In which of the following areas does the IASB allow firms to choose between two acceptable treatments?
Measuring property, plant, and equipment subsequent to acquisition.
Which of the following could explain why accounting is more conservative in some countries than in others?
Published financial statements are the basis for taxation.
Which of the following is not a reason for establishing international accounting standards?
Demand in the United States is heavy for an alternative to U.S. generally accepted accounting principles.
Under the "condorsement" framework suggested by the SEC, which of the following is most likely:
The FASB would participate in developing new IFRSs and then adopt them as part of U.S. GAAP.
Which companies are required to provide a U.S. GAAP reconciliation in their annual report filed with the SEC?
Foreign companies listed on a U.S. securities exchange that use something other than U.S. GAAP or IFRS in preparing financial statements.
Which of the following statements is correct with respect to the IFRS accounting policy hierarchy in situations where a specifically relevant IASB standard dealing with an accounting issue does not exist?
The IASB Framework takes precedence over standards developed by standard-setting bodies in other countries that deal with the specific accounting issue.
According to the IASB, IFRS are composed of
International financial reporting standards issued by the IASB and international accounting standards issued by the IASC.
Which of the following countries will be using IFRS?
All of the above.
Brazil.
Canada.
Mexico.
Which of the following statements is true for a foreign company that is registered with the U.S. SEC to be able to list its stock on the New York Stock Exchange?
The company may file an annual report with the SEC that is prepared in accordance with IFRS but need not also provide a reconciliation of IFRS to U.S. GAAP.
Which of the following does not accurately describe a requirement that a company must fulfill when adopting IFRS for the first time?
The company must prepare an opening IFRS balance sheet at the beginning of the year for which the company is preparing its first set of IFRS financial statements.
Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct?
When an asset is revalued, the entire class of property, plant, and equipment (such as Land) to which that asset belongs must be revalued.
Which of the following is not a problem caused by differences in financial reporting practices across countries?
Firms face double taxation on income earned by foreign operations.
IAS 1, "Presentation of Financial Statements," does not provide guidance with respect to which of the following?
The importance of prudence in preparing financial statements.
What is the so-called Norwalk Agreement?
An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future.
What is a prospectus?
The first part of a registration statement that a company must furnish to all potential buyers of a new security.
The Securities Exchange Act of 1934
Regulates the public trading of previously issued securities through brokers and exchanges.
What does the term incorporation by reference mean?
Filing information with the SEC by indicating that the information is already available in anotady available in another document.
What is a registration statement?
A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public.
Which of the following is a requirement of the Sarbanes-Oxley Act of 2002?
A monetary fee assessed on organizations issuing securities.
What was the significance of the controversy in 1977 over the appropriate accounting principles to be used by oil- and gas-producing companies?
The SEC overruled the FASB on its handling of this matter.
Which of the following is not correct with regard to the Public Company Accounting Oversight Board?
The board members must be appointed by Congress.
What is a shelf registration?
A registration process for large companies that allows them to offer securities over a period of time without seeking additional approval by the SEC.
What is a letter of comments?
A letter the SEC sends to a company indicating needed changes or clarifications in a registration statement.
What is the purpose of Regulation S-K?
Establishes required disclosure of nonfinancial information with the SEC.
Which of the following is a registration statement used by large companies that already have a significant following in the stock market?
Form S-3.
What is the difference between Regulation S-K and Regulation S-X?
Regulation S-K establishes REGULATIONS for nonfinancial information filed with the SEC whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings.
Which of the following is not a way by which the Sarbanes-Oxley Act attempts to ensure auditor independence from an audit client?
Audit fees must be approved by the Public Company Accounting Oversight Board.
Which of the following is not exempt from registration with the SEC under the Securities Act of 1933?
A public offering of no more than $5.9 million.
Which of the following statements is true?
The Securities Act of 1933 regulates the initial offering of securities by a company.
Which of the following is usually not filed with the SEC on a regular periodic basis?
