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Wiley CPA Exam Review 2013 Financial Accounting And Reporting 10th Edition O. Ray Whittington - Solutions

Clint owns 50% of Vohl Corp.’s common stock. Clint paid $20,000 for this stock in year 1. At December 31, year 4, Clint’s 50% stock ownership in Vohl had a fair value of $180,000. Vohl’s cumulative net income and cash dividends declared for the five years ended December 31, year 4, were
The following information pertains to marketable equity securities owned by Kent:The Zee stock was sold in January year 3 for $10,200. In Kent’s personal statement of financial condition at December 31, year 3, what amount should be reported for marketable equity securities?a. $93,300b. $93,500c.
On December 31, year 1, Shane is a fully vested participant in a company-sponsored pension plan. According to the plan’s administrator, Shane has at that date the nonforfeitable right to receive a lump sum of $100,000 on December 28, year 2. The discounted amount of $100,000 is $90,000 at
Green, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, year 2. Green’s year 1 income tax liability was paid in full on April 15, year 2. Green’s tax on income earned between January and April year 2 is estimated at $20,000. In addition, $40,000
Under IFRS, a cash flow hedge and a hedge of a net investment are accounted for bya. Not recognizing gains and losses.b. Recognizing gains and losses in other comprehensive income.c. Recognizing gains and losses in profit and loss.d. Recognizing gains and losses when the hedge is closed out.
Whether recognized or unrecognized in an entity’s financial statements, disclosure of the fair values of the entity’s financial instruments is required whena. It is practicable to estimate those values.b. The entity maintains accurate cost records.c. Aggregated fair values are material to the
Kline Bank has large amounts of notes receivable from companies with high debt-to-equity ratios as a result of buyout transactions. Kline is contemplating the following disclosures for the notes receivable in its year-end financial statements:I. Information about shared activity, region, or
Disclosure of information about significant concentrations of credit risk is required fora. All financial instruments.b. Financial instruments with off-balance-sheet credit risk only.c. Financial instruments with off-balance-sheet market risk only.d. Financial instruments with off-balance-sheet
Disclosure of credit risk of financial instruments with off-balance-sheet risk does not have to includea. The amount of accounting loss the entity would incur should any party to the financial instrument fail to perform.b. The entity’s policy of requiring collateral or security.c. The class of
Disclosure requirements for financial instruments includea. Method(s) and significant assumptions used in estimating fair value.b. Distinction between financial instruments held or issued for trading purposes and purposes other than trading.c. A note containing a summary table cross-referencing the
If it is not practicable for an entity to estimate the fair value of a financial instrument, which of the following should be disclosed?I. Information pertinent to estimating the fair value of the financial instrument.II. The reasons it is not practicable to estimate fair value.a. I only.b. II
Off-balance-sheet risk of accounting loss does not result froma. Financial instruments recognized as assets entailing conditional rights that result in a loss greater than the amount recognized in the balance sheet.b. Financial instruments not recognized as either assets or liabilities yet still
Examples of financial instruments with off-balance-sheet risk include all of the following excepta. Outstanding loan commitments written.b. Recourse obligations on receivables.c. Warranty obligationsd. Futures contracts.
The risk of an accounting loss from a financial instrument due to possible failure of another party to perform according to terms of the contract is known asa. Off-balance-sheet risk.b. Market risk.c. Credit risk.d. Investment risk.
Imp entered into the third forward contract for speculation. At December 31, year 1, what amount of foreign currency transaction gain from this forward contract should Imp include in net income?a. $0b. $ 3,000c. $ 5,000d. $10,000 B.12. Fair Value and Credit Risk Disclosures
Imp entered into the second forward contract to hedge a commitment to purchase equipment being manufactured to Imp’s specifications. The expected delivery date is March year 2 at which time settlement is due to the manufacturer. The hedge qualifies as a fair value hedge. At December 31, year 1,
At December 31, year 1, what amount of foreign currency transaction loss should Imp include in income from the revaluation of the Accounts Payable of 100,000 euros incurred as a result of the purchase of inventory at November 30, year 1, payable in March year 2?a. $0b. $3,000c. $4,000d. $5,000
Imp entered into the first forward contract to hedge a purchase of inventory in November year 1, payable in March year 2. At December 31, year 1, what amount of foreign currency transaction gain from this forward contract should Imp include in net income?a. $0b. $ 3,000c. $ 5,000d. $10,000
Which of the following foreign currency transactions is not accounted for using hedge accounting?a. Available-for-sale securities.b. Unrecognized firm commitments.c. Net investments in foreign operations.d. Foreign currency denominated forecasted transactions.B.10. Forward Exchange Contracts Items
Which of the following is not a type of foreign currency hedge?a. A forecasted transaction.b. An available-for-sale security.c. A recognized asset or liability.d. An unrecognized firm commitment.
