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fundamentals of advanced accounting

Questions and Answers of Fundamentals Of Advanced Accounting

A translation adjustment must be calculated and disclosed when financial statements of a foreign subsidiary are translated into the parent’s reporting currency. How is this figure computed, and
Clarke Company has a subsidiary operating in a foreign country. In relation to this subsidiary, what does the termfunctional currency mean? How is the functional currency determined? LO6
What are the major procedural differences in applying the current rate and temporal methods of translation? LO6
In translating the financial statements of a foreign subsidiary, why is the value assigned to retained earnings especially difficult to determine? How is this problem normally resolved? LO6
What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods? LO6
Under SFAS133, how are gains and losses on financial instruments used to hedge the net investment in a foreign operation reported in the consolidated financial statements? LO6
Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure? LO6
What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? LO6
What are the two major issues related to the translation of foreign currency financial statements? LO6
Why would a company hedge a balance sheet exposure and how is this accounted for? LO6
How does a remeasurement differ from a translation? LO6
When is remeasurement rather than translation of foreign currency balances appropriate? LO6
What is a company's functional cur¬ rency? How is this functional currency identified? LO6
What are the different concepts under¬ lying the temporal and current rate methods of translation? How does bal¬ ance sheet exposure differ under these two methods of translation? LO6
What is balance sheet exposure and how does it compare with transaction exposure to foreign exchange risk? LO6
What is a translation adjustment? How is it computed? Where should it be reported in a set of consolidated finan¬ cial statements? LO6
On January 1,2009, Alpha acquired 80 percent of Delta. Of Delta’s total business fair value, $125,000 was allocated to copyrights with a 20-year remaining life. Subsequently, on January 1, 2010,
Politan Company acquired an 80 percent interest in Soludan Company on January 1, 2009. Any portion of Soludan’s business fair value in excess of its corresponding book value was assigned to
On January 1, 2009, Travers Company acquired 90 percent ofYarrow Company’s outstanding stock for $720,000. The 10 percent noncontrolling interest had an assessed fair value of $80,000 on that date.
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2009, for $420,000 in cash. Lowly’s book value at that date was reported as $600,000 and the fair value of the
House Corporation has been operating profitably since its creation in 1959. At the beginning of 2009, House acquired a 70 percent ownership in Wilson Company. At the acquisition-date, House prepared
Leftwich recently purchased all of Kew Corporation’s stock and is now consolidating the financial data of this new subsidiary. Leftwich paid a total of $650,000 for the company, which has the
Garrison holds a controlling interest in Robertson’s outstanding stock. For the current year, the following information has been gathered about these two companies:Garrison Robertson LO9
Lake acquired a controlling interest in Boxwood several years ago. During the current fiscal period, the two companies individually reported the following income (exclusive of any investment
On January 1, 2009, Piranto acquires 90 percent of Slinton’s outstanding shares. Financial infor¬ mation for these two companies for the years of 2009 and 2010 follows:2009 LO9 2010 Piranto
gain on intercompany inventory transfers)$90,000 Rogers LO9 240,000 80,000 Clarke uses the initial value method to account for the investment in Rogers. The operating income figures just presented
Up and its 80 percent owned subsidiary (Down) reported the following figures for the year ending December 31, 2010. Down paid dividends of $30,000 during this period.Sales. LO9 Cost of goods sold
Alice Corporation acquired 90 percent ofWonderland, Inc’s outstanding shares several years ago for $610,000. Wonderland, in turn, acquired 10 percent of Alice for $111,000. Annual amortization
Baxter, Inc., owns 90 percent ofWisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent of Cleveland’s outstanding stock. No excess amortization resulted from
Mesa, Inc., obtained 80 percent of Butte Corporation on January 1,2009. Annual amortization of $22,500 is to be recorded on the allocations of Butte’s acquisition-date business fair value. On
On January 1, 2009, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $500,000 in cash and other assets. Nephew had a book value of $600,000 and the 20 percent non¬
On January 1, 2009, Tree Company acquired 70 percent of Limb Company’s outstanding voting stock for $252,000. Limb reported a $300,000 book value and the fair value of the noncontrolling interest
Hastoon Company purchases all of Zedner Company for $420,000 in cash. On that date, the subsidiary has net assets with a $400,000 fair value but a $300,000 book value and tax basis. The tax rate is
What would be the answer to problem II if a consolidated tax return were filed?a. -0-.b. $300. LO9c. $1,500.d. $7,500.