A prospectus.
What is EDGAR?
A system designed by the SEC to allow electronic filings.
Which of the following must be provided to every potential buyer of a new security?
prospectus.
When does the liquidation basis of accounting first have to be applied to financial statements of a liquidating entity to be viewed as in conformity with U.S. GAAP?
When liquidation is imminent.
What is a debtor in possession?
The ownership of an insolvent company that continues to control the organization during a bankruptcy reorganization.
Which of the following is not an expected function of a bankruptcy trustee?
Filing a plan of reorganization.
Which of the following is necessary for a company to use fresh start accounting?
The original owners must hold less than 50 percent of the stock of the company when it emerges from bankruptcy.
What is a cram down?
The bankruptcy court's confirmation of a reorganization even though a class of creditors or stockholders did not accept it.
Which of the following is not a reorganization item for purposes of reporting a company's income statement during a Chapter 11 bankruptcy?
Interest expense.
How are anticipated administrative expenses reported on a statement of financial affairs?
As a liability with priority.
The Jackston Company is to be liquidated as a result of bankruptcy. Until the liquidation occurs, on what basis are its assets reported?
Net realizable value.
Which of the following is the minimum limitation necessary for filing an involuntary bankruptcy petition in connection with a company that has 57 unsecured creditors?
The signature of three creditors to whom the debtor owes at least $15,325 in unsecured debt.
On a statement of financial affairs, how are liabilities classified?
Secured and unsecured.
An involuntary bankruptcy petition must be filed by
Unsecured creditors with total debts of at least $15,325.
If the reorganization value of a company emerging from bankruptcy is larger than the fair values that can be assigned to specific assets, what accounting is made of the difference?
The difference is capitalized.
On a balance sheet prepared for a company during its reorganization, at what balance are liabilities reported?
At the expected amount of the allowed claims.
The England Company has a debt to a bank of $55,000. The company is currently being liquidated and believes that between $12,000 and $20,000 will be paid on that debt. According to the liquidation basis of accounting, what amount is reported for this liab
$55,000.
Prior to filing a voluntary Chapter 7 bankruptcy petition, Haynes Company pays a supplier $13,000 to satisfy an unsecured claim. Haynes was insolvent at the time. Subsequently, the trustee appointed to oversee this liquidation forces the return of this $1
A preference transfer has been voided.
On a balance sheet prepared for a company during its reorganization, how are liabilities reported?
As subject to compromise and not subject to compromise.
How are assets to be reported when the liquidation basis of accounting is applied?
At the estimated amount of cash to be received.
In a bankruptcy, which of the following statements is true?
A liquidation is referred to as a Chapter 7 bankruptcy, and a reorganization is referred to as a Chapter 11 bankruptcy.
What accounting is made for professional fees incurred during a bankruptcy reorganization?
They must be expensed immediately.
What is an inherent limitation of the statement of financial affairs?
Many of the amounts reported are only estimations that might prove to be inaccurate.
What financial statements must be reported when the liquidation basis of accounting is being applied?
Statement of changes in net assets in liquidation and statement of net assets in liquidation.
An order for relief
Prohibits creditors from taking action to collect from an insolvent company without court approval.
For a company emerging from bankruptcy, how are liabilities (other than deferred income taxes) reported?
At the present value of the future cash flows.
What are the objectives of the bankruptcy laws in the United States?
Distribute assets fairly and discharge honest debtors from their obligations.
Which of the following is not a liability that has priority in a liquidation?
Advertising expense incurred before the company became insolvent but not recorded until after the order of relief.
Which companies are required to provide a U.S. GAAP reconciliation in their annual report filed with the SEC?
Foreign companies listed on a U.S. securities exchange that use something other than U.S. GAAP or IFRS in preparing financial statements.
Which of the following is not a reorganization item for purposes of reporting a company's income statement during a Chapter 11 bankruptcy?
Interest expense.
