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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

On January 2, 20X5, Playful Inc. purchased 60% of the outstanding common shares of Serious Ltd. for $7,200,000.Serious€™s condensed statement of financial position at that time was as
On January 1, 20X5, Purple Inc. purchased 80% of the common shares of Yellow Corp. for $1,200,000. On the date of acquisition, Yellow’s shareholders’ equity was as follows:Preferred shares: 8%
Parent Company holds debentures of Sub Company that were purchased by Parent as a part of the original issuance by Sub. What eliminations are necessary in preparing Parent’s consolidated financial
Parent Company holds bonds of its subsidiary, Sub Company, that were purchased on the open market at a substantial discount. Upon consolidation of Parent’s financial statements, how should the
Explain the difference in concept between the par-value and the agency approaches to eliminating intercorporate bond holdings.
“Substance over form” is an important qualitative criterion for external financial reporting. Which method of intercompany bond elimination better satisfies this criterion? Explain why.
What are the requirements necessary for a hedge to be deemed effective?
Beluga Ltd. is a wholly owned subsidiary of Orcas Ltd. On January 1, 19X8, Beluga issued $200,000 of 5%, 10 year bonds payable for $240,000. The interest is paid annually, on December 31. On January
Poseidon Ltd. (P Ltd.) bought 80% of the voting shares of Submarine Ltd. (S Ltd.) for $470,000 at January 1, 20X5. S Ltd. had the following statement of financial position at that date:The bonds on S
Your assistant is preparing consolidated financial statements at December 31, 20X5, for your company and has come to you with the following issues:1. SubOne Ltd., a 70%-owned subsidiary, sold land
On January 1, 20X5, Paco Ltd. purchased 70% of the common shares of Scot Ltd. for $506,100.Financial data for Scot Ltd. are as follows:Additional Information1. Accounts receivable will be collected
What are the objectives of segmented reporting?
When a corporation reports financial information by segments, do the segments correspond to specific subsidiaries?
What type of company is required to provide segmented reporting?
How does the IASB consider benefit–cost relationships for segmented reporting?
What is the core principle that underlies segment reporting?
How is profit defined for determining operating segments?
How much of the consolidated enterprise’s business activity must be reported in operating segments to satisfy IFRS requirements?
How is the risk of relying on major customers considered in IFRS 8?
What types of companies does IAS 34 apply to for interim reporting?
What does the exception reporting principle mean for note disclosure in interim reporting?
What comparative period(s) are used for interim financial statements?
The Shaw Navigational Company is a public Canadian corporation that operates a fleet of ships on the Great Lakes. In common with other Great Lakes shipping companies, rates are quoted and revenues
JCN Company sells laptop computers, desktop computers, and software in more than seven countries. The company is required to file financial statements annually with a securities commission. The
Alena Gallant, the vice-president of finance for Baie Comeau International, has identified seven operating segments in her company. She has compiled the following information on these operating
Jane Jones is the controller for XYZ Corporation, a publicly traded company in Canada. XYZ Corporation made $100,000 in the first quarter and $250,000 in the second quarter. It also earned $550,000
Labels Ltd. experienced the following events during the first quarter of 20X3:1. The annual sales catalogue was developed and provided online, at a cost of $2,500,000.2. Programming and consulting
The Crouse Corporation is a publicly traded company that operates a chain of stores and online websites that sell sports memorabilia. Last year, Crouse’s first year of operations, resulted in an
What is a foreign currency transaction?
What causes changes in exchange rates?
CarpCorp has a liability of €400,000. If CarpCorp wants to hedge the liability, should the company enter into a forward contract to buy euros or to sell euros?
Why is a forward contract viewed as an executory contract?
What is an effective hedge?
How does hedging an anticipated transaction differ from hedging a liability?
What is the difference between a hedged item and a hedging instrument?
What is a fair-value hedge?
What conditions must a hedging relationship meet for hedge accounting to be applied?
Dudes Outfitters Ltd. is a 70%-owned subsidiary of Trail Ltd. On January 10, 20X2, Dudes sold some display cases to Trail Ltd. for $95,000, recognizing a gain of $48,000 before tax on the
On January 1, 20X3, Sub Ltd., 80%-owned by Par Ltd., sold a building to Par Ltd. for $1,980,000. The building cost Sub $800,000 and was 70% depreciated (at 5% per year). Par will depreciate the
Parent Corp. owns 70% of the voting shares of Sub Ltd. During 20X4, Sub Ltd. sold inventory costing $640,000 to Parent Corp. for $800,000. At December 31, 20X4, Parent Corp. still had $400,000 of
Aztec Corporation purchased 70% of the outstanding shares of Inca Limited on January 1, 20X2, at a cost of $84,000. Aztec has always used the cost method to account for its investments. On January 1,
Adam Ltd. owns 80% of the outstanding shares of Bob Ltd. Adam Ltd. also owns 70% of the shares of Xena Ltd. During the year 20X5, Adam sold $500,000 (cost) of goods (widgets) to Bob at a 60% markup.
