Area I: Financial Reporting

Madison Inc. reported the following for Year 1:<br/>- Net income: $200,000<br/>- Depreciation expense: $80,000<br/>- Amortization of bond premium: $5,000<br/>- Gain on sale of equipment: $15,000<br/>- Increase in accounts receivable: $30,000<br/>- Decrease in inventory: $20,000<br/>- Increase in accounts payable: $25,000<br/>- Decrease in accrued liabilities: $10,000<br/><br/>Using the indirect method, what is Madison Inc.'s cash flow from operating activities for Year 1?

Riverview City received a $300,000 grant from the state government restricted exclusively for road repair and maintenance operations. Any unused funds must be returned to the state at the end of the fiscal year. The city also received $2,000,000 for construction of a new fire station.<br/><br/>How should Riverview City classify these two resources under GASB fund accounting?

Dalton Corp. reports net income of $1,200,000 for Year 1. It has 400,000 weighted average common shares outstanding. Additionally:<br/>- 50,000 stock options outstanding with exercise price of $20/share<br/>- Average market price per share during Year 1: $25/share<br/>- 10,000 shares of 5% convertible preferred stock ($100 par), each convertible into 4 common shares<br/>- Preferred dividends declared: $50,000<br/><br/>What is Dalton Corp.'s diluted EPS for Year 1?

Quantum Corp. has the following financial data for Year 1:<br/>- Net income: $240,000<br/>- Total assets (beginning): $1,800,000<br/>- Total assets (ending): $2,200,000<br/>- Total equity (beginning): $900,000<br/>- Total equity (ending): $1,100,000<br/><br/>What is Quantum Corp.'s return on assets (ROA) for Year 1?

Harbor City's General Fund had the following transactions during the fiscal year:<br/>- Property tax revenue (measurable and available): $2,500,000<br/>- Federal grant received for road maintenance: $400,000<br/>- Bond proceeds from general obligation bonds: $1,200,000<br/>- Transfer to Debt Service Fund: $150,000<br/><br/>What amount should Harbor City report as revenues in its General Fund for the fiscal year?

Harmony NFP received the following during Year 1:<br/>- Unconditional pledge of $100,000 due in Year 3, restricted for building improvements<br/>- Conditional pledge of $75,000 that becomes unconditional when Harmony raises matching funds<br/>- Art collection valued at $50,000 donated with no restrictions<br/>- Volunteer services: 500 hours of general fundraising work valued at $15/hour<br/><br/>What amount should Harmony recognize as contribution revenue in Year 1?

Vertex Corp. has the following current assets and liabilities at year-end:<br/>- Cash: $85,000<br/>- Accounts receivable (net): $240,000<br/>- Inventory: $180,000<br/>- Prepaid expenses: $25,000<br/>- Accounts payable: $150,000<br/>- Accrued liabilities: $80,000<br/>- Current portion of long-term debt: $100,000<br/><br/>What is Vertex Corp.'s current ratio?

Lakeside City's General Fund reports the following for the fiscal year:<br/>- Property tax revenue: $5,000,000<br/>- Sales tax revenue: $1,200,000<br/>- Federal grant revenue (spent on qualifying expenditures): $800,000<br/>- Bond proceeds: $2,000,000<br/>- Transfer to Capital Projects Fund: $300,000<br/>- General government expenditures: $4,500,000<br/>- Public safety expenditures: $1,800,000<br/><br/>What is the General Fund's change in fund balance for the fiscal year?

Redwood Corp. has the following data for calculating basic and diluted EPS:<br/>- Net income: $600,000<br/>- Weighted average common shares: 150,000<br/>- 8% convertible preferred stock: $500,000 par value, convertible into 25,000 common shares<br/>- Preferred dividends declared: $40,000<br/><br/>What is Redwood's basic EPS?

Harmony NFP has the following net assets at year-end:<br/>- Net assets without donor restrictions: $800,000<br/>- Net assets with donor restrictions for programs: $300,000<br/>- Net assets with donor restrictions for capital improvements: $150,000<br/>- Net assets with donor restrictions in perpetuity (endowment): $200,000<br/><br/>How should Harmony present these amounts in its statement of financial position?