Which of the following meet the definition of assets and/or liabilities?Derivative instruments G/L on the fair value of derivativesa. Yes Nob. No Yesc. Yes Yesd. No No
Which of the following risks are inherent in an interest rate swap agreement?I. The risk of exchanging a lower interest rate for a higher interest rate.II. The risk of nonperformance by the counterparty to the agreement.a. I only.b. II only.c. Both I and II.d. Neither I nor II.
Gains and losses of the effective portion of a hedging instrument will be recognized in current earnings in each reporting period for which of the following?Fair value hedge Cash flowa. Yes Nob. Yes Yesc. No Nod. No Yes
Gains and losses on the hedged asset/liability and the hedged instrument for a fair value hedge will be recognizeda. In current earnings.b. In other comprehensive income.c. On a cumulative basis from the change in expected cash flows from the hedged instrument.d. On the balance sheet either as an
A hedge of the exposure to changes in the fair value of a recognized asset or liability, or an unrecognized firm commitment, is classified as aa. Fair value hedge.b. Cash flow hedge.c. Foreign currency hedge.d. Underlying.
For an unrecognized firm commitment to qualify as a hedged item it musta. Be binding on both parties.b. Be specific with respect to all significant terms.c. Contain a nonperformance clause that makes performance probable.d. All of the above.
Which of the following is a general criterion for a hedging instrument?a. Sufficient documentation must be provided at the beginning of the process.b. Must be “highly effective” only in the first year of the hedge’s life.c. Must contain a nonperformance clause that makes performance
Hedge accounting is permitted for all of the following types of hedges excepta. Trading securities.b. Unrecognized firm commitments.c. Available-for-sale securities.d. Net investments in foreign operations.
If a company elects not to bifurcate a hybrid financial instrument and records the entire instrument at fair value, which of the following is true?a. No changes in value are recorded until the hybrid instrument is sold.b. Changes in fair value of the hybrid instrument are recognized each year in
When an election is made not to bifurcate a hybrid financial instrument, how should this be disclosed on the financial statements?I. As separate line items for the fair value and non–fair value instruments on the balance sheet.II. As an aggregate amount of all hybrid instruments with the amount
According to ASC Topic 815, when a company elects not to bifurcate a hybrid financial instrument, the entire hybrid instrument should be valued ata. Fair value.b. Net present value.c. Net realizable value.d. Book value.
Alvarez Corporation has two hybrid financial instruments. According to ASC Topic 815, how can Alvarez account for these instruments?a. Alvarez must bifurcate all hybrid financial instruments and record the components separately.b. Alvarez can elect to not disclose the financial instruments on the
The process of bifurcationa. Protects an entity from loss by entering into a transaction.b. Includes entering into agreements between two counterparties to exchange cash flows over specified period of time in the future.c. Is the interaction of the price or rate with an associated asset or
Financial instruments sometimes contain features that separately meet the definition of a derivative instrument. These features are classified asa. Swaptions.b. Notional amounts.c. Embedded derivative instruments.d. Underlyings.
Which of the following criteria must be met for bifurcation to occur?a. The embedded derivative meets the definition of a derivative instrument.b. The hybrid instrument is regularly recorded at fair value.c. Economic characteristics and risks of the embedded instrument are “clearly and closely”
Which of the following is not a derivative instrument?a. Futures contracts.b. Credit indexed contracts.c. Interest rate swaps.d. Variable annuity contracts.B.5. Embedded Derivative Instruments and Bifurcation
Which of the following financial instruments or other contracts is not specifically excluded from the definition of derivative instruments in ASC Topic 815?a. Leases.b. Call (put) option.c. Adjustable rate loans.d. Equity securities.
Disclosures related to financial instruments, both derivative and nonderivative, used as hedging instruments must includea. A list of hedged instruments.b. Maximum potential accounting loss.c. Objectives and strategies for achieving them.d. Onlya. and c.B.4. Inclusions in and Exclusions from
An example of a notional amount isa. Number of barrels of oil.b. Interest rates.c. Currency swaps.d. Stock prices.
Which of the following is not a distinguishing characteristic of a derivative instrument?a. Terms that require or permit net settlement.b. Must be “highly effective” throughout its life.c. No initial net investment.d. One or more underlyings and notional amounts.
If the price of the underlying is greater than the strike or exercise price of the underlying, the call option isa. At the money.b. In the money.c. On the money.d. Out of the money.
