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ADVANCED FINANCIAL ACCOUNTING EXAM 3|2025- 2026
ACTUAL QUESTIONS AND ANSWERS|RATED A+
A foreign subsidiary of the Bart Corporation has certain balance sheet accounts on December 31, 20X2. Information relating to these accounts in U.S. dollars is as follows: Restated at Current Rates Historical Rates Marketable (AFS and Trading) Securities $ 75,000 $ 85, Inventories, carried at average cost $ $ 600,000 $ 700, Refundable Deposits $ 25,000 $ 30, Goodwill $ 55,000 $ 70, Total $ 755,000 $ 885, What total should be included in Bart's balance sheet on December 31, 20X2, as a result of the preceding information? Foreign Currency is Functional Currency a.) $755, b.) $880, c.) $780, d.) $870, U.S. Dollar is Functional Currency a.) $755, b.) $780, c.) $880, d.) $870,000 – ANSWER a .) $755,000, d.) $870, A foreign subsidiary's functional currency is its local currency, which has not experienced significant inflation. The weighted-average exchange rate for the current year would be the appropriate exchange rate for translating
Sales to Customers Wages Expense a.) No. No. b.) Yes. Yes. c.) No. Yes. d.) Yes. No. ANSWER - b.) Yes, Yes. A wholly owned foreign subsidiary of Nick Inc. has certain expense accounts for the year ended December 31, 20X4, stated in local currency units (LCU) as follows: LCU Depreciation of Equipment (related assets were purchased January 1, 20X2) 120,000 Provision for Uncollectible Accounts 80, Rent 200, The exchange rates at various dates were as follows: Dollar Equivalent of 1 LCU January 1, 20X2 0.50 December 31, 20X4 0.40 Average, 20X
What total dollar amount should be included in Nick's income statement to reflect the preceding expenses for the year ended December 31, 20X4? Foreign Currency is Functional Currency U.S. Dollar is Functional Currency a.) $183, b.) $176, c.) $168, d.) $160, a.) $168, b.) $160, c.) $176, d.) $183,200 ANSWER - b.) $176,000, d.) $183,
What amount of the net foreign exchange loss in computing net income should be reported in Bar's 20X2 consolidated income statement? LCU is Functional Currency a.) $17, b.) $ 6, c.) $13, d.) $10, U.S. Dollar is Functional Currency a.) $ 6, b.) $17, c.) $10, d.) $13,000 - ANSWER a .) $17,000, c.) $10, Cash $ 20, Other Assets 180, $ 200, Liabilities $ 50, Alex, Capital (40%) 37,000 Betty, Capital (40%) 65,000 Claire, Capital (20%) 48, Total Liabilities and Capital $ 200, If A is the total capital of a partnership before the admission of a new partner, B is the total capital of the partnership after the new partner's investment, C is the amount of the new partner's investment, and D is the amount of capital credit to the new partner, then there is a.) Neither bonus nor goodwill if B = A - C and D > C. b.) Goodwill to the new partner if B > ( A + C ) and D < C. c.) A bonus to the new partner if B = A + C and D < C. d.) Goodwill to the old partners if B > ( A + C ) and D = C. - ANSWER d.) Goodwill to the old partners if B > ( A + C ) and D = C. Cash $ 20, Other Assets 180, $ 200, Liabilities $ 50,
Alex, Capital (40%) 37,000 Betty, Capital (40%) 65,000 Claire, Capital (20%) 48, Total Liabilities and Capital $ 200, At December 31, Rod and Sheri are partners with capital balances of $40,000 and $20,000, and they share profits and losses in the ratio of 2:1, respectively. On this date, Pete invests $17,000 in cash for a 20 percent interest in the new partnership's capital and profit. Assuming that the bonus method is used, how much should be credited to Pete's capital account on December 31? a.) $15, b.) $17, c.) $15, d.) $12,000 - a.) $15, Cash $ 20, Other Assets 180, $ 200, Liabilities $ 50, Alex, Capital (40%) 37,000 Betty, Capital (40%) 65,000 Claire, Capital (20%) 48, Total Liabilities and Capital $ 200, Fred and Ralph are partners who share profits and losses in the ratio of 7:3, respectively. Their respective capital accounts are as follows: Fred $ 35, Ralph 30, They agreed to admit Lute as a partner with a one-third interest in the capital and profits and losses upon an investment of $25,000. The new partnership will begin with total capital of $90,000. Immediately after Lute's admission, what are the capital balances of Fred, Ralph, and Lute, respectively? a.) $31,500, $28,500, $30, b.) $30,000, $30,000, $30, c.) $31,667, $28,333, $30,
Select the correct answer for each of the following questions.