Granite Corp. has the following current assets and current liabilities:<br/>- Accounts receivable: $180,000<br/>- Inventory: $220,000<br/>- Prepaid expenses: $40,000<br/>- Accounts payable: $160,000<br/>- Accrued wages: $50,000<br/>- Current portion of long-term debt: $90,000<br/><br/>What is Granite's quick ratio (acid-test ratio)?

Horizon Corp. has the following information for calculating its debt-to-equity ratio:<br/>- Current liabilities: $400,000<br/>- Long-term debt: $1,200,000<br/>- Common stock: $800,000<br/>- Retained earnings: $600,000<br/>- Accumulated other comprehensive income: $50,000<br/><br/>What is Horizon's debt-to-equity ratio?

Dunn Corp. is preparing its Year 1 balance sheet. The following issues were identified during the review:<br/>1. A $50,000 check received from a customer on December 30, Year 1, was not recorded until January 2, Year 2.<br/>2. Inventory valued at $35,000, shipped FOB shipping point by a vendor on December 28, Year 1, was received on January 4, Year 2, and was excluded from Year 1 ending inventory.<br/>3. A $20,000 check written to a vendor on December 29, Year 1, was mailed on January 3, Year 2, but was recorded as a cash disbursement in Year 1.<br/><br/>What is the net effect of correcting these errors on Dunn's Year 1 Current Assets?

On October 1, Year 1, Host Co. approved a plan to dispose of a component of its business. The disposal meets the criteria for discontinued operations. The component was sold on January 15, Year 2. <br/>For the year ended December 31, Year 1, the component had:<br/>- Operating loss (pre-tax): $300,000<br/>- Estimated costs to sell: $50,000<br/>- Carrying amount of net assets: $2,000,000<br/>- Fair value of net assets: $1,600,000<br/><br/>The effective tax rate is 25%. What amount should Host report as the Loss from Discontinued Operations in its Year 1 Income Statement?

Selected financial information for Zeno Corp. for the year ended December 31, Year 1:<br/>- Cost of Goods Sold: $800,000<br/>- Inventory balance increase: $50,000<br/>- Accounts Payable balance decrease: $20,000<br/><br/>Using the direct method, what amount of cash was paid to suppliers for inventory in Year 1?

Parch Co. owns 80% of Scribe Inc. During Year 1, Parch sold inventory to Scribe for $500,000. The cost of the inventory to Parch was $350,000. At December 31, Year 1, 40% of this inventory remained in Scribe's warehouse. <br/>Both companies have a 30% tax rate. What amount of unrealized gross profit must be eliminated from the consolidated inventory balance at December 31, Year 1?

A company had the following equity transactions in Year 1:<br/>- Jan 1: 100,000 shares outstanding.<br/>- Apr 1: Issued 20,000 shares.<br/>- July 1: Declared and issued a 10% stock dividend.<br/>- Oct 1: Purchased 12,000 shares as treasury stock.<br/><br/>What is the weighted average number of shares outstanding (WASO) for Year 1?

A nongovernmental not-for-profit organization received a $100,000 cash contribution in Year 1 restricted by the donor for the acquisition of equipment. The equipment was purchased in Year 2. Under ASC 958, how should this contribution be reported in the Statement of Cash Flows for Year 1?

A nongovernmental NFP incurred the following expenses:<br/>- Printing of annual report: $10,000<br/>- Unsolicited mailing including an appeal for funds and educational materials (mission-related): $25,000<br/>- Salary of the CEO: $150,000<br/><br/>The mailing does NOT meet the criteria for allocating joint costs (purpose, audience, content). How should these expenses be reported by function?

Valley City's internal service fund reported net income of $50,000 for the year. This fund provides services exclusively to the city's police and fire departments (General Fund). How should this net income be reported in the government-wide Statement of Activities?

