Final Exam Flashcards
In preparing consolidated financial statements of a Philippine parent company with a foreign subsidiary, the foreign subsidiary’s functional currency is the currency
a. In which the subsidiary maintains its accounting records.
b. Of the country in which the parent is located.
c. Of the environment in which the subsidiary primarily generates and expends cash.
d. Of the country in which the subsidiary is located.
Of the environment in which the subsidiary primarily generates and expends cash.
In the preparation of a consolidated statements work paper, dividend income recognized by a parent company for dividends distributed by its subsidiary is
a. Included with parent company income from other sources to constitute consolidated net income.
b. Allocated proportionately to consolidated net income and the non-controlling interest.
c. Assigned as a component of the non-controlling interest.
d. Eliminated.
Eliminated.
The Home Office ledger account in the accounting records of a branch is best described as
a. An asset account.
b. A deferred revenue account.
c. A revenue account.
d. An equity account.
An equity account.
Hedging an existing foreign exchange receivable arising from an exporting transaction is a
a. Net investment hedge
b. Cash flow hedge
c. Undesignated hedge
d. Fair value hedge
Fair value hedge
XYZ Agency, a trusted agency of the government, received the following allotment from the Department of Budget and Management: Capital Outlay (CO), Maintenance and Other Operating Expenses (MOOE), Personnel Services (PS); and Financial Expense (FE). The entry to record the receipt of allotment from DBM would be:
a. Debit Cash-Modified Disbursement System; Credit Subsidy from National Government
b. Memorandum entry
c. No entry
d. Debit National Clearing Account; Credit Appropriations Allotted
Memorandum entry
What is the effect of an exchange rate change called in each of the following situations:
a. If the functional currency is the foreign currency, the difference is called a translation adjustment. If the functional currency is the Philippine peso, the difference is called a FX transaction gain or loss.
b. If the functional currency is the foreign currency, the difference is called a FX transaction gain or loss. If the functional currency is the Philippine peso, the difference is called a translation adjustment.
c. If the functional currency is the foreign currency, the difference is called a FX transaction gain or loss. If the functional currency is the Philippine peso, the difference is called a FX transaction gain or loss.
d. If the functional currency is the foreign currency, the difference is called a translation adjustment. If the functional currency is the Philippine peso, the difference is called a translation adjustment.
If the functional currency is the foreign currency (current rate method), the difference is called a translation adjustment.
If the functional currency is the Philippine peso (temporal rate method), the difference is called a FX transaction gain or loss.
Which of the following would explain why the Investment in Branch account is less than the Home Office Capital account?
a. A cash transfer to the branch is in transit.
b. An Inventory shipment to the branch (at cost) is in transit.
c. A home office has received and deposited a remittance from a branch customer but
has not yet notified the branch.
d. A cash transfer to the home office is in transit.
e. None of the above
A cash transfer to the home office is in transit.
At the acquisition date, which of the following is not required to be recognized by the acquirer?
a. Goodwill separately from the identifiable assets acquired.
b. Retained Earnings of the acquiree
c. Liabilities assumed.
d. Non-controlling interest in the acquiree.
Retained Earnings of the acquiree
A domestic company having importing and exporting transactions involving credit and requiring settlement in foreign currency will hope that the direct exchange rate
a. Increases for both types of transactions.
b. Decreases for both types of transactions.
c. Increases for exporting transactions and decreases for importing transactions.
d. Decreases for exporting transactions and increases for importing transactions
INCREASES for exporting transactions and DECREASES for importing transactions.
If the direct exchange rate INCREASES, the Peso is weakening. Therefore, the USD is worth more and a domestic company collects more on account receivables.
55 PHP = 1 USD (direct exchange rate)
0.02 USD = 1 PHP (indirect exchange rate)
Is a hedged instrument a correct term? Is a hedging item a correct term?
a. Yes, Yes
b. No, No
c. Yes, No
d. No, Yes
No, No
The entry to record the receipt of the General Appropriations Act would be:
a. Posting/memo entry
b. Debit Cash-Modified Disbursement System; Credit Subsidy from National Government
c. Debit National Clearing Account; Credit Appropriations Allotted
d. No journal entry
Posting/memo entry
The working paper elimination (in journal entry format) for a second year of intercompany sales made at a markup over subsidiary cost by a partially owned subsidiary to the parent company includes:
a. A credit to Cost of Goods Sold-Subsidiary
b. A credit to Minority Interest in Net Assets of Subsidiary
c. A debit to Retained Earnings-Subsidiary
d. None of the foregoing
A debit to Retained Earnings-Subsidiary
How is the effect of an exchange rate change for the current year reported under the temporal method of translation?
a. As a direct charge or credit to stockholder’s equity.
b. Deferred in the asset or liability section of the balance sheet.
c. Currently in the income statement as an extraordinary item if material.
d. Currently in the income statement.