- If the assets are fairly valued on this balance sheet and the partnership wishes to admit Denise as a new one-sixth-interest partner without recording goodwill or bonus, Denise should contribute cash or other assets of a.) $40,000. b.) $30,000. c.) $36,000. d.) $33,333. - b.) $30,000. Cash $ 20, Other Assets 180, $ 200, Liabilities $ 50, Alex, Capital (40%) 37,000 Betty, Capital (40%) 65,000 Claire, Capital (20%) 48, Total Liabilities and Capital $ 200, Boris and Richard are partners who share profits and losses in the ratio of 6:4. On May 1, 20X9, their respective capital accounts were as follows: Boris $ 60, Richard 50, On that date, Lisa was admitted as a partner with a one-third interest in capital and profits for an investment of $40,000. The new partnership began with a total capital of $150,000. Immediately after Lisa's admission, Boris's capital should be a.) $56,667. b.) $60,000. c.) $50,000. d.) $54,000. - d.) $54,000. Cash $ 20, Other Assets 180, $ 200,
Liabilities $ 50, Alex, Capital (40%) 37,000 Betty, Capital (40%) 65,000 Claire, Capital (20%) 48, Total Liabilities and Capital $ 200, (Note: Figures shown parenthetically reflect agreed-upon profit and loss-sharing percentages.) Select the correct answer for each of the following questions.
- If assets on the initial balance sheet are fairly valued, Alex and Betty give their consent, and Denise pays Claire $51,000 for her interest, the revised capital balances of the partners would be a.) Alex, $37,000; Betty, $65,000; Denise, $48,000. b.) Alex, $38,500; Betty, $66,500; Denise, $48,000. c.) Alex, $38,000; Betty, $66,500; Denise, $51,000. d.) Alex, $37,000; Betty, $65,000; Denise, $51,000. - a.) Alex, $37,000; Betty, $65,000; Denise, $48,000. Cash $ 20, Other Assets 180, $ 200, Liabilities $ 50, Alex, Capital (40%) 37,000 Betty, Capital (40%) 65,000 Claire, Capital (20%) 48, Total Liabilities and Capital $ 200, (Note: Figures shown parenthetically reflect agreed-upon profit and loss-sharing percentages.) Select the correct answer for each of the following questions.
- On December 31, 20X4, Alan and Dave are partners with capital balances of $80,000 and $40,000, and they share profit and losses in the ratio of 2:1, respectively. On this date, Scott invests $36,000 cash for a 20 percent interest in the capital and profit of the
60 - day rate 1.63 1. In its December 31, 20X5, income statement, what amount should Cobb report as a foreign exchange gain? a.) $ b.) $12, c.) $9, d.) $6,000 - c.) $9, credit-balancing item resulting from the process of restating a foreign entity's financial statement from the local currency unit to U.S. dollars should be included as a(an) Foreign Currency is Functional Currency a.) Deferred credit. b.) Separate component of stockholders' equity. c.) Component of income from continuing operations. d.) Extraordinary item. U.S. Dollar is Functional Currency a.) Deferred credit. b.) Extraordinary item. c.) Separate component of stockholders' equity. d.) Component of income from continuing operations. - b.) Separate component of stockholders' equity, d.) Component of income from continuing operations. Dale Inc., a U.S. company, bought machine parts from a German company on March 1, 20X1, for €30,000, when the spot rate for euros was $0.4895. Dale's year-end was March 31, when the spot rate was $0.4845. On April 20, 20X1, Dale paid the liability with €30,000 acquired at a rate of $0.4945. Dale's income statements should report a foreign exchange gain or loss for the years ended March 31, 20X1 and 20X2 of a.) $0 $ b.) $0 $150 Loss c.) $150 Loss $ d.) $150 Gain $300 Loss - d.) $150 Gain $300 Loss
Gate Inc. had a $30,000 credit adjustment for the year ended December 31, 20X2, from restating its foreign subsidiary's accounts from their local currency units into U.S. dollars. Additionally, Gate had a receivable from a foreign customer payable in the customer's local currency. On December 31, 20X1, this receivable for 200,000 local currency units (LCU) was correctly included in Gate's balance sheet at $110,000. When the receivable was collected on February 15, 20X2, the U.S. dollar equivalent was $120,000. In Gate's 20X2 consolidated income statement, how much should be reported as foreign exchange gain in computing net income? LCU is Functional Currency a.) $30, b.) $10, c.) $ d.) $40,000. U.S. Dollar is Functional Currency a.) $40, b.) $30, c.) $10, d.) $0 - b.) $10,000, a.) $40, If 1 Canadian dollar can be exchanged for 90 cents of U.S. currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in Canadian dollars? a.) 1/. b.) 1.10/ c.) 1/1. d.) 0.90/1 - a.) 1/. In a partnership liquidation, the final cash distribution to the partners should be made in accordance with the a.) Ratio of capital contributions less withdrawals by the partners. b.) Ratio of the capital contributions by the partners. c.) Partners' profit and loss-sharing ratio.
