Question :
61. Accountants sometimes refer to the equity method as a one-line : 1245757
61. 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
62. 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.
63. Management and shareholders may desire to have legally separate corporations because
A. it may insulate a profitable corporation from an unprofitable corporation’s insolvency and creditors.
B. it may simplify compliance with state tax and regulation requirements.
C. it may allow a company to enter a new line of business with a minimum of investment and risk.
D. all of the above
E. none of the above
64. (CMA adapted, Dec 92 #9) In a business combination that is accounted for as a purchase and does not create negative goodwill, the assets of the acquired company are to be recorded on the books of the acquiring company at
A. original cost.
B. original cost less accumulated depreciation.
C. fair market value.
D. book value.
E. liquidation value.
65. An intercompany transaction is a transaction between
A. two subsidiary corporations only.
B. the subsidiaries and the parent company only.
C. any two members of a consolidated entity.
D. any two members of a consolidated entity, conducted at arm’s-length.
E. any three members of a consolidated entity.
66. To avoid double counting P’s investment in S, P must eliminate
A. the investment in S and S’s separate company shareholders’ equity.
B. all debt on S’s separate company financial statements.
C. any dividends paid against the cash account.
D. all intercompany transactions.
E. all of the above.
67. Intercompany sales
A. do not need to be eliminated as long as the sales have been completed to an outside party.
B. must be eliminated from both the sales and cost of goods sold accounts.
C. do not need to be eliminated if made at arm’s length values.
D. must be eliminated only if not in the ordinary course of trade or business.
E. do not need to be eliminated.
68. When preparing consolidated financial statements, the result of the elimination process generally is the
A. restatement of the cash balance of each company due to intercompany transactions.
B. presentation of only the transactions between the consolidated entity and others outside the entity.
C. replacement of the investment account and the subsidiary’s shareholders’ equity with only the parent’s share of the individual assets and liabilities of the subsidiary.
D. posting the eliminations to both parent and subsidiary’s accounts.
E. posting the eliminations to the subsidiary’s accounts, only.
69. Which of the following investments in securities would require the preparation of consolidated financial statements by the investor corporation?
A. investments in securities for the purpose of exerting control over the investee’s day-to-day operations
B. investments in securities for the purpose of exerting significant influence over the investee’s dividend payout policy
C. investments in securities for the purpose of exerting significant influence over the investee’s licensing of a patent
D. investments in securities for the purpose of exerting significant influence over the investee’s licensing of day-to-day operations
E. none of the above
70. U.S. GAAP view investments of over 50 percent of the voting stock of another company (for the purpose of controlling the other company at the broad policy-making level and at the day-to-day operational level) as
A. minority, passive investments.
B. minority, active investments.
C. majority, passive investments.
D. majority, active investments.
E. marketable securities.
