Question : 11. The summary of significant accounting principles, a required part of : 1230381

11. The summary of significant accounting principles, a required part of the financial statement notes, must include a statement about the parent’s consolidation policy. If an investor does not consolidate a significant majority-owned subsidiary, the notes will disclose that fact. 
 

12. If an entity qualifies as a variable interest entity (VIE), U.S. GAAP requires the primary beneficiary of the VIE to consolidate the VIE. 
 

13. The accounting for investments in common stock depends on the  
A. expected holding period.
B. purpose of the investment, as determined by the percentage held.
C. purpose of the investment, as determined by management intent.
D. all of the above
E. none of the above

14. Which of the following is true regarding minority, passive investments? 
A. An investor acquires the common stock of another entity for the interest, dividends, and capital gains anticipated from share ownership.
B. The acquiring company’s ownership percentage is sufficiently small that it cannot control or exert significant influence over the other company.
C. U.S. GAAP and IFRS view investments of less than 20% of the voting shares of another company as minority, passive investments in most cases.
D. An investor who intends to hold the shares for less than a year would classify them as current assets; if the expected holding period is longer, the investor would classify them as noncurrent assets..
E. all of the above

15. Which of the following is true regarding minority, active investments? 
A. An investor acquires common shares of an investee with the intent of exerting significant influence over the investee’s activities, perhaps through representation on the investee’s board of directors.
B. An investor can exert significant influence over an investee with ownership of less than a majority of the voting stock, because many different individuals or entities own most publicly held corporations, and those owners typically do not collaborate in voting their shares. 
C. U.S. GAAP and IFRS view investments of between 20% and 50% of the voting stock of another company as minority, active investments unless evidence indicates that the investor cannot exert significant influence.
D. Minority, active investments appear as noncurrent assets on the balance sheet.
E. all of the above

16. Which of the following is true regarding majority, active investments? 
A. An investor acquires shares of an investee so that the investor can control the investee both at the broad policy-making level and at the day-to-day operational level.
B. U.S. GAAP views ownership of more than 50% of an investee as implying an ability to control the investee, unless evidence indicates to the contrary.
C. IFRS views ownership of more than 50% of an investee as implying an ability to control the investee, unless evidence indicates to the contrary.
D. An investor cannot exercise control of a majority-owned investee if a court effectively controls the investee in bankruptcy proceedings or if the investee is a foreign company whose government restricts the withdrawal of assets from the country.
E. all of the above

17. When an investor owns less than a majority of the voting stock of another corporation, the accountant must judge when the investor can exert significant influence. For the sake of uniformity, U.S. GAAP and IFRS presume that significant influence exists at ownership of _____ or more of the voting stock of the investee.   (Assume that management does not have a contractual or other basis to demonstrate that influence.) 
A. 5 percent
B. 10 percent
C. 15 percent
D. 20 percent
E. 30 percent

18. U.S. GAAP and IFRS require firms to account for minority, active investments, generally those where the investor owns between _____ using the equity method. Under the equity method, the investor recognizes as revenue (expense) each period its share of the net income (loss) of the investee. The investor recognizes dividends received from the investee as a return (reduction) of investment, not as income.  
A. 10% and 50%
B. 20% and 50%
C. 30% and 50%
D. 40% and 60%
E. 50% and 60%

19. Under the equity method, the investor recognizes as revenue (expense) each period _____ The investor recognizes dividends received from the investee as a(n)  _____.  
A. only when it receives dividends; a return (reduction) of investment.
B. only when it receives dividends; income
C. its share of the net income (loss) of the investee; a return (reduction) of investment.
D. its share of the net income (loss) of the investee; income
E. all of the net income (loss) of the investee; a return (reduction) of investment.

20. U.S. GAAP and IFRS require firms to account for minority, active investments, using the _____ method.  
A. cost
B. equity
C. fair market value
D. consolidation
E. lower of cost or market