Question :
41. For various reasons, a single economic entity may exist in : 1230384
41. For various reasons, a single economic entity may exist in the form of a parent and several legally separate subsidiaries, often referred to as an affiliated group. Which of the following is/are true?
A. A consolidation of the financial statements of the parent and each of its subsidiaries presents the results of operations, financial position, and cash flows of an affiliated group of companies under the control of a parent as if the group of companies composed a single entity.
B. The parent and each subsidiary are legally separate entities that operate as one centrally controlled economic entity.
C. Consolidated financial statements generally provide more useful information to the shareholders of the parent corporation than do separate financial statements for the parent and each subsidiary.
D. all of the above
E. none of the above
42. Consolidated financial statements provide more helpful information than does the equity method, because
A. they include all the assets, liabilities, revenues, and expenses of the controlled subsidiaries, not just the investment account that represents the parent’s investment in the subsidiary’s common shareholders’ equity and not just the parent’s share of the subsidiary’s net income.
B. The parent, because of its voting interest, can control the use of all of the subsidiary’s assets.
C. The parent needs to own only a majority of the voting stock, not necessarily 100%, to control the use of 100% of the subsidiary’s assets.
D. Consolidation of the individual assets, liabilities, revenues, and expenses of both the parent and the subsidiary provides a more realistic picture of the operations and financial position of the single economic entity.
E. all of the above
43. U.S. GAAP and IFRS require firms to account for business combinations using the _____ method.
A. purchase
B. pooling-of-interests
C. uniting-of-interests
D. equity
E. cost
44. Which of the following is true regarding the acquisition method for a business combination?
A. Measure the identifiable tangible and intangible assets and liabilities of the acquired company at their fair values.
B. The acquirer compares the fair value of the cash, common stock, or other consideration given with the fair value of the identifiable assets less liabilities acquired.
C. The excess of the fair value of the consideration over the fair value of the acquired firm’s identifiable assets net of identifiable liabilities is goodwill.
D. If the fair value of the identifiable assets less liabilities exceeds the fair value of the consideration, the excess is a gain from a bargain purchase, which the purchaser immediately includes in net income.
E. all of the above
45. Accountants sometimes refer to the equity method as a one-line consolidation because
A. the revenues less the expenses of the subsidiary appear in the one account, Equity in Earnings of Subsidiary
B. the assets and liabilities of the subsidiary appear on one line, Investment in Subsidiary.
C. the application of the equity method therefore rests on the guiding principle to treat the items in such a way that the parent’s net income equals the same amount that it would report if it consolidated the investee firm instead of using the equity method.
D. all of the above
E. none of the above
46. Accountants sometimes refer to the equity method as a(n)
A. one-line consolidation
B. pooling-of-interests
C. unity-of-interests
D. purchase
E. tricky combination
47. Often, the parent does not own 100% of the voting stock of a consolidated subsidiary. The parent refers to the owners of the remaining shares of voting stock as a
A. noncontrolling interest.
B. nonconsolidated group
C. consolidated subsidiary
D. noninfluential interest
E. nonvoting interest
48. The consolidated income statement shows
A. all of the parent’s and the subsidiary’s revenues less all of the parent’s and the subsidiary’s expenses, plus or minus intercompany sales, expenses, gains, and losses, which equals consolidated income.
B. The consolidated income statement shows the portion of this consolidated income to which the noncontrolling shareholders have a claim, typically an amount equal to the subsidiary’s net income multiplied by the noncontrolling shareholders’ ownership percentage.
C. The consolidated income statement shows the portion of this consolidated income to which the parent company shareholders have a claim.
D. all of the above
E. none of the above
49. The usual criterion for preparing consolidated financial statements is voting control in the form of majority ownership of common stock. However, for some entities common stock ownership does not indicate control because the common stock of the entity lacks one or more of the economic characteristics associated with equity. U. S. GAAP refers to such entities as a _____ entity.
A. variable interest
B. special interest
C. thinly capitalized
D. securitized financial
E. nonsecuritized financial.
50. The usual criterion for preparing consolidated financial statements is voting control in the form of majority ownership of common stock. However, for some entities common stock ownership does not indicate control because the common stock of the entity lacks one or more of the economic characteristics associated with equity. Which of the following is/are true?
A. U. S. GAAP refers to such entities as a variable interest entity (VIE).
B. If the invested equity is so small that the entity requires other financial support to sustain its activities, it meets the criteria for a variable interest entity.
C. If the equity owners lack meaningful decision rights, it meets the criteria for a variable interest entity.
D. choices a and b, only
E. choices a, b, and c.
