Question 1

The equity method is questionable in terms of both relevance and representational faithfulness.

Accepted Answer

A) True 
 B)False  True

Question 2

In the terminology suggested by the FASB, which of the following terms refers to the separate business enterprises that enter into a business combination?

Accepted Answer

A) Constituent companies 
B) Combined companies 
C) Subsidiary companies 
D) Consolidated companies 
A) Constituent companies 
B) Combined companies 
C) Subsidiary companies 
D) Consolidated companies A

Question 3

What is "one-line consolidation," and when is it used?

Accepted Answer

If an investor's ownership is not greater than 50 percent, but the investor can exercise significant influence over operating and financial policies, the equity method, or one-line consolidation, is used. With this method, the investment account is used to reflect the investor's underlying book value of equity in the investee. Many of the mechanical adjustments that are required for consolidated financial statements are also required for a one-line consolidation-except that only the net effect of those adjustments is reported in the investment account rather than a consolidated reporting of all of the individual accounts actually involved. The events that must be recorded in the investment account for each reporting period are: (1) proportionate share of investee's income or loss for the period; (2) proportionate share of investee's cash dividend for the period; and (3) amortization of the amount of the cost of the investment that is different from the underlying book value acquired. The result is that one line on the balance sheet, the investment account, and one line on the income statement, the income from equity investment account, are reported as if consolidation had occurred.

Question 4

SPEs were widely used by U.S. companies for legitimate purposes.

Accepted Answer

A) True 
 B)False

Question 5

The key question addressed by SFAS No. 52 involves how to report exchange gains and losses on the income statement.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following methods of accounting for a business combination assumes that the parent company purchases the subsidiary and must account for the acquisition as it would for the acquisition of any asset?

Accepted Answer

A) Pooling of interests 
B) The purchase method 
C) The new entity approach 
D) Proportionate consolidation 
A) Pooling of interests 
B) The purchase method 
C) The new entity approach 
D) Proportionate consolidation

Question 7

The pooling of interests consolidation method has been eliminated for new acquisitions by SFAS No. 141.

Accepted Answer

A) True 
 B)False

Question 8

A FASB survey found that most enterprises entering into a pooling of interest believed that the combination would not have occurred if purchase accounting had been acquired.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not a true statement?

Accepted Answer

A) ARB 51 prohibited consolidation of a subsidiary company unless majority ownership exists. 
B) ARB 51 took the view that majority ownership per se did not indicate control if ownership were temporary or if for some reason control did not reside with the majority owner. 
C) ARB 51 permitted separate reporting for heterogeneous subsidiaries instead of consolidation. 
D) ARB 43 permitted separate reporting for foreign subsidiaries instead of consolidation. 
A) ARB 51 prohibited consolidation of a subsidiary company unless majority ownership exists. 
B) ARB 51 took the view that majority ownership per se did not indicate control if ownership were temporary or if for some reason control did not reside with the majority owner. 
C) ARB 51 permitted separate reporting for heterogeneous subsidiaries instead of consolidation. 
D) ARB 43 permitted separate reporting for foreign subsidiaries instead of consolidation.

Question 10

SFAS No. 52 adopted a currency U.S. dollar orientation to accounting for foreign currency operations.

Accepted Answer

A) True 
 B)False

Question 11

The equity method is the required reporting method for all less-than-majority owned companies.

Accepted Answer

A) True 
 B)False

Question 12

In many SPE transactions, the tax benefits were likely to outweigh maintenance costs associated with the SPE.

Accepted Answer

A) True 
 B)False

Question 13

What is the objective of translation under SFAS No. 52?

Accepted Answer

A) To avoid reporting accounting exchange gains and losses when an economic gain or loss has not occurred 
B) To avoid reporting foreign-currency-denominated operations as if they had occurred in U.S. dollars 
C) To maintain a U.S. dollar orientation 
D) Both a and b 
A) To avoid reporting accounting exchange gains and losses when an economic gain or loss has not occurred 
B) To avoid reporting foreign-currency-denominated operations as if they had occurred in U.S. dollars 
C) To maintain a U.S. dollar orientation 
D) Both a and b

Question 14

Discuss why the reporting of disaggregated data may be preferable to consolidated data.

Accepted Answer

Consolidation is a useful way of summari

Question 15

The essence of SFAS No. 142 is that goodwill must now be amortized over 40 years.

Accepted Answer

A) True 
 B)False

Question 16

The SEC prohibits consolidation of a subsidiary company unless majority ownership exists.

Accepted Answer

A) True 
 B)False

Question 17

In a 1976 discussion memorandum, the FASB defined the pooling-of-interest method of accounting for business combinations as a method which:

Accepted Answer

A) results in the assets and liabilities of the subsidiary being valued at market value at the time of acquisition, and the parent's assets and liabilities being valued at book value. 
B) results in the assets and liabilities of the parent being valued at market value at the time of acquisition, and the subsidiary's assets and liabilities being valued at book value. 
C) results in all entities' assets and liabilities being revalued to market values at the time the combination originates. 
D) uses the book values of the combining companies. 
A) results in the assets and liabilities of the subsidiary being valued at market value at the time of acquisition, and the parent's assets and liabilities being valued at book value. 
B) results in the assets and liabilities of the parent being valued at market value at the time of acquisition, and the subsidiary's assets and liabilities being valued at book value. 
C) results in all entities' assets and liabilities being revalued to market values at the time the combination originates. 
D) uses the book values of the combining companies.

Question 18

Which of the following is not one of the three ways of reporting on intercorporate equity investments?

