Chapter 4

1. According to SFAS 160, Non-controlling Interests and Consolidated Financial Statements, a non-controlling interest is most likely to be shown as part of equity under the Economic unit concept 24. Under the economic unit concept, which of the following statements is true about consolidated financial statements? The accounting emphasis in preparing consolidated financial statements is placed on the business combination being formed 25. Under the proportionate consolidation concept, which of the following statements is true about consolidated financial statements? The proportionate consolidation concept is no longer allowed according to SFAS 141(R) 29. When a parent uses the partial equity method throughout the year to account for investment in a subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet? Parent company net income will be less than controlling interest in consolidated net income when fair value acquired exceeds book value 30. In a step acquisition, using the economic unit concept per SFAS 141(R), which of the following statements is false? Income from subsidiary is computed for the entire year for a new purchase acquired during the year 31. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock and using the economic unit concept? The book value of the subsidiary will increase 32. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? Income from subsidiary is recognized from date of acquisition to year-end 33. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true in the presentation of consolidated financial statements? Purchased pre-acquisition earnings are ignored on the consolidated income statement 34. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required 35. All of the following statements regarding the sale of subsidiary shares are true except which of the following? The use of specific LIFO assumption is acceptable 36. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital 37. When using the acquisition method for accounting for business combinations, all of the following statements are false regarding the sale of subsidiary sharesexcept If control ceases to exist and significant influence ceases to exist, the difference between selling price and carrying value is recorded as a realized gain or loss

Chapter 5
Strickland Company sells inventory to its parent, Carter Company, at a profit during 2009. 26. With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2009? Cost of goods sold 27. With regard to the intercompany sale, which of the following choices would be a credit entry in the consolidated worksheet for 2009? Inventory 28. With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2010? Retained earnings 29. With regard to the intercompany sale, which of the following choices would be a credit entry in the consolidated worksheet for 2010? Cost of goods sold Walsh Company sells inventory to its subsidiary, Fisher Company, at a profit during 2009. Walsh uses the equity method to account for its investment in Fisher. 30. With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2009? Cost of goods sold 31. With regard to the intercompany sale, which of the following choices would be a credit entry in the consolidated worksheet for 2009? Inventory 32. With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2010? Investment in Fisher Company 33. With regard to the intercompany sale, which of the following choices would be a credit entry in the consolidated worksheet for 2010? Cost of goods sold 34. When comparing the difference between an upstream and downstream transfer of inventory and using the initial value method, which of the following statements is true? Income from subsidiary will be lower by the amount of the ending inventory profit multiplied by the noncontrolling interest percentage for downstream transfers 35. When comparing the difference between an upstream and downstream transfer of inventory and using the initial value method, which of the following statements is true? Income from subsidiary will be higher by the amount of the beginning inventory profits multiplied by the non-controlling interest percentage for upstream transfers 36. Which of the following statements is true regarding inventory transfers between a parent and its subsidiary, using the initial value method? Profits on upstream transfers associated with the parent's ending inventory are subtracted from subsidiary net income for the current year in the calculation of parent's income from subsidiary. These year-end deferrals are then added to next year's subsidiary net income in the calculation of parent's income from subsidiary. This procedure is appropriate even if all the intercompany transactions unsold at year-end may not be sold in the next year

37. Which of the following statements is true regarding an intercompany sale of land? A loss and a gain are always eliminated on a consolidated income statement 38. Parent sold land to its subsidiary for a gain in 2007. The subsidiary sold the land externally for a gain in 2010. Which of the following statements is true? A gain will be reported on the consolidated income statement in 2010 39. An intercompany sale took place whereby the transfer price exceeded the book value of a depreciable asset. A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method 40. An intercompany sale took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year following the sale? A worksheet entry is made with a credit to retained earnings for an upstream transfer 41. An intercompany sale took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year following the sale? A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method 42. Which of the following statements is true concerning an intercompany transfer of a depreciable asset? Non-controlling interest in subsidiary's net income is affected only when the transfer is upstream

