors.
c. creditors may not seek payment for their claims directly
from the debtor corporation.
d. the court discharges the debtor except for those claims
provided for in the reorganization plan.

2. Logan Company prepares quarterly financial statements. The following information is

available concerning calendar year 2011:

Estimated full-year earnings $3,000,000

Full-year permanent differences:
Penalty for pollution 150,000
Estimated dividend income exclusion 60,000
Actual pretax earnings, 1/1/11 to 3/31/11 480,000
Nominal income tax rate 40%

Required:
Compute the income tax provision for the first quarter of 2011.

Estimated pretax full-year income $3,000,000

Add: Pollution penalty 150,000
Less: Estimated dividend income inclusion (60,000)
Estimated full-year taxable income $3,090,000

Estimated income tax payable ($3,090,000 × 0.40) $1,236,000

Estimated effective tax rate ($1,236,000/$3,000,000) 41.2%

First quarter tax provision ($480,000 × 0.412) $197.760

 3. The term used to describe the application of accounting to expendable fund entities is the
a. accrual method.
b. cash method.
c. modified cash method.
d. modified accrual method.

4. Which basis of accounting should a voluntary health and welfare organization use?
a. Cash basis for all funds
b. Modified accrual basis for all funds
c. Accrual basis for all funds
d. Accrual basis for some funds and modified accrual basis for other funds

5. Rice and Thome formed a partnership on January 2, 2011. Thome invested $120,000 in cash. Rice
invested land valued at $30,000, which he had purchased for $20,000 in 2005. In addition, Rice possessed
superior managerial skills and agreed to manage the firm. The partners agreed to the following profit and
loss allocation formula:
a. Interest —8% on original capital investments.
b. Salary — $5,000 a month to Rice.
c. Bonus — Rice is to be allocated a bonus of 20% of net income after subtracting the bonus, interest, and
salary.
d. Remaining profit is to be divided equally.

At the end of 2011 the partnership reported net income before interest, salaries, and bonus of $168,000.

Calculate the amount of bonus to be allocated to Rice.

B = Bonus to Rice
B = 0.20(Net Income - interest - salary - bonus)
B = 0.20($168,000 - [0.08($150,000)] - $60,000 – B)
B = 0.20($96,000 - B)
B = $19,200 - 0.20B
1.20B = $19,200
B = $16,000