Accepted Answer

A) Consolidated reporting as if the two separate legal entities are an accounting entity using the purchase method. 
B) Consolidated reporting using the pooling method 
C) Non-consolidation using the equity method of accounting 
D) Non-consolidation using a fair market value approach 
A) Consolidated reporting as if the two separate legal entities are an accounting entity using the purchase method. 
B) Consolidated reporting using the pooling method 
C) Non-consolidation using the equity method of accounting 
D) Non-consolidation using a fair market value approach

Question 19

Financing indicators are included in the guidelines provided by SFAS No. 52 for determining the functional currency.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not true if the functional currency of a foreign operation is U.S. dollars?

Accepted Answer

A) All balance sheet items that were carried at current or future exchange prices are translated at the current exchange rate. 
B) All balance sheet items carried at past prices are translated at exchange rates existing at the time the item was acquired. 
C) All income statement items are translated at the average exchange rate for the reporting period. 
D) Exchange gains and losses arising from translation from the currency of record into the functional currency are recognized on the income statement. 
A) All balance sheet items that were carried at current or future exchange prices are translated at the current exchange rate. 
B) All balance sheet items carried at past prices are translated at exchange rates existing at the time the item was acquired. 
C) All income statement items are translated at the average exchange rate for the reporting period. 
D) Exchange gains and losses arising from translation from the currency of record into the functional currency are recognized on the income statement.

The equity method is questionable in terms of both relevance and representational faithfulness.

In the terminology suggested by the FASB, which of the following terms refers to the separate business enterprises that enter into a business combination?

What is "one-line consolidation," and when is it used?

SPEs were widely used by U.S. companies for legitimate purposes.

The key question addressed by SFAS No. 52 involves how to report exchange gains and losses on the income statement.

Which of the following methods of accounting for a business combination assumes that the parent company purchases the subsidiary and must account for the acquisition as it would for the acquisition of any asset?

The pooling of interests consolidation method has been eliminated for new acquisitions by SFAS No. 141.

A FASB survey found that most enterprises entering into a pooling of interest believed that the combination would not have occurred if purchase accounting had been acquired.

Which of the following is not a true statement?

SFAS No. 52 adopted a currency U.S. dollar orientation to accounting for foreign currency operations.

The equity method is the required reporting method for all less-than-majority owned companies.

In many SPE transactions, the tax benefits were likely to outweigh maintenance costs associated with the SPE.

What is the objective of translation under SFAS No. 52?

Discuss why the reporting of disaggregated data may be preferable to consolidated data.

The essence of SFAS No. 142 is that goodwill must now be amortized over 40 years.

The SEC prohibits consolidation of a subsidiary company unless majority ownership exists.

In a 1976 discussion memorandum, the FASB defined the pooling-of-interest method of accounting for business combinations as a method which:

Which of the following is not one of the three ways of reporting on intercorporate equity investments?

Financing indicators are included in the guidelines provided by SFAS No. 52 for determining the functional currency.

Which of the following is not true if the functional currency of a foreign operation is U.S. dollars?

An Introduction to Accounting Theory

Accounting Theory and Accounting Research

Development of Institutional Structure of Financial Accounting

The Economics of Financial Reporting Regulation

Postulates, Principles, and Concepts

The Search for Objectives

The Fasbs Conceptual Framework

Usefulness of Accounting Information to Investors and Creditors

Uniformity and Disclosure: Some Policy-Making Directions

International Accounting

The Balance Sheet

The Income Statement

Statement of Cash Flows

Income Taxes and Financial Accounting

Pensions and Other Postretirement Benefits

Leases

Filters

Exam 17: Intercorporate Equity Investments

The equity method is questionable in terms of both relevance and representational faithfulness.

In the terminology suggested by the FASB, which of the following terms refers to the separate business enterprises that enter into a business combination?

What is "one-line consolidation," and when is it used?

SPEs were widely used by U.S. companies for legitimate purposes.

The key question addressed by SFAS No. 52 involves how to report exchange gains and losses on the income statement.

Which of the following methods of accounting for a business combination assumes that the parent company purchases the subsidiary and must account for the acquisition as it would for the acquisition of any asset?

The pooling of interests consolidation method has been eliminated for new acquisitions by SFAS No. 141.

A FASB survey found that most enterprises entering into a pooling of interest believed that the combination would not have occurred if purchase accounting had been acquired.

Which of the following is not a true statement?

SFAS No. 52 adopted a currency U.S. dollar orientation to accounting for foreign currency operations.

The equity method is the required reporting method for all less-than-majority owned companies.

In many SPE transactions, the tax benefits were likely to outweigh maintenance costs associated with the SPE.

What is the objective of translation under SFAS No. 52?

Discuss why the reporting of disaggregated data may be preferable to consolidated data.

The essence of SFAS No. 142 is that goodwill must now be amortized over 40 years.

The SEC prohibits consolidation of a subsidiary company unless majority ownership exists.

In a 1976 discussion memorandum, the FASB defined the pooling-of-interest method of accounting for business combinations as a method which:

Which of the following is not one of the three ways of reporting on intercorporate equity investments?

Financing indicators are included in the guidelines provided by SFAS No. 52 for determining the functional currency.

Which of the following is not true if the functional currency of a foreign operation is U.S. dollars?

An Introduction to Accounting Theory

Accounting Theory and Accounting Research

Development of Institutional Structure of Financial Accounting

The Economics of Financial Reporting Regulation

Postulates, Principles, and Concepts

The Search for Objectives

The Fasbs Conceptual Framework

Usefulness of Accounting Information to Investors and Creditors

Uniformity and Disclosure: Some Policy-Making Directions

International Accounting

The Balance Sheet

The Income Statement

Statement of Cash Flows

Income Taxes and Financial Accounting

Pensions and Other Postretirement Benefits

Leases

Filters