Which of the following transactions would be recorded in a Capital Projects Fund?

A city government issues $1,000,000 in general obligation bonds at 101 to finance a capital project. The premium of $10,000 is required by law to be used for debt service. How should the $10,000 premium be recorded in the Capital Projects Fund?

Under the modified accrual basis of accounting, which of the following revenues is recognized when it is both measurable and available?

A public company has 100,000 shares of common stock outstanding. It also has 10,000 shares of 6% cumulative preferred stock, $100 par, convertible into 3 shares of common stock each. Net income for the year is $500,000. No dividends were declared. The tax rate is 30%. What is the Diluted Earnings Per Share (DEPS)?

Which of the following items is required to be disclosed in Part II, Item 8 of Form 10-K filed with the SEC?

A company prepares its financial statements using the cash basis of accounting. During Year 1, it collected $200,000 from customers. <br/>- Beginning Accounts Receivable: $40,000<br/>- Ending Accounts Receivable: $60,000<br/>- Beginning Unearned Revenue: $10,000<br/>- Ending Unearned Revenue: $5,000<br/><br/>What amount of revenue should be reported on the accrual basis?

Which of the following transactions will increase a company's Quick Ratio (Acid-Test Ratio) but decrease its Current Ratio? (Assume both ratios are currently greater than 1.0)

A company has a Debt-to-Equity ratio of 1.5. It purchases a machine by signing a 5-year note payable. How does this transaction affect the Debt-to-Equity ratio and the Return on Assets (ROA) immediately?

Orion Corp. is preparing its Statement of Cash Flows for the year ended December 31, Year 1, using the indirect method. The following information is available:<br/><br/>- Net Income: $450,000<br/>- Depreciation Expense: $60,000<br/>- Amortization of Bond Discount: $4,000<br/>- Gain on Sale of Equipment: $12,000<br/>- Equity in Earnings of Investee (Net of $10,000 dividends received): $25,000<br/>- Decrease in Accounts Receivable: $15,000<br/>- Increase in Inventory: $22,000<br/>- Decrease in Accounts Payable: $8,000<br/><br/>What is the net cash provided by operating activities?

Parent Co. acquired 80% of Sub Co. on January 1, Year 1. During Year 1, Parent sold inventory to Sub for $200,000. The cost of the inventory to Parent was $140,000. At December 31, Year 1, 30% of this inventory remained in Sub's warehouse. Both companies have a 30% tax rate. What amount of unrealized gross profit must be eliminated from the consolidated inventory balance at December 31, Year 1?

A nongovernmental not-for-profit organization received a $500,000 pledge in Year 1 to be used for a specific building project in Year 2. The donor paid the pledge in Year 2, and the building was constructed in Year 2. How should this contribution be reported in the Statement of Activities for Year 1 and Year 2?

A nongovernmental not-for-profit entity reports the following cash flows for the current year:<br/><br/>- Cash received from donors restricted for long-term endowment: $100,000<br/>- Cash received from tuition fees: $400,000<br/>- Cash paid for salaries: $250,000<br/>- Cash received from interest on investments (unrestricted): $15,000<br/>- Cash paid to acquire equipment: $60,000<br/><br/>What is the net cash provided by operating activities?

A city government levies a special property tax dedicated solely to the repayment of general obligation bonds issued to finance the construction of a new city hall. In which fund should the proceeds from this tax be recorded?

Which of the following correctly describes the measurement focus and basis of accounting for the governmental fund financial statements?

Under SEC reporting requirements, which of the following items is required to be included in Part II, Item 7 of Form 10-K?

Dover Inc. had 100,000 shares of common stock outstanding throughout Year 1. Net income was $350,000. <br/>Additional data:<br/>- 10,000 options outstanding to purchase common stock at $20/share. Average market price was $25/share.<br/>- 2,000 shares of 6% $100 par cumulative convertible preferred stock. Each share converts to 5 common shares. Dividends were declared.<br/><br/>What is the Diluted Earnings Per Share (EPS) for Year 1?