Currently in the income statement.
Which of the following funds of a nonprofit organization makes periodic payments of a fixed amount at equal intervals?
a. Endowment Fund
b. Agency fund
c. Annuity fund
d. Restricted Fund
Annuity fund
Contributions are reported in the statement of activities using all of the following categories except:
a. Temporarily restricted
b. Board-restricted
c. Permanently restricted
d. Unrestricted
Board-restricted
On October 1, 2020, Velec Co. contracted to purchase foreign goods requiring payment in local currency units (LCU) one month after the receipt of the goods at Velec’s factory. Title to the goods passed on December 15, 2020. The goods were still in transit on December 31, 2020. Exchange rates were one peso to 22 LCUs, 20 LCUs, and 21 LCUs on October 1, December 15, and December 31, 2020, respectively. Velec should account for the exchange rate fluctuations in 2020 as
a. An ordinary gain included in net income.
b. An ordinary loss included in net income.
c. An extraordinary gain.
d. An extraordinary loss.
An ordinary gain included in net income.
Hedging a firm commitment is a
a. Cash flow hedge
b. Fair value hedge
c. Net investment hedge
d. Undesignated hedge
Fair value hedge
A type of hedging where the amounts initially recorded in Other Comprehensive Income is reclassified to earnings when the transaction on the hedged item is reported in earnings.
a. Cash flow hedge
b. Undesignated hedge
c. Fair value hedge
d. Net investment hedge
Cash flow hedge
A comprehensive authority issued to all national government agencies to incur obligations not exceeding an authorized amount during a specified period for the purpose indicated therein, and it covers automatically appropriated expenditures common to most without need of special clearance or approval from competent authority.
a. Notice of Cash Allocation (NCA)
b. Special Allotment Release Order (SARO)
c. Notice of Transfer Allocation (NTA)
d. General Allotment Release Order (GARO)
General Allotment Release Order (GARO)
Which one of the following is not a characteristic associated with intercompany transactions?
a. Gains and losses must be eliminated in the consolidating process.
b. Intercompany transactions must be eliminated in the consolidating process.
c. Transactions that originate with a subsidiary must be eliminated in the consolidating process.
d. Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
IFRS/PFRS for SMEs, Section 30, Foreign Currency Translation, provides that a foreign currency transaction shall be recorded on initial recognition in the
a. foreign currency
b. local currency
c. presentation currency
d. functional currency
functional currency
Donated services are recognized as a contribution if:
a. All of the above are correct
b. The organization would otherwise purchase the service.
c. They require specialized skills and the individuals performing the donated service possess those skills.
d. They create or enhance nonfinancial assets
All of the above are correct
a. The organization would otherwise purchase the service.
b. They require specialized skills and the individuals performing the donated service possess those skills.
c. They create or enhance nonfinancial assets
Which one of the following is not a characteristic associated with intercompany transactions?
a. Intercompany transactions must be eliminated in the consolidating process.
b. Transactions that originate with a subsidiary must be eliminated in the consolidating process.
c. Gains and losses must be eliminated in the consolidating process.
d. Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
How is the effect of an exchange rate change reported when the current rate method of TRANSLATION is used?
a. Currently, in earnings.
b. In the “owner changes in net assets” section of the statement of comprehensive income.
c. In other comprehensive income.
d. As a deferred gain or loss in the balance sheet.
In other comprehensive income.
Not-for-profit college and university student unions, dormitories, and residence halls are considered
a. Auxiliary enterprises.
b. Independent operations.
c. Education and general services.
d. Restricted enterprises.
Auxiliary enterprises.
For unhedged importing and exporting transactions involving credit and requiring settlement in foreign currency, which of the following dates would never be of concern or have accounting significance?
a. The settlement date.
b. The transaction date.
c. The forward rate date.
d. The intervening financial reporting date(s).
e. None of the above.
The forward rate date.
