Consolidated F Statements

Question 1

The objective of consolidated financial statements is to present the financial statements of multiple entities as if they were one. TF

Answer 1

True

Question 2

When are does a firm “control” another firm?

Answer 2

over 50% equity ownership, primary beneficiary of a VIE

Question 3

Con. Stmts are required when one entitiy has effective control over another entity. TF

Answer 3

True

Question 4

If two or more entities are under common economic control, the controlling firm can elect to present consolidated financial statments. TF

Answer 4

False, GAAP REQUIRES con fin stmts.

Question 5

The overriding theme in con fin stmts is that economic substance > legal form

Answer 5

True

Question 6

If a subsidary firm is in bankruptcy, con fin stmts are required. TF

Answer 6

False, because the entity is no longer under economic control of the parent

Question 7

Investment companies and brokers/securities are exempt form presenting con fin stmts. TF

Answer 7

True

Question 8

If a company uses the “pooling of interests” method, they should present con fin stmts. TF

Answer 8

True

Question 9

The consolidating process is carried out on the books of the parent company. TF

Answer 9

False, the consolidating process is carried out on worksheets off the books

Question 10

Goodwill is highly likely to be eliminated through an eliminating entry on a consolidating worksheet. TF

Answer 10

False

Question 11

BV, FV, and parents cost of investment are needed to be known to carry out consolidations. TF

Answer 11

True

Question 12

In every consolidating process, IC investment is to be eliminated. TF

Answer 12

True

Question 13

In every consolidating process, IC receivables and payables are to be eliminated.TF

Answer 13

False, only if the two companies have engaged in transactions that produce the balance.

Question 14

A parent company may use the cost method to carry an investment on its books in which it wishes to consolidate. TF

Answer 14

True, a company can use whatever method it wants.

Question 15

The choice of method in which a company carries a sub on its books will effect the consolidating process as well as the con fin stmts. TF

Answer 15

False, it will not effect the outcome of the con fin stmts, however it will effect the consolidating process.

Question 16

What does the “reciprocity entry” do?

Answer 16

Cost method. Shows undistributed income. NI - Divs

Question 17

If the parent company uses the Equity method to account for an investment post consolidation, what are the three adjustments made?

Answer 17

Adjustment to reflect income or loss, share of divs declared, and amortization of difference between FV of id’d assets and BV of those assets. The “Investment in Subsidiary” account is always in play.

Question 18

If the parent company uses the Cost method to account for an investment post consolidation, what is the one adjustment made?

Answer 18

Adjustment to reflect share of divs declared. dr. Divs Receivable cr. Div Income

Question 19

Any time you face a goodwill, NCI, etc. problem what should you draw?

Answer 19

Decomposition tool

Question 20

NBV of target company =

Answer 20

BV + NI - Divs

Question 21

Formula for NCI equity

Answer 21

Target NBV + 100% of the differential between target BV and Price Paid - Depreciation of differential = Value, Value x % of NCI ownership = NCI Equity

Question 22

The amount of an investment eliminating entry is the balance in the investment account as of the end of the period being consolidated. TF

Answer 22

False, as of the BEGINNING

Question 23

If a parent uses equity method accounting for a sub investment both income from the sub and divs from the sub must be reversed on the consolidating worksheet. TF

Answer 23

True

Question 24

Transactions and balances between affiliated companies must be eliminated. TF

Answer 24

True

Question 25

Pro Tip: When answering a question in the null form (an “is not” question) read through the questions independently and decide which statements are true and which statements are false.

Answer 25

The false statement is the answer.

Question 26

All inter-company accounts are eliminated upon consolidations. TF

Answer 26

True

Question 27

Subsidiary dividends are included in consolidated dividends. TF

Answer 27

False, they are never included as consolidated dividends.

Question 28

If an I/C transaction is not eliminated, there will be an overstatement of sales on the fin stmts. TF

Answer 28

True

Question 29

IC fixed asset gain on sale / remaining useful life of the asset = difference in depreciation taken by the buyer and seller. TF

Answer 29

True, but only if the useful life of the asset remains unchanged

Question 30

What is the best tool to use while working on IC transactions?

Answer 30

Should be, is, difference table. The difference is the eliminating entry.

Question 31

Adjustment to depreciation expense = Gain x Estimated Useful life.

Answer 31

False, divided by. And the calculation will give you excess depreciation, in which the total depreciation will need to be reduced by.