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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
On June 30, 2010, the balance sheet for the partnership of Coll, Maduro, and Prieto, together with their respective profit and loss ratios, were as follows:Assets, at cost $180,000 Coll, loan $ 9,000 Coll, capital (20%) 42,000 Maduro, capital (20%) 39,000 Prieto, capital (60%) 90,000 Total $180,000
Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner with a 25%interest in the capital of the new partnership for a cash payment of $140,000. Total goodwill implicit in the transaction is to be recorded. Immediately after admission of Hamm, Eddy’s capital
Eddy decided to retire from the partnership and by mutual agreement is to be paid $180,000 out of partnership funds for his interest. Total goodwill implicit in the agreement is to be recorded. After Eddy’s retirement, what are the capital balances of the other partners?Fox Grimma. $ 84,000
In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively.The bonus method was used to record Colter’s admittance as a new partner. What ratio would be used to allocate, to Adel and Brick, the excess of Colter’s contribution over
Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other assets are sold for $500,000, what amount of the available cash should be distributed to Alfa?a. $255,000b. $273,000c. $327,000d. $348,000
The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as a new partner with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in cash or other assets?a. $110,000b. $116,000c. $140,000d. $145,000
Dunn and Grey are partners with capital account balances of $60,000 and $90,000, respectively. They agree to admit Zorn as a partner with a one-third interest in capital and profits, for an investment of $100,000, after revaluing the assets of Dunn and Grey. Goodwill to the original partners should
Kern and Pate are partners with capital balances of$60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested land valued at$15,000 for a 20% capital interest in the new partnership.Grant’s cost
Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2010, their respective capital accounts were as follows:Blau $60,000 Rubi 50,000 On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an investment of
The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits before the bonus.Remaining profits and losses are divided between Flat and Iron in the ratio of 2:3, respectively. Which partner has a greater advantage when the partnership has a profit or when it has a
The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to each partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for the year ended December 31, 2010, is as follows:Balance, January 1 $140,000 Additional
The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net income in the following order:• First, Axel is to receive 10% of net income up to$100,000 and 20% over $100,000.• Second, Berg and Cobb each are to receive 5% of the remaining income over $150,000.• The
Fox, Greg, and Howe are partners with average capital balances during 2010 of $120,000, $60,000, and $40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of $30,000 to Fox and $20,000 to Howe, the residual profit or loss is divided
Red and White formed a partnership in 2010. The partnership agreement provides for annual salary allowances of$55,000 for Red and $45,000 for White. The partners share profits equally and losses in a 60/40 ratio. The partnership had earnings of $80,000 for 2010 before any allowance to partners.
When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner’s capital account?a. Fair value at the date of contribution.b. Contributing partner’s original cost.c. Assessed valuation for property tax purposes.d.
Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel contributed$100,000 and Carr contributed $84,000 in identifiable assets.Under the bonus approach to adjust the capital accounts, Carr’s unidentifiable asset should be debited fora. $46,000b.
On April 30, 2010, Algee, Belger, and Ceda formed a partnership by combining their separate business proprietorships.Algee contributed cash of $50,000. Belger contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted
Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the partnership’s formation:Contributed by Roberts Smith Cash $20,000 $30,000 Inventory -- 15,000 Building -- 40,000 Furniture & equipment 15,000 --The building is subject to a mortgage of $10,000,
Rocket Corporation prepares its financial statements in accordance with IFRS. For segment reporting purposes, which tests must Rocket apply to determine if a unit or component is an operating segment?a. Revenue test and asset test.b. Revenue test, asset test, and profit or loss test.c. Revenue
Taylor Corp., a publicly owned corporation, assesses performance and makes operating decisions using the following information for its reportable segments:Total revenues $768,000 Total profit and loss 40,600 Included in the total profit and loss are intersegment profits of $6,100. In addition,
The method used to determine what information to report for business segments is referred to as thea. Segment approach.b. Operating approach.c. Enterprise approach.d. Management approach.
In financial reporting for segments of a business enterprise, segment data may be aggregateda. Before performing the 10% tests if a majority of the aggregation criteria are met.b. If the segments do not meet the 10% tests but meet all of the aggregation criteria.c. Before performing the 10% tests
In financial reporting for segments of a business, an enterprise shall disclose all of the following excepta. Types of products and services from which each reportable segment derives its revenues.b. The title of the chief operating decision maker of each reportable segment.c. Factors used to
An enterprise must disclose all of the following about each reportable segment if the amounts are used by the chief operating decision maker, excepta. Depreciation expense.b. Allocated expenses.c. Interest expense.d. Income tax expense.