Which of the following is an underlying, according to ASC Topic 815?a. A credit rating.b. A security price.c. An average daily temperature.d. All of the above could be underlyings.
Which of the following statements is(are) true regarding derivative financial instruments?I. Derivative financial instruments should be measured at fair value and reported in the balance sheet as assets or liabilities.II. Gains and losses on derivative instruments not designated as hedging
The basic purpose of derivative financial instruments is to manage some kind of risk such as all of the following excepta. Stock price movements.b. Interest rate variations.c. Currency fluctuations.d. Uncollectibility of accounts receivables.
Derivative instruments are financial instruments or other contracts that must containa. One or more underlyings, or one or more notional amounts.b. No initial net investment or smaller net investment than required for similar response contacts.c. Terms that do not require or permit net settlement
Derivatives are financial instruments that derive their value from changes in a benchmark based on any of the following excepta. Stock prices.b. Mortgage and currency rates.c. Commodity prices.d. Discounts on accounts receivable.
On October 1, year 1, Velec Co., a US company, contracted to purchase foreign goods requiring payment in Qatari riyals, one month after their receipt at Velec’s factory. Title to the goods passed on December 15, year 1. The goods were still in transit on December 31, year 1. Exchange rates were
On October 1, year 1, Mild Co., a US company, purchased machinery from Grund, a German company, with payment due on April 1, year 2. If Mild’s year 1 operating income included no foreign exchange transaction gain or loss, then the transaction could havea. Resulted in an extraordinary gain.b. Been
Shore Co. records its transactions in US dollars. A sale of goods resulted in a receivable denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in euros. Shore recorded a foreign exchange transaction gain on collection of the receivable and an exchange transaction
On November 30, year 1, Tyrola Publishing Company, located in Colorado, executed a contract with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton’s book. Payment is to be made in Canadian dollars each January 10 for the previous year’s
Ball Corp. had the following foreign currency transactions during year 1:Merchandise was purchased from a foreign supplier on January 20, year 1, for the US dollar equivalent of $90,000. The invoice was paid on March 20, year 1, at the US dollar equivalent of $96,000.On July 1, year 1, Ball
Hunt Co. purchased merchandise for £300,000 from a vendor in London on November 30, year 1. Payment in British pounds was due on January 30, year 2. The exchange rates to purchase one pound were as follows:November 30, Year 1 December 31, Year 2 Spot-rate $1.65 $1.62 30-day rate 1.64 1.59 60-day
Lindy, a US corporation, bought inventory items from a supplier in Argentina on November 5, year 1, for 100,000 Argentine pesos, when the spot rate was $.4295. At Lindy’s December 31, year 1 year-end, the spot rate was $.4245. On January 15, year 2, Lindy bought 100,000 pesos at the spot rate of
On September 1, year 1, Cano & Co., a US corporation, sold merchandise to a foreign firm for 250,000 Botswana pula. Terms of the sale require payment in pula on February 1, year 2. On September 1, year 1, the spot exchange rate was $.20 per pula. At December 31, year 1, Cano’s year-end, the spot
On September 1, year 1, Bain Corp. received an order for equipment from a foreign customer for 300,000 local currency units (LCU) when the US dollar equivalent was $96,000. Bain shipped the equipment on October 15, year 1, and billed the customer for 300,000 LCU when the US dollar equivalent was
Under IFRS a parent may exclude a subsidiary from consolidation only if all of the following conditions exist, excepta. It is wholly or partially owned and its owners do not object to nonconsolidation.b. It does not have any debt or equity instruments publicly traded.c. It has one class of stock.d.
Under IFRS the asset goodwill may be recognizeda. When it is acquired by purchase.b. When it is internally generated or acquired by purchase.c. When it is clear that it exists and has value.d. When it has future economic benefits.