c.) Foreign Currency Units 300, Deferred Exchange Loss 15, Accounts Receivable 315, d.) Foreign Currency Units 315, Accounts Receivable 315,000 - b.) Foreign Currency Units 300, Exchange Loss 15, Accounts Receivable 315, n April 8, 20X3, Trul Corporation purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. Trul paid the bill in full on March 1, 20X4, when the spot rate was $0.45. The spot rate was $0.60 on April 8, 20X3, and was $0. on December 31, 20X3. For the year ended December 31, 20X4, Trul should report a transaction gain of a.) $1,500. b.) $1,000. c.) $500. d.) $0. - b.) $1,000. On January 1, 20X1, Pat Company formed a foreign subsidiary. On February 15, 20X1, Pat's subsidiary purchased 100,000 local currency units (LCU) of inventory. Of the original inventory purchased on February 15, 20X1, 25,000 LCU made up the entire inventory on December 31, 20X1. The exchange rates were 2.2 LCU = $1 from January 1, 20X1, to June 30, 20X1, and 2 LCU = $1 from July 1, 20X1, to December 31, 20X1. The December 31, 20X1, inventory balance for Pat's foreign subsidiary should be restated in U.S. dollars in the amount of (Round your final answers to nearest dollar amount.) Foreign Currency is Functional Currency a.) $10,500. b.) $12,500. c.) $11,364. d.) $11,905. U.S. Dollar is Functional Currency a.) $12,500.
b.) $10,500. c.) $11,364. d.) $11,905. - b.) $12,500, c.) $11,364. On January 1, 20X7, the partners of Casey, Dithers, and Edwards, who share profits and losses in the ratio of 5:3:2, decided to liquidate their partnership. On this date, its condensed balance sheet was as follows: Assets Cash $ 50,000 Inventory 250,000 Total Assets $300, Liabilities and Equities Liabiliites $ 60,000 Casey, Capital 80,000 Dithers, Capital 90,000 Edwards, Capital 70,000 Total L & E $ 300, On January 15, 20X7, the first cash sale of other assets with a carrying amount of $150,000 realized $120,000. Safe installment payments to the partners were made on the same date. How much cash should be distributed to each partner? C D E A 15,000 51,000 $44, B 40,000 45,000 35, C 55,000 33,000 22, D 60,000 36,000 24, a.) Option A b.) Option B c.) Option C d.) Option D - a.) Option A On July 1, 20X1, Black Company lent $120,000 to a foreign supplier, evidenced by an interest- bearing note due on July 1, 20X2. The note is denominated in the borrower's currency and was equivalent to 840,000 LCUs on the loan date. The note principal was appropriately included at $140,000 in the receivables section of Black's December 31, 20X1, balance sheet. The note principal was repaid to Black on the July 1, 20X2, due date when the exchange rate was 8 LCUs to $1. In its income statement for the year ended December 31, 20X2, what amount should Black include as a foreign currency transaction gain or loss on the note principal?
b.) $8,000. c.) $1,600. d.) $9,600. - a.) $4,000. On October 1, 20X5, Stevens Company, a U.S. company, contracted to purchase foreign goods requiring payment in pesos one month after their receipt in Stevens's factory. Title to the goods passed on December 15, 20X5. The goods were still in transit on December 31, 20X5. Exchange rates were 1 dollar to 22 pesos, 20 pesos, and 21 pesos on October 1, December 15, and December 31, 20X5, respectively. Stevens should account for the exchange rate fluctuations in 20X5 as a.) A loss included in other comprehensive income. b.) A loss included in income before discontinued operations. c.) A gain included in other comprehensive income. d.) A gain included in income before discontinued operations. - d.) A gain included in income before discontinued operations. On October 2, 20X5, Louis Co., a U.S. company, purchased machinery from Stroup, a German company, with payment due on April 1, 20X6. If Louis's 20X5 operating income included no foreign exchange gain or loss, the transaction could have a.) Resulted in a loss to be included in other comprehensive income. b.) Been denominated in U.S. dollars. c.) Caused a foreign currency translation gain to be reported as a separate component of stockholders' equity. d.) Caused a foreign currency gain to be reported as a contra account against machinery. - b.) Been denominated in U.S. dollars. On September 1, 20X1, Cott Corporation received an order for equipment from a foreign customer for 300,000 LCUs when the U.S. dollar equivalent was $96,000. Cott shipped the equipment on October 15, 20X1, and billed the customer for 300,000 LCUs when the U.S. dollar equivalent was $100,000. Cott received the customer's remittance in full on November 16, 20X1, and sold the 300,000 LCUs for $105,000. In its income statement for the year ended December 31, 20X1, Cott should report a foreign exchange gain of a.) $4,000.