Enterprise-wide disclosures are required by publicly held companies with Only one More than one reportable segment reportable segmenta. Yes Yesb. Yes Noc. No Yesd. No No
Enterprise-wide disclosures include disclosures about Geographic areas Allocated costsa. Yes Yesb. Yes Noc. No Yesd. No No
External revenue reported by operating segments must be at leasta. $22,500,000b. $15,000,000c. $12,500,000d. $37,500,000
In its 2010 financial statements, Grum should disclose major customer data if sales to any single customer amount to at leasta. $ 300,000b. $1,500,000c. $4,000,000d. $5,000,000
The following information pertains to Aria Corp. and its operating segments for the year ended December 31, 2010:Sales to unaffiliated customers $2,000,000 Intersegment sales of products similar to those sold to unaffiliated customers 600,000 Interest earned on loans to other industry segments
Correy Corp. and its divisions (each is an operating segment) are engaged solely in manufacturing operations.The following data (consistent with prior years’ data) pertain to the operations conducted for the year ended December 31, 2010:(Industry Identifiable operating Total Operating assets at
Which of the following describes IFRS’s requirements regarding interim financial statements?a. Interim financial statements are required.b. If interim financial statements are presented, four basic financial statements are required.c. If interim financial statements are presented, at least a
Noble Corporation prepares its financial statements in accordance with IFRS. If Noble prepares interim financial statements, which statements are required?I. Statement of Financial Position II. Statement of Income III. Statement of Comprehensive Income IV. Statement of Cash Flows V. Statement of
Which of the following statements is true regarding interim reporting for companies that prepare their financial statements in accordance with IFRS?a. The discrete view is required for interim financial statements.b. Interim reports are required on a quarterly basis.c. Interim reports are not
Wilson Corp. experienced a $50,000 decline in the market value of its inventory in the first quarter of its fiscal year.Wilson had expected this decline to reverse in the third quarter, and in fact, the third quarter recovery exceeded the previous decline by $10,000. Wilson’s inventory did not
Conceptually, interim financial statements can be described as emphasizinga. Timeliness over reliability.b. Reliability over relevance.c. Relevance over comparability.d. Comparability over neutrality.
ASC Topic 270, Interim Reporting, states that interim financial reporting should be viewed primarily in which of the following ways?a. As useful only if activity is spread evenly throughout the year.b. As if the interim period were an annual accounting period.c. As reporting for an integral part of
For interim financial reporting, a company’s income tax provision for the second quarter of 2010 should be determined using thea. Effective tax rate expected to be applicable for the full year of 2010 as estimated at the end of the first quarter of 2010.b. Effective tax rate expected to be
For interim financial reporting, the computation of a company’s second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated Foreign Available tax tax rates planning alternativesa. No
For external reporting purposes, it is appropriate to use estimated gross profit rates to determine the cost of goods sold for Interim Year-end financial reporting financial reportinga. Yes Yesb. Yes Noc. No Yesd. No No
An inventory loss from a market price decline occurred in the first quarter. The loss was not expected to be restored in the fiscal year. However, in the third quarter the inventory had a market price recovery that exceeded the market decline that occurred in the first quarter. For interim
Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year.At the end of the year the decline had not reversed. When should the loss be reported in Petal’s interim income
A planned volume variance in the first quarter, which is expected to be absorbed by the end of the fiscal period, ordinarily should be deferred at the end of the first quarter if it is Favorable Unfavorablea. Yes Nob. No Yesc. No Nod. Yes Yes
Advertising costs may be accrued or deferred to provide an appropriate expense in each period for Interim Year-end financial reporting financial reportinga. Yes Nob. Yes Yesc. No Nod. No Yes
Bailey Company, a calendar-year corporation, has the following income before income tax provision and estimated effective annual income tax rates for the first three quarters of 2010:Income before Estimated effective income tax annual tax rate Quarter provision at end of quarter First $60,000
During the first quarter of 2010, Tech Co. had income before taxes of $200,000, and its effective income tax rate was 15%. Tech’s 2009 effective annual income tax rate was 30%, but Tech expects its 2010 effective annual income tax rate to be 25%. In its first quarter interim income statement,
On June 30, 2010, Mill Corp. incurred a $100,000 net loss from disposal of a business segment. Also, on June 30, 2010, Mill paid $40,000 for property taxes assessed for the calendar year 2010. What amount of the foregoing items should be included in the determination of Mill’s net income or loss
Vilo Corp. has estimated that total depreciation expense for the year ending December 31, 2010, will amount to$60,000, and that 2010 year-end bonuses to employees will total $120,000. In Vilo’s interim income statement for the six months ended June 30, 2010, what is the total amount of expense
Kell Corp.’s $95,000 net income for the quarter ended September 30, 2010, included the following after-tax items:• A $60,000 extraordinary gain, realized on April 30, 2010, was allocated equally to the second, third, and fourth quarters of 2010.• A $16,000 cumulative-effect loss resulting
On January 1, 2010, Builder Associates entered into a$1,000,000 long-term, fixed-price contract to construct a factory building for Manufacturing Company. Builder accounts for this contract under the percentage-of-completion, and estimated costs at completion at the end of each quarter for 2010
In personal financial statements, how should estimated income taxes on the excess of the estimated current values of assets over their tax bases be reported in the statement of financial condition?a. As liabilities.b. As deductions from the related assets.c. Between liabilities and net worth.d. In
For the purpose of estimating income taxes to be reported in personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their Assets Liabilitiesa. Estimated current value Estimated current amountb. Historical cost
Smith owns several works of art. At what amount should these artworks be reported in Smith’s personal financial statements?a. Original cost.b. Insured amount.c. Smith’s estimate.d. Appraised value.
