Question 1

Internal expansion can result in using either the subsidiary form of organization or the branch/division form of organization.

Accepted Answer

A) True 
 B)False

Question 2

When a subsidiary of a publicly owned company is restricted from transferring funds to its parent as a result of borrowing arrangements or regulatory restraints, the parent must disclose such restrictions in the notes to the consolidated statements only if the subsidiary's restricted net assets exceed 25% of the total consolidated assets.

Accepted Answer

A) True 
 B)False

Question 3

The aggregated format of presenting consolidated statements is a "layered" format.

Accepted Answer

A) True 
 B)False

Question 4

On the home office's books, the earnings of a branch are recorded in an account called ________________________________________.

Accepted Answer

The answer of On the home office's books, the earnings...

Question 5

A general ledger is maintained for the consolidated reporting entity.

Accepted Answer

A) True 
 B)False

Question 6

_____ A control feature in a decentralized accounting system is

Accepted Answer

A)  The balance in the Investment in Branch account must equal the balance in the Home Office Capital account. 
B)  The balance in the Investment in Branch account must equal the balance in the Home Office Capital account less the branch's cumulative unremitted profits. 
C)  The intracompany accounts are eliminated in preparing combined financial statements. 
D)  The balance in the Investment in Branch account must equal the balance in the Branch Income account. 
E)  None of the above.

Question 7

To prevent loss of patent protection, a domestic company expanding overseas would use the subsidiary form of organization rather than the branch form of organization.

Accepted Answer

A) True 
 B)False

Question 8

To limit an existing operation's potential loss exposure, the operation would usually use the subsidiary form of organization when expanding rather than the branch form of organization.

Accepted Answer

A) True 
 B)False

Question 9

The relationship between (a) the headquarters of an entity that has established an outlying location as an extension of the existing legal entity and (b) that outlying location is called a(n) ______________________________________ relationship.

Accepted Answer

The answer of The relationship between (a) the headquarters of...

Question 10

It is inappropriate to consolidate a subsidiary that has not yet become profitable.

Accepted Answer

A) True 
 B)False

Question 11

_____ A reason for using the subsidiary form of organization when expanding instead of the branch form of organization is

Accepted Answer

A)  It better limits the ability of foreign taxing authorities to examine the books and records of the domestic operation. 
B)  It better insulates legally the existing operation from the new operation. 
C)  A foreign unit's earnings are not taxed in the United States until remitted to the domestic unit. 
D)  All of the above. 
E)  None of the above.

Question 12

The two manners of reporting a subsidiary's financial statement amounts in the consolidated statements are the ________________________________________ format and the ________________________________________ format.

Accepted Answer

The answer of The two manners of reporting a subsidiary's...

Question 13

Income taxes pertaining to branch earnings are usually recorded on the books of the ________________________________________.

Accepted Answer

The answer of Income taxes pertaining to branch earnings are...

Question 14

Home office allocations to a branch are not required under U.S. GAAP.

Accepted Answer

A) True 
 B)False

Question 15

Branch fixed assets can be carried on the home office's books under a decentralized accounting system.

Accepted Answer

A) True 
 B)False

Question 16

_____ A valid reason for not consolidating a subsidiary is

Accepted Answer

A)  Applicable state law prohibits the subsidiary from making loans to its parent company. 
B)  The subsidiary's liabilities equal its assets. 
C)  The subsidiary has a serious cash shortage and will not be able to pay dividends for the foreseeable future. 
D)  The parent has substantial inventory sales to the subsidiary. 
E)  None of the above.

Question 17

_____ A publicly owned company has only one subsidiary. Under regulatory rules, the subsidiary cannot pay dividends to the parent above a certain amount. Under the SEC's rules, this restriction must be disclosed

Accepted Answer

A)  Regardless of materiality. 
B)  If the subsidiary's total assets are more than 25% of the total consolidated net assets. 
C)  If the subsidiary's restricted net assets exceed 25% of consolidated net assets. 
D)  If the subsidiary's net assets exceed 25% of consolidated net assets. 
E)  None of the above.

Question 18

When a subsidiary's total assets are more than 25% of total consolidated assets, the separate financial statements of the subsidiary must be presented in the notes to the consolidated statements.

Accepted Answer

A) True 
 B)False

Question 19

It is inappropriate to consolidate a subsidiary that is prohibited by law from making loans to its parent.

Accepted Answer

A) True 
 B)False

Question 20

_____ A home office, month-end allocation of previously recorded advertising expenses to a branch requires the following entry on the home office's books:
Debit Credit

Accepted Answer

A)  Investment in Branch Advertising Expense 
B)  Home Office Capital Advertising Expense 
C)  Branch Income Home Office Capital 
D)  Investment in Branch Accrued Liabilities 
E)  None of the above.

Exam 1: Wholly Owned Subsidiaries: at Date of Creation

Internal expansion can result in using either the subsidiary form of organization or the branch/division form of organization.

The aggregated format of presenting consolidated statements is a "layered" format.

On the home office's books, the earnings of a branch are recorded in an account called ________________________________________.

A general ledger is maintained for the consolidated reporting entity.

_____ A control feature in a decentralized accounting system is

To prevent loss of patent protection, a domestic company expanding overseas would use the subsidiary form of organization rather than the branch form of organization.

To limit an existing operation's potential loss exposure, the operation would usually use the subsidiary form of organization when expanding rather than the branch form of organization.

The relationship between (a) the headquarters of an entity that has established an outlying location as an extension of the existing legal entity and (b) that outlying location is called a(n) ______________________________________ relationship.

It is inappropriate to consolidate a subsidiary that has not yet become profitable.

_____ A reason for using the subsidiary form of organization when expanding instead of the branch form of organization is

The two manners of reporting a subsidiary's financial statement amounts in the consolidated statements are the format and the format.

Income taxes pertaining to branch earnings are usually recorded on the books of the ________________________________________.

Home office allocations to a branch are not required under U.S. GAAP.

Branch fixed assets can be carried on the home office's books under a decentralized accounting system.

_____ A valid reason for not consolidating a subsidiary is

_____ A publicly owned company has only one subsidiary. Under regulatory rules, the subsidiary cannot pay dividends to the parent above a certain amount. Under the SEC's rules, this restriction must be disclosed

When a subsidiary's total assets are more than 25% of total consolidated assets, the separate financial statements of the subsidiary must be presented in the notes to the consolidated statements.

It is inappropriate to consolidate a subsidiary that is prohibited by law from making loans to its parent.

_____ A home office, month-end allocation of previously recorded advertising expenses to a branch requires the following entry on the home office's books: Debit Credit