b.) $9,000. c.) $5,000. d.) $0. - c.) $5,000. Stees Corporation had the following foreign currency transactions during 20X2. First, it purchased merchandise from a foreign supplier on January 20, 20X2, for the U.S. dollar equivalent of $90,000. The invoice was paid on March 20, 20X2, at the U.S. dollar equivalent of $96,000. Second, on July 1, 20X2, Stees borrowed the U.S. dollar equivalent of $500,000 evidenced by a note that was payable in the lender's local currency on July 1, 20X4. On December 31, 20X2, the U.S. dollar equivalents of the principal amount and accrued interest were $520,000 and $26,000, respectively. Interest on the note is 10 percent per annum. In Stees's 20X2 income statement, what amount should be included as a foreign exchange loss? a.) $ b.) $6, c.) $21, d.) $27,000 - d.) $27, t what rates should the following balance sheet accounts in the foreign currency financial statements be restated into U.S. dollars? Foreign Currency is Functional Currency Equipment Accumulated Dep a.) Current. Current. b.) Current. Average for year. c.) Historical. Current. d.) Historical. Historical. U.S. Dollar is Functional Currency Equipment Accumulated Dep a.) Current. Current. b.) Current. Average for year. c.) Historical. Current. d.) Historical. Historical. - a.) Current. Current, d.) Historical. Historical.
Assets Cash $ 50,000 Inventory 360,000 Total Assets $410, Liabilities and Equities Accounts Payable $ 150,000 Joan, Capital 160,000 Charles, Capital 45, Thomas, Capital 55,000 Total L & E $ 410, In accounting for partnership liquidation, cash payments to partners after all creditors' claims have been satisfied but before the final cash distribution should be according to a.) The partners' relative profit and loss-sharing ratios. b.) The final balances in partner capital accounts. c.) The partners' relative share of the gain or loss on liquidations. d.) Safe payments computations. - d.) Safe payments computations. The balance sheet for the partnership of Joan, Charles, and Thomas, whose shares of profits and losses are 40, 50, and 10 percent, respectively is as follows: Assets Cash $ 50,000 Inventory 360,000 Total Assets $410, Liabilities and Equities Accounts Payable $ 150,000 Joan, Capital 160,000 Charles, Capital 45, Thomas, Capital 55,000 Total L & E $ 410, After all noncash assets have been converted into cash in the liquidation of the Adam and Kay Partnership, the ledger contains the following account balances: Debit Credit Cash $ 47, Accounts Payable $32,000 Loan Payable to Adam 15,000 Adam, Capital 7, Kay, Capital 7,
a.) $7,000 to Adam and $8,000 to Kay. b.) $8,000 to Adam and $7,000 to Kay. c.) $7,500 each to Adam and Kay. d.) $15,000 to the loan payable to Adam. - b.) $8,000 to Adam and $7,000 to Kay. The balance sheet for the partnership of Joan, Charles, and Thomas, whose shares of profits and losses are 40, 50, and 10 percent, respectively is as follows: Assets Cash $ 50,000 Inventory 360,000 Total Assets $410, Liabilities and Equities Accounts Payable $ 150,000 Joan, Capital 160,000 Charles, Capital 45, Thomas, Capital 55,000 Total L & E $ 410, F, A, S, and B are partners sharing profits and losses equally. The insolvent partnership is to be liquidated. The status of the partnership and each partner is as follows: PCB PA PL F $ (15,000 ) $ 100,000 $40,000 A (10,000 ) 30,000 60, S 20,000a 80,000 5, B 30,000a 1,000 28,000 T $25,000a a = deficit a.) From the personal assets of any of the partners for all or some of their claims. b.) From the partnership, including additional contributions from F and S. c.) From the personal assets of either F or A. d.) From the personal assets of either S or B. - b.) From the partnership, including additional contributions from F and S. The balance sheet for the partnership of Joan, Charles, and Thomas, whose shares of profits and losses are 40, 50, and 10 percent, respectively is as follows:
