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business
modern advanced accounting

Questions and Answers of Modern Advanced Accounting

9. Under what circumstances must financial statements of a business enterprise be included in a proxy statement issued to the enterprise’s stockholders under the provisions of the Securities
8. Differentiate between Form 10-K and Form 8-K filed with the SEC under the Securities Exchange Act of 1934.
7. Identify four U.S. statutes administered by the SEC.
6. Explain the technique included in APB Opinion No. 28, “Interim Financial Reporting,”for the measurement of income taxes expense in interim financial reports.
5. How is lower-of-cost-or-market accounting for inventories applied in interim financial reports?
4. Discuss the provisions of APB Opinion No. 28, “Interim Financial Reporting,” dealing with the accounting for costs associated with revenue in interim financial reports.
3. Describe the format established by the FASB for reporting the disposal of an operating segment of an entity.
2. Is the concept of segment reporting consistent with the theory of consolidated financial statements? Explain.
1. What is an operating segment of a business enterprise?
11. Foreign currency translation adjustments is a:a. Parent company ledger account.b. Foreign subsidiary ledger account.c. Balancing amount for translation.d. Balancing amount for remeasurement.
10. Foreign currency translation adjustments arising from translation of the financial statements of a foreign subsidiary are currently reported in:a. Stockholders’ equity of the foreign
9. Do foreign currency translation adjustments result from:Remeasurement of a Translation of a Foreign Branch’s Trial Investee’s Financial Balance? Statements?a. Yes Nob. No Yesc. No Nod. Yes Yes
8. With respect to a foreign subsidiary’s financial statements, are foreign currency transaction gains and losses recognized in:Remeasurement from Translation from Functional Local Currency to
7. Currently displayed in the income statement of a U.S. multinational enterprise are:a. Foreign currency transaction gains and losses only.b. Foreign currency translation adjustments only.c. Both
6. According to FASB Statement No. 52, “Foreign Currency Translation,” the appropriate method of restatement from a foreign currency to the U.S. dollar for each of the following is:Remeasurement
5. The monetary/nonmonetary method of foreign currency translation currently is used for:a. Remeasurement but not for translation.b. Translation but not for remeasurement.c. Both remeasurement and
4. According to FASB Statement No. 52, “Foreign Currency Translation,” remeasurement of a foreign subsidiary’s accounting records to the subsidiary’s functional currency should be
3. Gains and losses resulting from remeasurement of foreign currency financial statements to the functional currency are displayed as a(n):a. Part of equity in the balance sheet.b. Extraordinary item
2. If a foreign subsidiary of a U.S. multinational enterprise has a functional currency other than its local currency and the U.S. dollar, the subsidiary’s financial statements must be:a.
1. The functional currency of a foreign subsidiary might be any of the following except the:a. Local currency.b. Reporting currency.c. Supplemental Drawing Rights of the International Monetary
9. What criticisms of FASB Statement No. 52, “Foreign Currency Translation,” have been made?
8. What disclosures relating to foreign currency matters are required in the financial statements or in a note to the financial statements of U.S. multinational enterprises?
7. What is the functional currency of a foreign investee in a highly inflationary economy?
6. What foreign currency transaction gains and losses are excluded from the measurement of net income?
5. Differentiate between foreign currency transaction gains and losses and foreign currency translation adjustments.
4. Differentiate remeasurement to functional currency from foreign currency translation.
3. What exchange rate is used to remeasure to U.S. dollars (the functional currency) the balance of the Intercompany Accounts Payable ledger account of a foreign subsidiary of a U.S. parent company?
2. Differentiate between the current/noncurrent method and the current rate method of translating foreign currency financial statements.
1. What is the functional currency of a foreign entity?
Walker, Inc., a U.S. corporation that prepares annual financial statements, ordered a machine(plant asset) from Pfau Company of Germany on July 15, 2005, for C––100,000 when the selling spot rate
Prepare journal entries (omit explanations) for L.A. Company on June 26 and 30 and July 26, 2005. L.A. Company uses the perpetual inventory system.