A company maintains its books on a cash basis. During Year 1, the company collected $400,000 from customers. The following balances were reported:<br/><br/>- Accounts Receivable, Jan 1: $40,000<br/>- Accounts Receivable, Dec 31: $55,000<br/>- Unearned Revenue, Jan 1: $10,000<br/>- Unearned Revenue, Dec 31: $6,000<br/><br/>What is the accrual basis revenue for Year 1?

Company X has a Current Ratio of 2.0 and a Quick Ratio of 1.5. If the company uses cash to purchase inventory, what is the immediate effect on these ratios?

While reviewing the draft balance sheet, the controller discovers that a check for $10,000 issued to a vendor on December 30, Year 1, was recorded as a reduction of cash and accounts payable on that date. However, the check was not mailed until January 4, Year 2. What adjustment is required at December 31, Year 1?

On October 1, Year 1, Gamma Corp. committed to a plan to sell a component of the entity that represents a strategic shift. The component was sold on January 15, Year 2. For the year ended December 31, Year 1, the component had an operating loss of $100,000. The carrying value of the component was $2,000,000 and its fair value less costs to sell was $1,800,000. The tax rate is 25%. What amount should be reported as Discontinued Operations in the Year 1 Income Statement?

Which of the following items is classified as Other Comprehensive Income (OCI) under US GAAP?

At the beginning of Year 1, Delta Corp. had Retained Earnings of $500,000. During Year 1, Delta reported Net Income of $150,000, declared cash dividends of $40,000, and discovered a material error in Year 0 depreciation that understated Year 0 expense by $20,000 (net of tax). What is the Retained Earnings balance at December 31, Year 1?

Parent Co. owns 80% of Sub Co. Sub Co. reported Net Income of $100,000 and paid dividends of $20,000. There is no preferred stock. What amount of Net Income is attributable to the Noncontrolling Interest (NCI)?

Which of the following adjustments is required to convert the Statement of Revenues, Expenditures, and Changes in Fund Balances of governmental funds to the Government-Wide Statement of Activities?

A nongovernmental not-for-profit entity incurs the following expenses:<br/>- Counseling services provided to indigent patients: $100,000<br/>- Fundraising mail campaign: $20,000<br/>- Management and general administrative staff salaries: $30,000<br/>- Cost of pharmacy drugs sold to patients: $50,000<br/><br/>What amount should be reported as Program Services expenses?

On December 1, Year 1, a US company purchased goods from a European supplier for 100,000 Euros, payable on February 1, Year 2. <br/>Exchange rates:<br/>Dec 1: 1 Euro = $1.10<br/>Dec 31: 1 Euro = $1.12<br/>Feb 1: 1 Euro = $1.08<br/><br/>What is the Foreign Currency Transaction Gain/Loss reported in Year 1 Net Income?

Which of the following describes the 'Component of the Entity' concept for Discontinued Operations?

Vanguard Corp. reported net income of $750,000 for the current year. Relevant balance sheet account changes and supplemental data are as follows:<br/><br/>- Accounts Receivable: Increased by $40,000<br/>- Allowance for Credit Losses: Decreased by $5,000 (Write-offs: $15,000; Bad Debt Expense: $10,000)<br/>- Inventory: Decreased by $25,000<br/>- Accounts Payable: Decreased by $15,000<br/>- Bond Discount: Amortization of $3,000<br/>- Deferred Tax Liability: Increased by $12,000<br/>- Unrealized Gain on AFS Debt Securities (OCI): $8,000<br/><br/>What is the net cash provided by operating activities for the current year?

On January 1, Year 1, Parent Co. acquired 80% of Sub Co. for $800,000. The fair value of the noncontrolling interest was $200,000. Sub Co.'s net assets had a book value of $700,000 and a fair value of $900,000. The difference was attributable to equipment with a 10-year remaining life. <br/><br/>In Year 1, Sub Co. reported net income of $100,000 and paid dividends of $20,000. Parent Co. reported separate net income of $500,000 (excluding investment income). <br/><br/>What is the Consolidated Net Income attributable to Parent Co. for Year 1?