Which of the following items should be treated in the same manner in both combined financial statements and consolidated statements?Different fiscal periods Foreign operationsa. No Nob. No Yesc. Yes Yesd. Yes No O. International Financial Reporting Standards (IFRS)
Which of the following items should be treated in the same manner in both combined financial statements and consolidated statements?Income taxes Noncontrolling interesta. No Nob. No Yesc. Yes Yesd. Yes No
Combined statements may be used to present the results of operations of Companies under common management Commonly controlled companiesa. No Yesb. Yes Noc. No Nod. Yes Yes
Mr. Cord owns four corporations. Combined financial statements are being prepared for these corporations, which have intercompany loans of $200,000 and intercompany profits of $500,000. What amount of these intercompany loans and profits should be included in the combined financial
Mr. and Mrs. Gasson own 100% of the common stock of Able Corp. and 90% of the common stock of Baker Corp. Able previously paid $4,000 for the remaining 10% interest in Baker. The condensed December 31, year 1 balance sheets of Able and Baker are as follows:Able Baker Assets $600,000 $60,000
The following information pertains to shipments of merchandise from Home Office to Branch during year 1:Home Office’s cost of merchandise $160,000 Intracompany billing 200,000 Sales by Branch 250,000 Unsold merchandise at Branch on December 31, year 1 20,000 In the combined income statement of
Ahm Corp. owns 90% of Bee Corp.’s common stock and 80% of Cee Corp.’s common stock. The remaining common shares of Bee and Cee are owned by their respective employees. Bee sells exclusively to Cee, Cee buys exclusively from Bee, and Cee sells exclusively to unrelated companies. Selected year 1
Selected data for two subsidiaries of Dunn Corp. taken from December 31, year 1 preclosing trial balances are as follows:Banks Co. debit Lamm Co. credit Shipments to Banks $ -- $150,000 Shipments from Lamm 200,000 -- Intercompany inventory profit on total shipments -- 50,000 Additional data
Mr. & Mrs. Dart own a majority of the outstanding capital stock of Wall Corp., Black Co., and West, Inc. During year 1, Wall advanced cash to Black and West in the amount of $50,000 and $80,000, respectively. West advanced $70,000 in cash to Black. At December 31, year 1, none of the advances was
On September 1, year 1, Phillips, Inc. issued common stock in exchange for 20% of Sago, Inc.’s outstanding common stock. On July 1, year 2, Phillips issued common stock for an additional 75% of Sago’s outstanding common stock. Sago continues in existence as Phillips’ subsidiary. How much of
When should an acquirer derecognize a contingent liability recognized as the result of an acquisition?a. When it becomes more likely than not that the firm will not be liable.b. When the contingency is resolved.c. At the end of the year of acquisition.d. When it is reasonably possible that the
On January 1, year 1, Post Inc. acquires Sam Company in a transaction properly accounted for as a business combination. Sam’s employees have share-based payments that will expire as a consequence of the business combination. In order to maintain employee morale, Post voluntarily replaces the
Able Corp. acquires Bailey Company in a transaction that is properly accounted for as a business acquisition. The acquisition contract and Bailey’s share-based compensation agreement require Able stock to be exchanged for Bailey common stock issued to Bailey’s employees as share-based payments.
Ross Corporation recorded a provisional amount for an identifiable asset at the date of its acquisition of Layton Inc. because the asset’s fair value was uncertain. Before the measurement period ends, Ross obtains new information that indicates that the asset was overvalued by $20,000. How should
When does the measurement period end for a business combination in which there was incomplete accounting information on the date of acquisition?a. When the acquirer receives the information or one year from the acquisition date, whichever occurs earlier.b. On the final date when all contingencies
On June 30, year 1, Wyler Corporation acquires Boston Corporation in a transaction properly accounted for as a business acquisition. At the time of the acquisition, some of the information for valuing assets was incomplete. How should Corporation Wyler, account for the incomplete information in
In a business acquisition, consideration transferred includes which of the following?I. The fair value of assets transferred by the acquirer.II. The fair value of the liabilities incurred by the acquirer.III. The fair value of contingent consideration transferred by the acquirer.IV. The fair value
In its December 31, year 1 consolidated balance sheet, what amount should Pare report as common stock?a. $ 50,000b. $100,000c. $137,500d. $150,000
In Pare’s December 31, year 1 consolidated balance sheet, what amount should be reported as noncontrolling interest in net assets?a. $30,000b. $35,000c. $38,750d. $40,000
In its December 31, year 1 consolidated statement of retained earnings, what amount should Pare report as dividends paid?a. $ 5,000b. $25,000c. $26,250d. $30,000
In the December 31, year 1 consolidated balance sheet, noncontrolling interest should be reported ata. $200,000b. $213,000c. $233,000d. $263,000 Items 58 through 60 are based on the following:On January 2, year 1, Pare Co. purchased 75% of Kidd Co.’s outstanding common stock. On that date, the
In the January 1, year 1 consolidated balance sheet, goodwill should be reported ata. $0b. $ 75,000c. $ 95,000d. $125,000
Planet Company acquired a 70% interest in the Star Company in year 1. For the year ended December 31, year 2, Star reported net income of $80,000. During year 2, Planet sold merchandise to Star for $10,000 at a profit of $2,000. The merchandise remained in Star’s inventory at the end of year 2.
