Question : 41. For various reasons, a single economic entity may exist in : 1230384

Accounting

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.

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July 1, 2023

121.In the context of the 1997 Asian crisis, how did the International Monetary Fund's “one-size-fits-all” approach to macroeconomic policy affect South Korea?

A. It led to a decrease in the interest rates of short-term loans.

B. It made it difficult for companies to service their excessive short-term debt obligations.

C. It decreased the probability of widespread corporate defaults.

D. South Korea failed to recover from its financial crises.

E. South Korea was forced to increase restrictions on foreign direct investment.

122._____ arises when people behave recklessly because they know they will be saved if things go wrong.

A. Systemic risk

B. Moral hazard

C. Ethical dilemma

D. Tragedy of the commons

E. Risk compensation

123.Jade, a working professional, began driving rashly ever since she got her car insured against damage. She believed that the insurance claim would cover her in case of any accidents. Jade’s behavior is due to a situation known as _____.

A. cognitive dissonance

B. conflict of interest

C. systemic risk

D. moral hazard

E. tragedy of the commons

124.The International Monetary Fund been criticized for:

A. its lack of “one-size-fits-all” approach to macroeconomic policy.

B. encouraging moral hazard among banks.

C. its lack of power and authority.

D. using external experts to gain knowledge about a country.

E. keeping its operations open to outside scrutiny.

125.According to the critics of the International Monetary Fund (IMF), how should the problem of moral hazard exhibited by banks be resolved?

A. The IMF should use a “one-size-fits-all” approach to macroeconomic policy.

B. The IMF should establish a mechanism for accountability.

C. The IMF should free all banks from the obligation of financial reporting.

D. The banks should be forced to pay the price for their rash lending policies.

E. The IMF should bail out the banks whose loans gave rise to financial crises.

126.According to the noted economist Jeffrey Sachs, the International Monetary Fund should:

A. not be accountable to anyone as it is a powerful institution.

B. bail out the banks that have rash lending policies.

C. have a “one-size-fits-all” approach to macroeconomic policy.

D. keep its operations open to greater outside scrutiny.

E. lend only to countries with safe credit ratings.

127.The International Monetary Fund programs have been counterproductive, or only had limited success in _____.

A. Turkey

B. Iceland

C. Greece

D. Ireland

E. Latvia

128.In response to the global financial crisis of 2008–2009, the International Monetary Fund began to:

A. exercise tight controls on fiscal policy of the borrowing countries.

B. encourage activities that resulted in high inflation rates.

C. display inflexibility in policy responses.

D. urge countries to adopt policies that included fiscal stimulus and monetary easing.

E. adopt a “one-size-fits-all” approach to macroeconomic policy.

129.Which of the following observations about the International Monetary Fund (IMF) is true?

A. The IMF can force countries to adopt the policies required to correct economic mismanagement.

B. Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan.

C. In recent years, the IMF has begun to make its policies more tight and inflexible.

D. In response to the global financial crisis of 2008–2009, the IMF began to adopt a “one-size-fits-all” approach to macroeconomic policy.

E. In recent years, the IMF has begun to urge countries to oppose fiscal stimulus and monetary easing.

130.Which of the following poses a problem for international businesses in the long run?

A. Using exchange rate instruments like the forward market and swaps

B. Volatility of global exchange rate regime

C. Anti-inflationary monetary policies

D. Maintaining strategic flexibility by dispersing production to different locations

E. A policy of reduction in government spending