On June 26, 2005, L.A. Company purchased merchandise from Brit Company for £10,000, terms net 30 days. On June 30, 2005, L.A. Company prepared financial statements. On July 26, 2005, L.A. Company
10. The FASB required that forward contracts:a. Be recognized as assets or liabilities, as appropriate.b. Be valued at fair value.c. Be valued at their notional amount.d. Be treated in the manner
9. A forward contract is a derivative instrument because:a. It has an underlying: the contracted foreign exchange rate.b. It has a notional amount: the number of foreign currency units.c. It requires
8. The International Accounting Standards Board has designated as preferable the inventory cost flow valuation method(s):a. First-in, first-out or weighted average.b. First-in, first-out or last-in,
7. In FASB Statement No. 52, “Foreign Currency Translation,” did the FASB sanction, for interpreting a foreign trade transaction, the:Two-Transaction Perspective? One-Transaction Perspective?No
6. A U.S. multinational enterprise has an account receivable from a German customer and an account payable to an unrelated German supplier, both of which are denominated in the euro. If the exchange
5. On April 30, 2005, the buying spot rate for the local currency unit (LCU) was $0.15, the selling spot rate was $0.17, and the 30-day forward rate was $0.19. If on that date a U.S. multinational
4. Vermont Corporation, a U.S. enterprise, purchased merchandise from a New Zealand supplier on November 5, 2005, for $NZ50,000, when the selling spot rate was. On Vermont’s December 31, 2005,
3. If $1.9672 is required to acquire one British pound, the amount of pound(s) required to acquire $1 is:a. £0.5083b. £5.0834c. £3.8702d. £0.2584
2. If the exchange rate for one British pound is $1.55, $1.00 may be exchanged for:a. 0.45 pound.b. 0.65 pound.c. 0.78 pound.d. An indeterminate fraction of a pound.
13. What is market risk with respect to derivative instruments?
12. How may a U.S. multinational enterprise hedge against the risk of fluctuations in exchange rates for foreign currencies? Explain.
11. What is a forward contract?
10. What arguments are advanced in support of the two-transaction perspective for foreign currency transaction gains and losses? Explain.
9. Explain the one-transaction perspective regarding the nature of a foreign currency transaction gain or loss.
8. Are foreign currency transaction gains or losses entered in the accounting records prior to collection of a trade account receivable or payment of a trade account payable denominated in a foreign
7. On March 27, 2005, a U.S. multinational enterprise purchased merchandise on 30-day credit terms from a Philippines exporter at an invoice cost of =p 80,000. (=p is the symbol of the Philippine
6. What is a multinational enterprise?
5. A newspaper listed spot exchange rates for the Japanese yen (¥) as follows:Buying rate: ¥Selling rate: ¥How many U.S. dollars does a U.S. enterprise have to exchange for ¥50,000 at the above
4. Define the following terms associated with foreign currencies:a. Exchange rateb. Forward ratec. Selling spot rated. Spot rate
3. In IAS 27, “Consolidated Financial Statements . . . ,” did the IAS adopt the parent company concept or the economic unit concept for display of the minority interest in net income and net
2. How does IFRS 3, “Business Combinations,” compare with current U.S. accounting standards for business combinations? Explain.
1. What is the U.S. term for the IASB’s jointly controlled entity?
14. Shares of the parent company’s issued common stock that are owned by the subsidiary are treated in the consolidated balance sheet as being:a. Outstanding.b. In the treasury.c. Retired.d. Part
13. Treasury stock acquired by a subsidiary from minority stockholders of the subsidiary is accounted for in consolidated financial statements as:a. Treasury stock of the subsidiary.b. Treasury stock
12. Is goodwill attributable to a subsidiary recognized in a working paper elimination for treasury stock of the subsidiary:Owned on the Date of the Acquired subsequent to the Date Business
11. When a parent company acquires both preferred stock and common stock of the subsidiary in a business combination, goodwill recognized in the combination is computed based on:a. Cost allocated to
10. Is a gain or loss realized by the parent company when a subsidiary issues additional shares of common stock to:The Public? The Parent Company?a. No Nob. No Yesc. Yes Nod. Yes Yes
9. A parent company realizes a gain or loss on its acquisition of additional common stock from a subsidiary, with the minority stockholders waiving their preemptive rights, because:a. The minority
8. If a parent company acquires additional shares of previously unissued common stock from its subsidiary, with minority stockholders of the subsidiary waiving their preemptive rights, a resultant
7. The appropriate recording (explanation omitted) for a parent company to reflect a loss on its subsidiary’s issuance of additional shares of common stock to the public is:a. A working paper
6. Is a parent company’s gain on disposal of a portion of its investment in the subsidiary displayed as realized in the:Parent Company’s Consolidated Income Unconsolidated Income Statement of
5. Parsell Corporation disposed of a 20% interest in the outstanding common stock of its previously wholly owned subsidiary, Sorbell Company, on May 31, 2006, to an outside entity at a substantial
4. If a parent company acquires for cash all the common stock owned by minority stockholders of a partially owned subsidiary, the excess of the cash paid over the minority interest in net assets of
3. Do the following business transactions or events of a subsidiary generally result in a nonoperating gain or loss to the parent company?Subsidiary’s Issuance Subsidiary’s Acquisition
2. Shares of a parent company’s common stock owned by the parent’s subsidiary are accounted for in consolidated financial statements of the parent company and its subsidiary as:a. Retired parent
1. The minority interest of preferred stockholders in the net assets of a partially owned subsidiary preferably is measured by the preferred stock’sa. Cash dividend per share.b. Call price per
4. Is a gain or a loss that is recognized by a parent company on the disposal of part of its investment in common stock of a subsidiary eliminated in the preparation of consolidated financial
3. Why does a parent company recognize a nonoperating gain or loss when a subsidiary issues common stock to the public at a price per share that differs from the carrying amount per share of the
2. If a parent company acquires the minority interest in net assets of a subsidiary at less than carrying amount, what accounting treatment is appropriate for the difference?Explain.
