problem 1: Which of the following statements is true?
a) A parent company’s consolidated financial statements would the same regardless of whether it uses the cost or equity method to recover the subsidiary.
b) A parent company that uses the cost method will have consolidated financial statements that differ from those using the equity method.
c) The consolidated net income for a parent company that used the cost method would be higher than if the company used the equity method.
d) The consolidated net income for a parent company that used the cost method would be lower than if the company used the equity method.
problem 2: Intercompany profits in assets are recognized in the consolidated financial statements when:
a) The contract for the sale of the assets is signed between the parent and subsidiary companies.
b) The assets have been transferred between the parent and subsidiary companies.
c) The assets have been solid to third parties.
d) The intercompany sale is eliminated in the consolidation process.
problem 3: A private enterprise has a dozen subsidiaries. Under GAAP for private enterprises, the enterprise must:
a) Consolidate all the subsidiaries.
b) Report its subsidiaries using either the cost or equity method.
c) Report its subsidiaries at fair value.
d) Either consolidate or report its subsidiaries using the cost or equity method or at fair value.
problem 4: Well Co. incorporated a new company, Swell Ltd., and immediately purchased all of its shares. In the preparation of the consolidated financial statements at the acquisition date, there should be
a) Acquisition differentials and goodwill.
b) Acquisition differentials, but no goodwill.
c) No acquisition differentials, but there should be goodwill.
d) No acquisition differentials or goodwill.
problem 5: At the date of acquisition, Eliott Ltd. expected that, based on share prices, it would have to provide contingent consideration within the next two years. At the time of acquisition, Eliott classified the contingent consideration as a liability. The share prices did not perform as expected and the contingent consideration did not have to be paid. At the end of the second year, Eliott should debit the liability for the contingent consideration and debit the
a) Investment in subsidiary account.
b) Gain from contingent consideration account.
c) Loss from contingent consideration account.
d) Retained earnings.
problem 6: In accounting for property, plant, and equipment, consolidation adjustments to eliminate intercompany transactions and unrealized profits will differ depending on whether the reporting entity:
a) Uses IFRS or GAAP in 2011.
b) Uses the cost model or the revaluation model.
c) Uses a manual system or computer software for consolidation.
d) Has significant influence or control.
problem 7: When a loss is recognized on intercompany transactions, what must be done for consolidation?
a) The loss should be eliminated.
b) The intercompany transaction should be eliminated.
c) The loss and its tax effect should be eliminated.
d) The intercompany transaction should be eliminated, and the assets transaction should be assessed for impairment.
problem 8: Under IFRS, when an impairment loss occurs, the asset should be written at:
a) The higher of the fair value less disposal costs and value in use.
b) The lower of the fair value less disposal costs and value in use.
c) The fair value less disposal costs.
d) The value in use.
problem 9: Which of the given is true under IFRS?
a) Push-down accounting is allowed for all publicly accountable companies.
b) Push-down accounting is allowed for publicly accountable companies wholly owned subsidiaries.
c) Push-down accounting is allowed for publicly accountable companies with at least a 90% ownership in their subsidiaries.
d) Push-down accounting is not allowed for publicly accountable companies.
problem 20: Which of the given statements about control is true?
a) Company A can control Company B only if it acquires all.
b) Company A must acquire at least 50% of Company B’s to have control.
c) Company A must acquire at least 50% of Company B’s shares for it to have control.
d) Company A can have control of Company B, even if its own shares, as long as it has the power to determine B’s strategy financing policies.