Which of the following is not a reason for the popularity of partnerships as a legal form for businesses?
Partnerships can more easily generate significant amounts of capital.
How does partnership accounting differ from corporate accounting?
Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting.
Which of the following best describes the articles of partnership agreement?
The articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership's operations.
Pat, Jean Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a part
The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment.
Explanation:
Mary Ann's investment equals 1/3 of total capital ($50,000 � $150,000). However, she receives only a 1/4 interest capital b
A partnership has the following capital balances:
Arlo (50% of gains and losses) $ 120,000
Band (30%) 95,000
Carlyle (20%) 100,000
David is going to invest $105,000 into the business to acquire a 30 percent ownership interest. Goodwill is to be recorded.
$135,000.
Explanation:
Based on the new contribution, the company's implied value is $350,000 ($105,000 � 30%) which is less than the capital balances ($315,000 in original capital plus $105,000 to be invested). Thus, either the assets are overvalued or t
A partnership has the following capital balances:
Carpenter (40% of gains and losses) $ 140,000
Dane (30%) 280,000
Elkhart (30%) 340,000
Krystal is going to pay a total of $240,000 to these three partners to acquire a 25 percent ownership interest from ea
$255,000.
Explanation:
The implied value of the company is $960,000 ($240,000 � 25%). Because the current capital total is only $760,000, goodwill of $200,000 must be recognized. Krystal's investment is paid directly to the partners and does not affect th
The capital balance for Bolcar is $110,000 and for Neary is $40,000. These two partners share profits and losses 70 percent (Bolcar) and 30 percent (Neary). Kansas invests $50,000 in cash into the partnership for a 30 percent ownership. The bonus method w
$37,000.
Explanation:
Total capital is $200,000 ($110,000 + $40,000 + $50,000) after the new investment. As Kansas's portion is 30 percent, the capital balance becomes $60,000 ($200,000 � 30%). Because only $50,000 was paid, a bonus of $10,000 is taken fr
Bishop has a capital balance of $120,000 in a local partnership, and Cotton has a $90,000 balance. These two partners share profits and losses by a ratio of 60 percent to Bishop and 40 percent to Cotton. Lovett invests $60,000 in cash in the partnership f
$102,000.
Explanation:
Total capital is $270,000 ($120,000 + $90,000 + $60,000) after the new investment. However, the implied value of the business based on the new investment is $300,000 ($60,000 � 20%). Thus, goodwill of $30,000 must be recognized with
The capital balance for Messalina is $210,000 and for Romulus is $140,000. These two partners share profits and losses 60 percent (Messalina) and 40 percent (Romulus). Claudius invests $100,000 in cash in the partnership for a 20 percent ownership. The bo
$216,000, $144,000, $90,000.
Total capital is $450,000 ($210,000 + $140,000 + $100,000) after the new investment. As Claudius' portion is to be 20 percent, the new capital balance would be $90,000 ($450,000 � 20%). Because $100,000 was paid, a bonus of $1
A partnership begins its first year with the following capital balances:
Alfred, Capital $ 50,000
Bernard, Capital 60,000
Collins, Capital 70,000
The articles of partnership stipulate that profits and losses be assigned in the following manner:
� Each par
$81,700.
A partnership begins its first year of operations with the following capital balances:
Winston, Capital $ 110,000
Durham, Capital 80,000
Salem, Capital 110,000
According to the articles of partnership, all profits will be assigned as follows:
� Winston wi
$102,600.
A partnership has the following capital balances:
Allen, Capital $ 60,000
Burns, Capital 30,000
Costello, Capital 90,000
Profits and losses are split as follows: Allen (20%), Burns (30%), and Costello (50%). Costello wants to leave the partnership and is
$24,000.
Costello receives a $10,000 bonus ($100,000 less $90,000 capital balance). This bonus is deducted from the two remaining partners according to their profit and loss ratio (2:3). A 60 percent (3/5) reduction is assigned to Burns which decreases th
At year-end, the Circle City partnership has the following capital balances:
Manning, Capital $ 130,000
Gonzalez, Capital 110,000
Clark, Capital 80,000
Freeney, Capital 70,000
Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to
$145,000.
Explanation:
Clark receives an additional $10,000. Because Clark receives 20 percent of profits and losses, this allocation indicates total goodwill of $50,000.
20% of Goodwill = $10,000
Goodwill = $10,000 � 0.20 = $50,000
General Journal Debit
At year-end, the Circle City partnership has the following capital balances:
Manning, Capital $ 130,000
Gonzalez, Capital 110,000
Clark, Capital 80,000
Freeney, Capital 70,000
Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to
$126,250.
Explanation:
Under the bonus method, Clark's excess payment is deducted from the remaining partners' capital accounts according to their relative profit and loss ratios, 3:3:2. Manning's balance is then $126,250 = $130,000 - $3,750.
General Jour
William (40% of gains and losses) $ 220,000
Jennings (40%) 160,000
Bryan (20%) 110,000
Darrow invests $270,000 in cash for a 30 percent ownership interest. The money goes to the original partners. Goodwill is to be recorded. How much goodwill should be re
$410,000 and $270,000.
Explanation:
The implied value of the company is $900,000 ($270,000 � 30%). Because the money is going to the partners rather than into the business, the capital total is $490,000 before realigning the balances. Hence, goodwill of $
William (40% of gains and losses) $ 220,000
Jennings (40%) 160,000
Bryan (20%) 110,000
Darrow invests $250,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the trans
171,200
Explanation:
Because the money goes into the business, total capital becomes $740,000 ($490,000 + $250,000). Darrow is allotted 30 percent of this total or $222,000. Because Darrow invested $250,000, the extra $28,000 is assumed to be a bonus to t
At year-end, the Circle City partnership has the following capital balances:
Manning, Capital $ 190,000
Gonzalez, Capital 170,000
Clark, Capital 140,000
Freeney, Capital 130,000
Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides
$199,000.
Explanation:
Clark receives an additional $6,000. Because Clark receives 20 percent of profits and losses, this allocation indicates total goodwill of $30,000.
20% of Goodwill = $6,000
Goodwill = $6,000 � 0.20 = $30,000
General Journal Debit Cre
William (40% of gains and losses) $ 290,000
Jennings (40%) 240,000
Bryan (20%) 220,000
Darrow invests $330,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the trans
$242,400.
Explanation:
Because the money goes into the business, total capital becomes $1,080,000 ($750,000 + $330,000). Darrow is allotted 30 percent of this total or $324,000. Because Darrow invested $330,000, the extra $6,000 is assumed to be a bonus t
A partnership has the following capital balances:
Carpenter (50% of gains and losses) $ 100,000
Dane (25%) 200,000
Elkhart (25%) 300,000
Krystal is going to pay a total of $202,500 to these three partners to acquire a 25 percent ownership interest from ea
$189,375.
Explanation:
The implied value of the company is $810,000 ($210,000 � 25%). Because the current capital total is only $600,000, goodwill of $210,000 must be recognized. Krystal's investment is going to the partners so that it does not affect the
A partnership has the following capital balances:
Arlo (60% of gains and losses) $ 52,000
Band (20%) 60,000
Carlyle (20%) 124,000
David is going to invest $80,000 into the business to acquire a 30 percent ownership interest. Goodwill is to be recorded. Wh
$101,143.
Explanation:
Based on the new contribution, the company's implied value is $266,667 ($80,000 � 30%) which is less than the capital balances ($236,000 in original capital plus $80,000 to be invested). Thus, either the assets are overvalued or the
A partnership begins its first year of operations with the following capital balances:
Winston, Capital $ 56,000
Durham, Capital 46,000
Salem, Capital 56,000
According to the articles of partnership, all profits will be assigned as follows:
� Winston will
48,420
A partnership begins its first year with the following capital balances:
Alfred, Capital $ 40,000
Bernard, Capital 50,000
Collins, Capital 60,000
The articles of partnership stipulate that profits and losses be assigned in the following manner:
� Each par
68,000
If a partnership is liquidated, how is the final allocation of business assets made to the partners?