Prybylos, Inc., owns 90 percent of Station Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $100,000 merchandise costing $70,000 to the
Cremmins, Inc., owns 60 percent of Anderson. During the current year, Anderson reported net income of $200,000 but paid a total cash dividend of only $40,000. What deferred income tax liability must
Horton, Inc., owns 90 percent of Juvyn Corporation’s voting stock. The purchase price exceeded book value and fair value by $80,000. Juvyn holds 20 percent of Horton’s voting stock. That purchase
Gardner Corporation holds 80 percent of Healthstone, which, in turn, owns 80 percent of Icede. Operational income figures (without investment income) as well as unrealized upstream gains included in
Bassett Company owns 80 percent of Crimson and Crimson owns 90 percent of Damson, Inc. Oper¬ ational income totals for the current year follow; they contain no investment income. None of these
Which of the following is not a reason for two companies to file separate tax returns? LO9a. The parent owns 68 percent of the subsidiary.b. They have no intercompany transactions.c. Intercompany
How does the amortization of goodwill affect the computation of income taxes on a consolidated tax return? LO9a. It is a deductible expense but only if the parent owns 80 percent of subsidiary’s
Which of the following is correct for two companies that want to file a consolidated tax return as an affiliated group? LO9a. One company must hold at least 51 percent of the other company’s voting
On January 1,2009, a subsidiary buys 10 percent of the outstanding shares of its parent company. Although the total book value and fair value of the parent’s net assets were $4 million, the price
A subsidiary owns shares of its parent company. Which of the following is true concerning the trea¬ sury stock approach? LO9 a.It is one ot several options to account for mutual holdings provided by
In a father-son-grandson business combination, which of the following is true? LO9a. The father company always must have its realized income computed first.b. The computation of a company’s
A subsidiary that has a net operating loss carryforward is acquired. The related deferred income tax asset is $230,000. Because the parent believes that a portion of this carryforward likely will
Jones acquires Wilson, in part because the new subsidiary has an unused net operating loss carryforward for tax purposes. How does this carryforward affect the consolidated figures at the acquisition
In a recent acquisition, the consolidated value of a subsidiary’s assets exceeded the basis appropriate for tax purposes. How does this difference affect the consolidated balance sheet? LO9
If a parent and its subsidiary file separate income tax returns, why will the parent frequently have to recognize deferred income taxes? Why might the subsidiary have to recognize deferred income
Why is the allocation of the income tax expense figure between the members of a business combi¬ nation important? By what methods can this allocation be made? LO9
What are the advantages to a business combination filing a consolidated tax return? Considering these advantages, why do some members of a business combination file separate tax returns? LO9
For income tax purposes, how is affiliated group defined? LO9
In accounting for mutual ownerships, what is the treasury stock approach? LO9
What is the difference between a connecting affiliation and a mutual ownership? LO9
How does the presence of an indirect ownership (such as a father-son-grandson relationship) affect the mechanical aspects of the consolidation process? LO9
Able Company owns 70 percent of the outstanding voting stock of Baker Company, which, in turn, holds 80 percent of Carter Company. Carter possesses 60 percent of Dexter Company’s capital stock. How
When an indirect ownership is present, why is a specific ordering necessary for determining the incomes of the component corporations? LO9
What is afather-son-grandson relationship? LO9
Why does the filing of separate tax returns by the members of a business combination frequently create the need to recognize deferred income taxes? LO9
How does a business combination qual¬ ify to file a consolidated income tax return? What advantages are gained by filing in this manner? LO9
When a subsidiary possesses stock of its parent company, what impact does the mutual ownership have on consolidated financial statements? LO9
When a parent holds control over a subsidiary, which, in turn, owns a major¬ ity of the voting stock of another com¬ pany, the parent indirectly controls both of these subsidiaries. How does this
Many non-U.S. companies make annual reports available on their corporate Internet home page. Access the financial statements from the most recent annual report for a foreign company with which you
In July 2007, the U.S. Securities and Exchange Commission (SEC) issued Concept Release on Allowing U.S. Issuers to Prepare Financial Statements in Accordance with International Financial Reporting
Unless they use IFRS, foreign companies with securities listed in the United States (in the form ofADRs) are required to reconcile their net income and stockholder’s equity to U.S. GAAP in the