On January 1, 20X2, Peter Limited purchased 70% of the outstanding voting common shares of Susan Limited at a cost of $147,000. At acquisition date, the carrying value of Susan Limited was $161,000,
On June 30, 20X1, Punt Corporation acquired 70% of the outstanding common shares of Slide Ltd. for $3,210,000 in cash plus Punt Corporation common shares estimated to have a fair market value of
At the 20X5 annual meeting for Jasmine€™s shareholders, Curry nominated seven directors for Jasmine€™s 12-person board of directors. After some negotiation, five of
Pop Company acquired 70% of Son Limited on January 1, 20X4, for $343,000. On the acquisition date, common shares and retained earnings of Son Limited were $100,000 and $200,000, respectively. The
Big Limited has three subsidiaries, all 80% owned, and, at December 31, 20X5, they have the following statements of financial position:Selected SFP information of Big Limited as at December 31, 20X5,
On January 1, 20X3, Pumpkin Company acquired 70% of the 10,000 outstanding voting shares of Squash Limited for $770,000. The SFP and fair values for Squash Limited were:The capital assets had a
On December 31, 20X3, Plummer Company acquired 70% (7,000 common shares) of Summer Company for $950,000. On the acquisition date, all of the identifiable assets and liabilities of Summer had fair
On October 1, 20X5, XYZ Ltd. sold its 80% interest in the subsidiary, Sub Ltd., for $2,430,000. Prior to the date of sale, XYZ Ltd. had recorded the investment in a subsidiary account on the cost
How can one determine whether the issuance by a subsidiary of new shares to outsiders will result in a gain or a loss to (or a positive or negative adjustment to) the equity of the parent company?
When and why does the parent corporation recognize a gain or loss when the subsidiary issues new shares to third parties?
Why does the issuance by the subsidiary of new shares to outsiders affect the parent’s consolidated assets?
When a parent company sells part of its investment in a subsidiary, how is the gain or loss on the sale determined?
Why would a parent company want to decrease its share of a subsidiary?
What are two basic ways in which a parent company can decrease its ownership interest in a subsidiary?
On January 1, 20X0, Hoola Company (Hoola) purchased 60,000 shares of Soop Ltd. (Soop) for $558,000. On January 1, 20X3, Hoola purchased another 30,000 shares of Soop for $400,000. During the entire
On December 31, 20X3, PC Company acquired 60% of the 10,000 outstanding voting shares of SL Limited for $295,000. The SFP and fair market values for SL Limited were:The capital assets have a
Pine Ltd. had the following transactions in the shares of Sap Ltd.:The income of Sap Ltd. is earned evenly over the year.Pine purchased its shares in Sap at their market values on January 1, 20X3,
P Inc. owned 22% of S Corp. and reported the investment as a passive investment. Subsequently, P acquired an additional 20% interest; the additional shares gave P the ability to significantly
Corp. owned 40% of the voting shares of S Ltd. and exercised significant influence over the affairs of S. Subsequently, P acquired an additional 20% of S’s shares. How would the additional
When a step acquisition has occurred, when are the subsidiary’s net assets measured/not measured at their fair values at the date of the last purchase?
P Ltd. acquired 51% of S Inc. by means of a tender offer on April 1, 20X5. On February 14, 20X7, P increased its ownership of S by an additional 19% through additional purchases. How would P
What is meant by a step purchase?
Penny Ltd. acquired a 75% interest in Szabo Inc., on December 31, 20X0, for $637,500. On that date Szabo had common stock of $550,000 and retained earnings of $125,000. Szabo’s inventory was
Plain Ltd. acquired 80% of the voting shares of Stylish Ltd. on January 1, 20X3, for $1,200,000. The financial statement of Stylish Ltd. on the date of acquisition was as follows:The inventory will
Company Granite purchased 80% of Company Marble on January 1, 20X1, for $700,000, when the net book value of Company Marble was $900,000. The fair value of the net identifiable assets of Marble on
On January 1, 20X4, Parent Ltd. purchased 90% of the shares of Sub Ltd. for $972,000. At that time Sub Ltd. had the following SFP:The bonds were issued at par and will mature in 10 years. Sub Ltd.