A nongovernmental not-for-profit organization received the following contributions during Year 1:<br/><br/>1. $50,000 cash restricted by the donor for the purchase of equipment. The equipment was purchased in January Year 2.<br/>2. $20,000 cash restricted by the donor for a specific summer camp program. The program was held in July Year 1.<br/>3. A pledge of $10,000 to be received in Year 2, with no other donor restrictions.<br/><br/>What amount should be reported as an increase in net assets *without* donor restrictions for Year 1?

City of Oakville issued $2,000,000 in general obligation bonds at 101 to finance the construction of a new police station. The premium was transferred to the Debt Service Fund. How should the Capital Projects Fund report these events?

TechSol Inc. has 100,000 shares of common stock outstanding throughout Year 1. Net income was $400,000. The company also had the following instruments outstanding all year:<br/><br/>- 10,000 shares of 6% Cumulative Preferred Stock, $100 par. Dividends were NOT declared.<br/>- 5,000 stock options with an exercise price of $20. The average market price was $25.<br/><br/>What is the Diluted Earnings Per Share (EPS) for Year 1?

A company prepares its financial statements using the cash basis of accounting. During Year 1, it collected $450,000 from customers. The following balances were reported:<br/><br/>- Accounts Receivable: Jan 1: $20,000 | Dec 31: $35,000<br/>- Unearned Revenue: Jan 1: $5,000 | Dec 31: $2,000<br/><br/>What amount of Revenue should be reported on the accrual basis income statement?

Orion Corp. is analyzing its liquidity. Current Assets are $500,000 (including $100,000 inventory and $20,000 prepaid expenses) and Current Liabilities are $250,000. <br/><br/>Orion pays $50,000 cash to retire a short-term note payable. What is the effect on the Current Ratio and the Quick Ratio?

On September 1, Year 1, Prism Inc. committed to a plan to sell a component that represents a strategic shift and qualifies as a discontinued operation. The carrying value of the component was $4,000,000. The fair value less costs to sell was $3,200,000. <br/><br/>The component had an operating loss of $300,000 from Jan 1 to Dec 31, Year 1. The tax rate is 25%. <br/><br/>What amount should Prism report as 'Loss from Discontinued Operations' in its Year 1 Income Statement?

Which of the following items is EXCLUDED from Other Comprehensive Income (OCI)?

Under GASB standards, which of the following is a required financial statement for a Fiduciary Fund?

Regarding the Statement of Cash Flows for a Proprietary Fund (Governmental Accounting), which of the following statements is TRUE?

On January 1, Year 1, Parent Co. sold land to its subsidiary, Sub Co., for $150,000. The land originally cost Parent $100,000. Sub Co. still holds the land at December 31, Year 2. <br/><br/>What is the required elimination entry regarding this land for the Year 2 consolidated financial statements?

Government-Wide Financial Statements are prepared using which measurement focus and basis of accounting?

Which of the following is a required disclosure for a company reporting under US GAAP?

Under GASB, which fund would account for the activities of a municipal motor pool that charges other city departments for vehicle services on a cost-reimbursement basis?

Which of the following is a component of 'Net Position' in the government-wide Statement of Net Position?

A Not-for-Profit organization incurs expenses for a fundraising dinner. The dinner cost $10,000. It generated $25,000 in ticket sales. The fair value of the dinner provided to attendees was $8,000. <br/><br/>How should the $10,000 cost be reported?

On December 1, Year 1, US Corp. sells goods to a French customer for 100,000 Euros, due on January 30, Year 2. <br/>Exchange Rates:<br/>- Dec 1: 1 Euro = $1.10<br/>- Dec 31: 1 Euro = $1.08<br/>- Jan 30: 1 Euro = $1.12<br/><br/>What is the Foreign Currency Transaction Gain or Loss reported in US Corp's Year 1 Income Statement?

Which of the following is a disclosure requirement for 'Concentrations' (Risks and Uncertainties)?