Ramshare Company acquired equipment at the beginning of 2009 at a cost of $100,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At
Umanov Ltd. sold a building to a bank at the beginning of 2009 at a gain of S50,000 and immedi¬ ately leased the building back for a period of five years. The lease is accounted for as an operating
Moxie Corporation incurs research and development costs of $500,000 in 2009, 30 percent of which relates to development activities subsequent to certain criteria having been met that suggest that an
Bracy Company acquired a new piece of construction equipment on January 1, 2009, at a cost of $100,000. The equipment was expected to have a useful life of 10 years and a residual value of LO4$20,000
Lisali Company gathered the following information related to inventory that it owned on December 31, 2009: LO4$100,000 Historical cost Replacement cost Net realizable value Normal profit margin
IAS 1, “Presentation of Financial Statements,” does not provide guidance with respect to which of the following? LO4a. The statements that must be included in a complete set of financial
In which of the following areas does the IASB allow firms to choose between a benchmark treat¬ ment and an allowed alternative treatment? LO4a. Measuring property, plant, and equipment subsequent to
Which of the following describes an IASB requirement that the FASB has adopted as part of the short-term convergence project? LO4a. Following the IASB format for presentation of a statement of
Which of the following is not one of the FASB’s initiatives to converge with IASB standards? LO4a. The FASB eliminates differences between FASB and IASB standards by adopting IASB require¬ ments,
What is the so-called Norwalk Agreement? LO4a. An agreement between the FASB and SEC to allow foreign companies to use IFRSs in their fil¬ ing of financial statements with the SEC.b. An agreement
Which of the following countries or groups of countries does not permit any domestic listed com¬ panies to use IFRSs in preparing consolidated financial statements? LO4a. European Union.b. Mexico.c.
According to the IASB, IFRS are composed of LO4a. International financial reporting standards issued by the IASB only.b. International accounting standards issued by the IASC only.c. International
Which of the following is not a reason for establishing international accounting standards? LO4a. Some countries do not have the resources to develop accounting standards on their own.b.
Which of the following is not a problem caused by differences in financial reporting practices across countries? LO4a. Consolidation of financial statements by firms with foreign operations is more
Which of the following could explain why accounting is more conservative in some countries than in others? LO4a. Accounting is oriented toward stockholders as a major source of financing.b. Published
Even if all companies in the world were to use IFRS, what are two obstacles to the worldwide com¬ parability of financial statements? LO4
In what way might the IASB’s approach to standard setting be relevant for the FASB? LO4
What arc three potentially significant differences between IFRS and U.S. GAAP with respect to the recognition or measurement of assets? LO4
What are the FASB's key initiatives in its international convergence project? LO4
What have the FASB and IASB agreed to do in the Norwalk Agreement? LO4
What are five countries that do not allow domestic publicly traded companies to use IFRS to prepare consolidated financial statements? LO4
Some say that IFRS are now GAAP in the European Union. How is this statement true, and how is it false? LO4
In what ways does the IASB differ from the IASC? LO4
Why were several original standards issued by the IASC revised in 1993? LO4
What are the Fourth and Seventh Directives? LO4
What arguments can be made in favor of international accounting harmonization, and what argu¬ ments can be made against it? LO4
According to Nobes, what is the relationship between culture, type of financing system, and class of accounting? LO4
According to Gray, how do societal values affect national accounting systems? LO4
Nestle S.A. is a very large company headquartered in a very small country (Switzerland). It has operations in more than 50 different countries around the world. Much of the company’s interna¬
What factors contribute to the diversity of accounting systems worldwide? LO4
What are some obstacles in achieving worldwide comparability of financial statements? LO4
What differences exist between IFRS and U.S. GAAP? What is the so-called Norwalk Agreement? LO4
What progress has the IASB achieved in establishing worldwide financial report¬ ing standards? How many countries require or allow domestic companies to use the lASB's international financial
What benefits would be derived from the use of a single set of financial reporting standards across countries? LO4
What are the major classes of account¬ ing systems internationally? LO4

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