Parent Ltd. pays $553,000 cash for 70% of the outstanding voting shares of Sub Ltd. on January 1, 20X5. The following information was available:During 20X5, Sub Ltd. earned $180,000 and paid no
On January 1, 20X5, Huge Ltd. purchased 80% of the shares of Tiny Ltd. for $2,100,000 and, on the same day, Tiny Ltd. purchased 60% of the shares of Tinier Ltd. for $1,395,000. Any fair value
Maui Ltd. has the following SFP at December 31, 20X5.On January 1, 20X6, Oahu Ltd., whose assets are composed entirely of share investments and cash, paid $371,000 for 70% of the outstanding shares
Red Deer Ltd. acquired a subsidiary, Lethbridge Ltd., on July 1, 20X5, by paying $315,000 for 70% of the outstanding shares. The fiscal year-end for both companies is December 31. The statements of
Jaguar Company purchased 25,000 common shares (20 percent) of Panther Company on January 1, 20X1, for $500,000. On that day, the difference between the carrying value and fair value of
Information relating to six independent cases has been provided below.RequiredUsing the information provided for each case above, calculate:a. The gain from bargain purchase, if present;b. The net
Metro Utility Workers€™ Union (MUWU) is a registered not-for-profit organization that represents the workers of Metro Gas, a natural gas distribution company serving a metropolitan area in
How do unrealized profits on downstream sales affect the non-controlling interest’s share of a subsidiary’s earnings?
When all of a non-wholly owned subsidiary’s revenues and expenses are consolidated, what recognition is given to the fact that the parent’s share of the subsidiary’s earnings is less than 100%?
How can the inclusion of 100% of a subsidiary’s assets on the consolidated SFP be justified when the parent owns less than 100% of the subsidiary’s shares?
Okavango Ltd. sold goods at a sale price of $10,000 to its 100%-owned subsidiary Serengeti in 20X5 at a gross profit percentage of 50%. At the end of 20X5, 40% of the goods purchased from Okavango
Parent Corp. purchased 100% of the outstanding shares of Subsidiary Corp. on January 1, 20X1, for $1,000,000. The Statement of Financial Position (SFP) of Subsidiary Corp. and the fair values of the
Refer to P 4-7. During 20X8, the following events occurred:1. Serena Inc. had sales of $800,000 to Pradeesh Corp. Serena€™s gross margin was still 40% of selling price. At year-end,
On January 4, 20X7, Pradeesh Corp. acquired 100% of the outstanding common shares of Serena Inc. by a share-for-share exchange of its own shares, valued at $1,000,000. The statements of financial
Plain Ltd. acquired 100% of the voting shares of Stylish Ltd. on January 1, 20X3, for $1,500,000. The financial statement of Stylish Ltd. on the date of acquisition was as follows:The inventory will
Refer to P 2A-3 . All facts pertaining to the period until December 31, 20X4, remain the same as in P 2A-3 . Now assume that on January 2, 20X5, Rose sold 15% of Jasmine’s shares at its fair value,
What is accomplished by the acquisition adjustment when consolidated statements are prepared?
How would the acquisition adjustment for an acquired subsidiary differ from that for a parent-founded subsidiary?
What is the reporting option available to private enterprises for the goodwill impairment test?
Explain the difference between the acquisition adjustment and the operations adjustments.
Why is the equity method of reporting sometimes called the consolidation method of equity reporting?
How does unrealized profit in the beginning inventories affect the consolidated net income if the inventories have been sold during the year?
In what general ways will consolidation of a parent-founded subsidiary differ from consolidation of a purchased subsidiary?
On January 1, 20X6, Parent Ltd. purchased 100% of the outstanding voting common shares of Sub Ltd. for $1,400,000. The depreciable assets of Sub have a future useful life of 10 years and are being
On January 1, 20X6, Big Inc. acquired 100% of the outstanding shares of Small Corp. for $15,000,000 in cash. On this date, Small had shareholders€™ equity of $12,000,000, including
OfficePlus Corporation is a retailer of office supplies and equipment in Vancouver. On March 5, 20X6, OfficePlus formed a new corporation in Calgary to operate the same type of business. OfficePlus
Ada Vidal established Exotic Bean Bags Inc. (EBBI) in 20X2 to distribute exotic bean bags featuring colourful ethnic motifs and designs. EBBI also customizes its bean bags to match the decor and
Okavango Ltd. sold goods at a sale price of $10,000 to its 100%-owned subsidiary Serengeti Ltd. in 20X5 at a gross profit percentage of 50%. At the end of 20X5, 40% of the goods purchased from
Refer to P 3-7 in the main chapter.On December 31, 20X6, Profound Limited acquired 100% of the outstanding voting shares of Subtle Limited for $2.2 million in cash. The statements of financial
On December 31, 20X6, Retail Ltd. purchased 100% of the outstanding shares of Supply Corporation by issuing Retail Ltd. shares worth $980,000 at current market prices. Supply Corporation was a
Refer to P 3-2 in the main chapter.For each of the six independent cases, assume that the tax base of the net identifiable assets is equal to their carrying value (i.e., no temporary differences
On January 1, 20X1, Rodriguez Inc. purchased 100% of the common shares of Teresa Inc., for $325,000. On that date the following differences were observed with regard to specific net assets of Teresa

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