IAS 21, The Effects of Changes in Foreign Exchange Rates, requires that the initial recognition of a foreign currency transaction be
a. In the amount of the foreign currency
b. the spot rate at the date of the transaction
c. The closing rate at balance sheet date
d. the rate the currency is expected to be exchanged at
the spot rate at the date of the transaction
In a not-for-profit university, the government grants funds given directly to students are an example of
a. A restricted contribution
b. Unrestricted revenue
c. An agency transaction
d. A bequest
An agency transaction
The working paper elimination (in journal entry format) for a second year of intercompany sales made at a markup over subsidiary cost by a partially owned subsidiary to the parent company includes:
a. A credit to Cost of Goods Sold-Subsidiary
b. A credit to Minority Interest in Net Assets of Subsidiary
c. A debit to Retained Earnings-Subsidiary
d. None of the foregoing
A debit to Retained Earnings-Subsidiary
Company P acquired the assets (net of liabilities) of Company S in exchange for cash. The acquisition price exceeds the fair value of the net assets acquired. How should Company P determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Company S?
a. PPE at fair value. Long-term debt at S’s carrying amount
b. PPE at fair value. Long-term debt at fair value.
c. PPE at S’s carrying amount. Long-term debt at fair value.
d. PPE at S’s carrying amount. Long-term debt at S’ carrying amount
PPE at FAIR VALUE.
Long-term debt at FAIR VALUE.
Philippine based ABC Corporation has a number of exporting transactions with companies based in Vietnam. Exporting activities result in receivables. If the settlement currency is the US dollar, which of the following will happen by changes in the direct or indirect exchange rates?
a. Direct exchange rate increases = loss; Direct exchange rate decreases = gain; Indirect exchange rate increase = N/A; Indirect exchange rate decreases = N/A
b. Direct exchange rate increases = loss; Direct exchange rate decreases = gain; Indirect exchange rate increase = gain; Indirect exchange rate decreases = loss
c. Direct exchange rate increases = N/A; Direct exchange rate decreases = N/A; Indirect exchange rate increase = N/A; Indirect exchange rate decreases = N/A
d. Direct exchange rate increases = gain; Direct exchange rate decreases = loss; Indirect exchange rate increase = loss; Indirect exchange rate decreases = gain
EXPORTER
Direct exchange rate increases = peso weakens = dollar strengthens = dollars are worth more = dealing with receivables = GAIN
Direct exchange rate decreases = loss
Indirect exchange rate increase = loss
Indirect exchange rate decreases = gain
Income earned from temporary endowments that can be spent on only certain programs, but that has not yet been spent would be reported in the statement of activities in the
a. Temporarily restricted or unrestricted category
b. Temporarily restricted category
c. Unrestricted category
d. Permanently restricted category
Temporarily restricted category
At acquisition date of business combination, an SME shall
a. Recognize goodwill acquired in business combination as an asset and not amortized it.
b. Not recognize goodwill acquired in a business combination.
c. Recognize goodwill acquired in a business combination as an asset, amortize, and test it annually for impairment.
d. Recognize goodwill acquired in business combination and not amortize it but test it annually for impairment
Recognize goodwill acquired in a business combination as an asset, amortize, and test it annually for impairment.
Is the non-controlling interest in net income of a partially owned subsidiary affected by: Elimination of depreciation attributable to intercompany gain on machinery acquired by parent from subsidiary? (upstream) Elimination of intercompany gain on land sold by parent to subsidiary? (downstream)
a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, Yes
Yes, No
Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:
I. In the year of the downstream sale.
II. Over the period of time, the subsidiary uses the land.
III. In the year, the subsidiary sells the land to an unrelated party.
a. I
b. II
c. III
d. I or II
III
Hedging a forecasted transaction is a
a. Undesignated hedge
b. Fair value hedge
c. Net investment hedge
d. Cash flow hedge
Cash flow hedge
Income earned from permanent endowments that can be spent on only certain programs but that has not yet been spent would be reported in the statement of activities in the permanent restricted category. T/F?
FALSE.
temporarily restricted category
A business combination in which a supplier of raw materials is acquired is a conglomerate combination. T/F?
FALSE.
Conglomerate combination is one involving unrelated industries having little, if any, production or market similarities for the purpose of entering into new markets or industries.
On the consolidated balance sheet, consolidated stockholders’ equity is greater than the parent’s stockholder equity. T/F?
FALSE
On the consolidated balance sheet, consolidated stockholders’ equity is equal to the parent’s stockholder equity.
Hedging a domestic company’s budgeted import purchases to the extent of orders placed could be hedges of firm commitments. T/F?
TRUE