Chapter 6
1. On January 1, 2009, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620 and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2009? The difference is treated as a gain from the extinguishment of the debt 2. Safire Corp. recently acquired $500,000 of the bonds of Regency Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intercompany transaction, to whom would the loss be attributed? To Safire because Safire is the controlling party in the business combination 3. Which one of the following characteristics of preferred stock would make the stock a dilutive security for earnings per share? The preferred stock is convertible 4. Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows? Cash flows from financing activities 5. Where do dividends paid by a subsidiary to the parent company appear on a consolidated statement of cash flows? They do not appear on the consolidated statement of cash flows 6. Where do intercompany sales of inventory appear on a consolidated statement of cash flows? They do not appear on the consolidated statement of cash flows 7. How do intercompany sales of inventory affect the preparation of a consolidated statement of cash flows? Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required 8. How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or

warrants? Consolidated net income divided by parent's number of shares outstanding 25. Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition? Any gain or loss is recognized on a consolidated income statement 26. Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer? Consolidated net income is not affected by a gain or loss on bond transaction 27. What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method? Non-controlling interest in net income of subsidiary would be added to net income 28. Which of the following statements is true for a consolidated statement of cash flows? All of parent's dividends and non-controlling interest of subsidiary's dividends are deducted as a financing activity 29. In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true? Parent company earnings per share equals consolidated earnings per share when the equity method is used 30. If a subsidiary issues additional common shares at below book value to outsiders, which of the following statements is true? The parent's additional paid-in capital will be decreased 31. If a parent acquires all of the additional common shares issued by its subsidiary at greater than book value, which of the following statements is true? The investment in subsidiary will increase 32. If a subsidiary reacquires its outstanding shares from outside ownership for more than book value, which of the following statements is true? Additional paid-in capital on the parent company's books will decrease 33. If a subsidiary issues a stock dividend, which of the following statements is true? No adjustment is necessary 75. How do subsidiary stock warrants outstanding affect consolidated earnings per share? They will only be included in diluted earnings per share if they are dilutive 76. A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. Which of the following statements is true? Since the shares were sold for more than book value, the parent's investment account must be increased 77. A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true? Since the shares were sold for less than book value, the parent's investment account must be decreased 78. A parent company owns a 70 percent interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares for $27 per share and the parent buys its 70 percent interest in the new shares. Which of the following statements is true? Since the shares were sold for book value and the parent bought 70 percent of the shares, the parent's

investment account is not affected except for the price of the new shares

Chapter 9
19. A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true? If the foreign currency appreciates, a foreign exchange gain will result 20. A U.S. company buys merchandise from a foreign company denominated in U.S. dollars. Which of the following statements is true? No foreign exchange gain or loss will result 21. A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true? If the foreign currency appreciates, a foreign exchange loss will result 22. SFAS 133 provides guidance for hedges of all the following sources of foreign exchange risk except Deferred foreign currency gains and losses 23. All of the following data may be needed to determine the fair value of a forward contract at any point in time except The future spot rate 24. A forward contract may be used for which of the following? 1) A fair value hedge of an asset. 2) A cash flow hedge of an asset. 3) A fair value hedge of a liability. 4) A cash flow hedge of a liability. 1, 2, 3 and 4 25. A company has a discount on a forward contract for an asset. How is the discount recognized over the life of the contract? It is charged to accumulated other comprehensive income 26. A speculative derivative would be similar to which type of hedge? An option designated as a fair value hedge 27. Which of the following statements is true concerning hedge accounting? Hedges of foreign currency firm commitments are used for future sales or purchases 28. All of the following hedges are used for future purchase/sale transactions except Forward contracts used to hedge a foreign currency denominated liability 33. Which of the following approaches is used in the United States in accounting for foreign currency transactions? Two-transaction perspective; accrue foreign exchange gains and losses 34. When a U.S. company purchases parts from a foreign company, which of the following will result in no foreign exchange gain or loss? The transaction is denominated in U.S. dollars 44. Williams, Inc., a U.S. company, has a Japanese yen account receivable resulting from an export sale on March 1 to a customer in Japan. The exporter signed a forward contract on March 1 to sell yen and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.0094 and the forward rate was $.0095. Which of the following did the U.S. exporter report in net income?

Premium revenue 45. Larson Company, a U.S. company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India. Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.023 and the forward rate was $.021. Which of the following did the U.S. exporter report in net income? Premium revenue