A business interest that constitutes a large part of an individual’s total assets should be presented in a personal statement of financial condition asa. A separate listing of the individual assets and liabilities at cost.b. Separate line items of both total assets and total liabilities at
Personal financial statements should report assets and liabilities ata. Estimated current values at the date of the financial statements and, as additional information, at historical cost.b. Estimated current values at the date of the financial statements.c. Historical cost and, as additional
Personal financial statements usually consist ofa. A statement of net worth and a statement of changes in net worth.b. A statement of net worth, an income statement, and a statement of changes in net worth.c. A statement of financial condition and a statement of changes in net worth.d. A statement
The following information pertains to Smith’s personal assets and liabilities at December 31, 2010:Estimated Estimated Historical current current cost values amounts Assets $500,000 $900,000 Liabilities 100,000 $80,000 Smith’s 2010 income tax rate was 30%. In Smith’s personal statement of
Shea, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, 2010.Shea’s 2009 income tax liability was paid in full on April 15, 2010. Shea’s tax on income earned from January through April 2010 is estimated at $30,000. In addition,$25,000 is
The estimated current values of Lane’s personal assets at December 31, 2010, totaled $1,000,000, with tax bases aggregating $600,000. Included in these assets was a vested interest in a deferred profit-sharing plan with a current value of $80,000 and a tax basis of $70,000. The estimated current
At December 31, 2010, Ryan had the following noncancelable personal commitments:Pledge to be paid to County Welfare Home thirty days after volunteers paint the walls and ceiling of the Home’s recreation room $ 5,000 Pledge to be paid to City Hospital on the recovery of Ryan’s comatose sister
Ely had the following personal investments at December 31, 2010:• Realty held as a limited business activity not conducted in a separate business entity. Mortgage payments were made with funds from sources unrelated to the realty.The cost of this realty was $500,000, and the related mortgage
The following information pertains to an insurance policy that Barton owns on his life:Face amount $100,000 Accumulated premiums paid up to December 31, 2011 8,000 Cash value at December 31, 2011 12,000 Policy loan 3,000 In Barton’s personal statement of financial condition at December 31, 2011,
Jen has been employed by Komp, Inc. since February 1, 2008. Jen is covered by Komp’s Section 401(k) deferred compensation plan. Jen’s contributions have been 10% of salaries. Komp has made matching contributions of 5%.Jen’s salaries were $21,000 in 2008, $23,000 in 2009, and$26,000 in 2010.
Clint owns 50% of Vohl Corp.’s common stock. Clint paid $20,000 for this stock in 2007. At December 31, 2010, 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, 2010, were $300,000 and
The following information pertains to marketable equity securities owned by Kent:Fair value at December 31, Cost in Stock 2011 2010 2009 City Mfg., Inc. $95,500 $93,000 $89,900 Tri Corp. 3,400 5,600 3,600 Zee, Inc. 10,300 15,000 The Zee stock was sold in January 2011 for $10,200. In Kent’s
On December 31, 2010, 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, 2011. The discounted amount of $100,000 is$90,000 at December 31,
Green, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, 2010.Green’s 2009 income tax liability was paid in full on April 15, 2010. Green’s tax on income earned between January and April 2010 is estimated at $20,000. In addition,$40,000 is
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 crossreferencing 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-balancesheet 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, 2010, 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
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 2011 at which time settlement is due to the manufacturer.The hedge qualifies as a fair value hedge. At December 31, 2010, what
At December 31, 2010, 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, 2010, payable in March 2011?a. $0b. $3,000c. $4,000d. $5,000
Imp entered into the first forward contract to hedge a purchase of inventory in November 2010, payable in March 2011. At December 31, 2010, 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.
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 G/L on the fair instruments 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 Cash flow hedge hedgea. 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.
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.
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