P Co. purchased term bonds at a premium on the open market. These bonds represented 20% of the outstanding class of bonds issued at a discount by S Co., P’s wholly owned subsidiary. P intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between the bond
Port, Inc. owns 100% of Salem, Inc. On January 1, year 6, Port sold Salem delivery equipment at a gain. Port had owned the equipment for two years and used a five-year straight-line depreciation rate with no residual value. Salem is using a three-year straight-line depreciation rate with no
Winston Co. owns 80% of the outstanding common stock of Foster Co. On December 31, year 2, Winston sold equipment to Foster at a price in excess of Winston’s carrying amount, but less than its original cost. On a consolidated balance sheet at December 31, year 2, the carrying amount of the
Perez, Inc. owns 80% of Senior, Inc. During year 1, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in year 1. For year 1 consolidated financial statements, how should the summation of Perez and Senior income statement items be adjusted?a. Sales and cost of goods
Sun, Inc. is a wholly owned subsidiary of Patton, Inc. On June 1, year 1, Patton declared and paid a $1 per share cash dividend to stockholders of record on May 15, year 1. On May 1, year 1, Sun bought 10,000 shares of Patton’s common stock for $700,000 on the open market, when the book value per
Wagner, a holder of a $1,000,000 Palmer, Inc. bonds, collected the interest due on March 31, year 1, and then sold the bonds to Seal, Inc. for $975,000. On that date, Palmer, a 75% owner of Seal, had a $1,075,000 carrying amount for the bonds. What was the effect of Seal’s purchase of Palmer’s
On January 1, year 1, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly owned subsidiary. Poe paid $1,100,000 for this machine, which had accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over twenty
During year 1, Pard Corp. sold goods to its 80%-owned subsidiary, Seed Corp. At December 31, year 1, one-half of these goods were included in Seed’s ending inventory. Reported year 1 selling expenses were $1,100,000 and $400,000 for Pard and Seed, respectively. Pard’s selling expenses included
Selected information from the separate and consolidated balance sheets and income statements of Pare, Inc. and its subsidiary, Shel Co., as of December 31, year 1, and for the year then ended is as follows:Additional information:During year 1, Pare sold goods to Shel at the same markup on cost that
Parker Corp. owns 80% of Smith Inc.’s common stock. During year 1, Parker sold Smith $250,000 of inventory on the same terms as sales made to third parties. Smith sold all of the inventory purchased from Parker in year 1. The following information pertains to Smith and Parker’s sales for year
Clark Co. had the following transactions with affiliated parties during year 1:Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert significant influence.Purchases of raw materials
What amount should be reported as depreciation expense in Pirn’s year 1 consolidated income statement?a. $50,000b. $47,000c. $44,000d. $41,000
In Pirn’s December 31, year 1, consolidating worksheet, how much intercompany profit should be eliminated from Scroll’s inventory?a. $30,000b. $20,000c. $10,000d. $ 6,000
On January 1, year 2, Pane Corp. exchanged 150,000 shares of its $20 par value common stock for all of Sky Corp.’s common stock. At that date, the fair value of Pane’s common stock issued was equal to the book value of Sky’s net assets. Both corporations continued to operate as separate
On June 30, year 1, Purl Corp. issued 150,000 shares of its $20 par common stock for which it received all of Scott Corp.’s common stock. The fair value of the common stock issued is equal to the book value of Scott Corp.’s net assets. Both corporations continued to operate as separate
Matt Co. included a foreign subsidiary in its year 5 consolidated financial statements. The subsidiary was acquired in year 1 and was excluded from previous consolidations. The change was caused by the elimination of foreign exchange controls. Including the subsidiary in the year 5 consolidated
The determination of whether an interest holder must consolidate a variable interest entity is madea. By reassessing on an ongoing basis.b. When the interest holder initially gets involved with the variable interest entity.c. Every time the cash flows of the variable interest entity change.d.
Morton Inc., Gilman Co., and Willis Corporation established a special-purpose entity (SPE) (variable interest entity) to perform leasing activities for the three corporations. If at the time of formation the SPE is determined to be a variable interest entity subject to consolidation, which of the
It is generally presumed that an entity is a variable interest entity subject to consolidation if its equity isa. Less than 50% of total assets.b. Less than 25% of total assets.c. Less than 10% of total assets.d. Less than 10% of total liabilities.
Pride, Inc. owns 80% of Simba, Inc.’s outstanding common stock. Simba, in turn, owns 10% of Pride’s outstanding common stock. What percentage of the common stock cash dividends declared by the individual companies should be reported as dividends declared in the consolidated financial

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