According to the final capital account balances.
Which of the following statements is true concerning the accounting for a partnership going through liquidation?
Gains and losses are reported directly as increases and decreases in the appropriate capital account.
During a liquidation, if a partner's capital account balance drops below zero, what should happen?
The partner with a deficit contributes enough assets to offset the deficit balance.
A local partnership is liquidating and is currently reporting the following capital balances:
Angela, capital (50% share of all profits and losses) $ 19,000
Woodrow, capital (30%) 18,000
Cassidy, capital (20%) (12,000)
Cassidy has indicated that a forthco
Explanation:
Angela, Capital Woodrow, Capital Cassidy, Capital
Reported balances $ 19,000 $ 18,000 $ (12,000)
Potential loss from Cassidy deficit (split 5/8:3/8) (7,500) (4,500) 12,000
Cash distributions $ 11,500 $ 13,500 0
A local partnership is considering possible liquidation because one of the partners (Bell) is insolvent. Capital balances at the current time are as follows. Profits and losses are divided on a 4:3:2:1 basis, respectively.
Bell, capital $ 50,000
Hardy, ca
2,000
A partnership has the following balance sheet just before final liquidation is to begin:
Cash $ 26,000 Liabilities $ 50,000
Inventory 31,000 Art, capital (40% of profits and losses) 18,000
Other assets 62,000 Raymond, capital (30%) 25,000
Darby, capital (
0 to Art, $1,500 to Raymond, $2,500 to Darby.
What is a predistribution plan?
A guide for the cash distributions to partners during a liquidation.
A partnership has the following capital balances: A (20% of profits and losses) = $100,000; B (30% of profits and losses) = $120,000; C (50% of profits and losses) = $180,000. If the partnership is to be liquidated and $30,000 becomes immediately availabl
$24,000 to A, $6,000 to B, 0 to C.
A partnership is currently holding $400,000 in assets and $234,000 in liabilities. The partnership is to be liquidated, and $20,000 is the best estimation of the expenses that will be incurred during this process. The four partners share profits and losse
$17,000.
Carney, Pierce, Menton, and Hoehn are partners who share profits and losses on a 4:3:2:1 basis, respectively. They are beginning to liquidate the business. At the start of this process, capital balances are as follows:
Carney, capital $ 60,000
Pierce, cap
The first available $3,000 will go to Menton.
A local partnership is considering possible liquidation because one of the partners (Bell) is insolvent. Capital balances at the current time are as follows. Profits and losses are divided on a 4:3:2:1 basis, respectively.
Bell, capital $ 81,000
Hardy, ca
4,500
The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet:
Picture
Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000.
If the no
$40,000.
Non-Cash Assets BV $434,000 - Cash Received $234,000 = Loss on Non-Cash Assets ($200,000) � 20% = Loss to Bartle ($40,000)
Harding, Jones, and Sandy is in the process of liquidating and the partners have the following capital balances; $24,000, $24,000, and ($9,000) respectively. The partners share all profits and losses 16%, 48%, and 36%, respectively. Sandy has indicated th
Harding = $72,000; Jones = $32,000; Sandy = $52,000 beginning balances with Losses Shared 16:48:36
First eliminate Sandy's negative capital loss to Harding & Jones
Losses shared 16/64 & 48/64 or 25% & 75%
Harding = $24,000 - ($9,000 � 25%) $2,250 = $21,75
Which of the following could result in the termination and liquidation of a partnership?
1) Partners are incompatible and choose to cease operations.
2) There are excessive losses that are expected to continue.
3) Retirement of a partner.
1, 2, 3