fnce 3301 Flashcards
1) How would any management fees charged by a Parent Company to its Subsidiary be accounted for
during the consolidation process?
A. The Parent Company would only record its pro rata share of any management revenues.
B. The Parent Company’s profit on the rendering of management services would be charged to retained
earnings.
C. Both the Parent’s management fees revenue and the subsidiary’s related expense would be
eliminated when preparing Consolidated Financial Statements.
D. No special accounting treatment is required, since this would have no effect on Consolidated Net
Income.
1) ANS: C (Upon consolidation, intercompany transactions would be eliminated/removed from the
consolidated financial statements.)
2) The sale of inventory items by a Parent company to its Subsidiary company:
A. enters the consolidated revenue computation only if the transfer was the result of arm’s
length bargaining.
B. affects consolidated net income under a periodic inventory system but not under a perpetual
inventory system.
C. does not result in consolidated income until the merchandise is sold to outside parties.
D. does not require a working paper adjustment if the merchandise was transferred at cost.
2) ANS: C (Intercompany transactions, including transferring inventory, is eliminated for
consolidation purposes.)
1) Acquistion Differential Schedule on January 1 65% Purchase Price of Salsa 1,300 Implied Value of Sauce @ 100% 2,000 Less: Book Value of Salsa Net Assets Common Shares 500 Retained Earnings 850 1,350 Acquistion Differential 650 Less: Adjust Salsa's Book Value to Fair Value Inv DR 50 Equip CR -240 B/P DR 12 -178 Goodwill 828
What is the Implied Value of Salsa on the date of acquisition? a) 1,300 b) 2,000 c) 1,350 d) 650 e) None of the above What is the Book Value of Salsa’s Net Assets on the date of acquisition? a) 1,350 b) 878 c) (178) d) (116) e) None of the above What is the Acquisition Differential on the date of acquisition? a) (50) b) 422 c) 650 d) 1,123 e) None of the above What are the total Adjustments of Salsa’s Book Value to its Fair Value when preparing the ADS but before the calculation of Goodwill? a) 116 DR b) 116 CR c) 178 DR d) 178 CR
b) 2,000
a) 1,350
c) 650d) 178 CR
a) Emerging issues in financial reporting includes topics relating to the reporting of financial information.
Which of the following emerging issues should accountants consider while preparing financial
statements?
A. Business entity’s cash contributions to its pension plan’s plan assets.
B. First Nations Financial Transparency Act.
C. Blue Book value of an automobile.
D. Cash purchases of inventory.
B. First Nations Financial Transparency Act.
b) Emerging issues in financial reporting includes topics relating to the reporting of financial information.
Which of the following issues would NOT considered as an emerging issue in accounting?
A. Demand for skilled and trained accountants.
B. Artificial Intelligence.
C. Globalization and the familiarization of international laws.
D. Accounting cycle is 5 months long.
D. Accounting cycle is 5 months long.
b i) Which of the following statements about emerging issues in financial reporting explains why it is
important for accountants to be aware of them?
A. Changes in tax rates will impact how accounting and reporting is conducted.
B. Changes to the environment as the result of a manufacturing process are hard to quantify, but
their impact ought to be reported and disclosed.
C. Allowing customers to use virtual currency means that businesses must have a system to accept
and use this currency in their day-to-day operations.
D. Artificial Intelligence (i.e. AI) is becoming more commonplace. This means routine accounting
duties will be on the rise.
E. Both B and C.
b i) ANS: E. Both B and C. (Changes in tax rates does not affect how accounting is practiced and AI will do
more and more routine accounting duties - e.g. journalizing, financial statements, and so on.)
c) Which of the following would be most affected by financial statements being prepared under different accounting principles? A. Reduced comparability. B. Reduced reliability. C. Increased complexity. D. Inaccurate asset valuations.
c) ANS: A (Consider Nike adopting a double-declining accounting practice versus Reebok practicing a
straight-line method.)
d) Which enterprises must report under IFRS in Canada?
A. All corporations, government agencies and private companies.
B. Public companies and private companies whose shareholders’ equity is in excess of $500,000,000 at
any particular year end.
C. Public companies, private companies and not-for-profit organizations.
D. Publicly accountable enterprises.
D. Publicly accountable enterprises.
e) What choice(s) do private enterprises have in their financial reporting in Canada?
A. They have no choice at all; they will need to report under IFRS.
B. They may elect to continue with differential reporting.
C. They may adopt accounting principles that are appropriate to the circumstances.
D. They may elect to report under either IFRS or ASPE.
D. They may elect to report under either IFRS or ASPE.
f) Which of the following is NOT a reason why a Canadian private company would elect to report under
IFRS?
A. The company is planning to go public in the near future.
B. The company seeks comparability with public companies of a similar size.
C. It is likely to be less expensive than reporting under ASPE.
D. The company is a subsidiary of a Canadian public company.
f) ANS: C (IFRS reporting is likely more expensive than reporting under ASPE)
g) The current ratio measures: A. liquidity. B. solvency. C. profitability of assets. D. profitability of owners' investment.
g) ANS: A (Liquidity, a current ratio, is the short-term debt paying ability)
h) The debt-to-equity ratio measures: A. liquidity. B. solvency. C. profitability of assets. D. profitability of owners' investment.
h) ANS: B (Debt-to-Equity ratio measures the ability to cover long-term obligations)
i) Which statement regarding Investments in Debt Instruments using amortized cost method is true?
a) Practicing accrual accounting, dividend income is recorded when cash is received.
b) Straight-line method to amortize bond discount or premium under IFRS.
c) Transactions costs are added to the cost of the investment.
d) Upon disposal, the gain or loss is the difference between the proceeds and the investment’s
acquisition cost.
i) ANS: C (Transactions costs are added to the cost of the investment under the Cost Method. They are
also capitalized under FV-OCI method.)
j) To calculate the amount of interest to recognize each period for a bond investment (unless it held for
trading purposes),
a) ASPE requires the use of the effective-interest method.
b) IFRS requires the use of the effective-interest method.
c) IFRS allows the use of either the effective-interest or the straight-line method.
d) ASPE requires the use of the straight-line method.
j) ANS: B (The method to amortize interest on an Investment in Bonds is the Effective Interest Method,
under IFRS.)
q) When it comes to measuring (debt or equity) investments under IFRS, which of the following
statements is true?
a) Companies are required to measure at cost/amortized cost.
b) Companies are required to measure at fair value.
c) Both cost/amortized cost and fair value are permitted in appropriate circumstances.
d) The company may report using whichever method best aligns with their financial reporting
objectives.
q) ANS: C (Debt or Equity Investments can be accounted for using either the Amortized Cost/Cost Method
or the Fair Value Method under appropriate circumstances.)