1. FASB Statement No. 141, “Business Combinations,” requires use of the purchase method of accounting for a parent company’s or a subsidiary’s acquisition of all or part of the minority
13. If a parent company applies the equity method of accounting retroactively during the course of its installment acquisition of a controlling interest in its subsidiary, consolidated retained
12. In an installment acquisition of a controlling interest in a subsidiary, the investor uses a Retained Earnings of Investee/Subsidiary ledger account:a. Beginning with the date of the first
11. In a consolidated statement of cash flows prepared under the indirect method, minority interest in net income of subsidiary is added to consolidated net income for the computation of net cash
10. In a consolidated statement of cash flows under the indirect method, the parent company’s investment income from an influenced investee that paid no dividends is displayed in:a. Cash flows from
9. In a consolidated statement of cash flows (indirect method), a gain on the parent company’s disposal of a portion of its investment in the subsidiary for cash is displayed with:a. Cash flows
8. How is the parent company’s cash acquisition of additional shares of previously unissued common stock directly from a subsidiary displayed in a consolidated statement of cash flows?a. As an
7. In a consolidated statement of cash flows, cash flows from financing activities include, for a partially owned subsidiary:a. Cash dividends paid to the parent company only.b. Cash dividends paid
6. If a parent company and its subsidiary file separate income tax returns, a deferred income tax liability is recognized in working paper eliminations for a:a. Parent company’s open-market
5. The appropriate format for a parent company’s journal entry to provide for income taxes on intercompany investment income from a 65%-owned domestic subsidiary that declared and paid dividends
4. Is a deferred income tax liability typically recognized by a combinor/parent company for:Differences between Current Fair Values and Carrying Amounts of Undistributed Earnings of a the
3. Under the provisions of FASB Statement No. 109, “Accounting for Income Taxes,” a debit to Deferred Income Tax Assets is required in a working paper elimination accompanying an elimination for
2. In a business combination that is a “tax-free corporate reorganization” for income tax purpose, may the temporary differences between current fair values and tax bases of the combinee’s
1. If a business combination (for financial accounting) is a “tax-free corporate reorganization”for income tax purposes, in the journal entry to record the business combination, the current fair
8. What amounts comprise consolidated retained earnings on the date of a business combination that involved installment acquisitions of the subsidiary’s outstanding common stock?
7. Logically, at what stage in the installment acquisition of an eventual subsidiary’s outstanding common stock should the parent company ascertain the current fair values of the subsidiary’s
6. How is the equity method of accounting applied when a parent company attains control of a subsidiary in a series of common stock acquisitions? Explain.
5. Are cash dividends declared to minority stockholders displayed in a consolidated statement of cash flows? Explain.
4. A parent company and its subsidiary file separate income tax returns. How does the consolidated deferred income tax asset associated with the intercompany gain on the parent company’s sale of a
3. Are interperiod income tax allocation procedures necessary in working paper eliminations for a parent company and subsidiaries that file consolidated income tax returns?Explain.
2. What standards were established in FASB Statement No. 109, “Accounting for Income Taxes,” for income taxes attributable to undistributed earnings of subsidiaries?
1. Under what circumstances do income taxes enter into the measurement of current fair values of a combinee’s identifiable net assets in a business combination?
14. If there is a $60,000 intercompany gain on the sale of machinery by a parent company to its subsidiary, and the subsidiary establishes a five-year economic life, straight-line depreciation, and
13. If a machine is sold by a wholly owned subsidiary to the parent company at a gain at the end of the affiliates’ fiscal year, the appropriate working paper elimination (in journal entry format)
12. A working paper elimination (in journal entry format) debiting Retained Earnings—Parent and crediting Land—Subsidiary is prepared in the accounting period or periods:a. Of the sale of the
11. On August 31, 2005, Polanski Corporation acquired for $84,115 (a 14% yield),$100,000 face amount of 10%, 20-year bonds (interest payable semiannually) due August 31, 2011, of Skowalksi Company,
10. A debit to Minority Interest in Net Assets of Subsidiary is inappropriate in a working paper elimination (in journal entry format) for intercompany sales of merchandise by a:a. Parent company to
9. During the fiscal year ended March 31, 2006, Puritan Corporation sold merchandise costing $120,000 to its 75%-owned subsidiary, Separatist Company, at a gross profit rate of 40%. In the relevant
8. In a working paper elimination (in journal entry format) dated March 31, 2006, for the elimination of intercompany sales, cost of goods sold, and intercompany profit in inventories resulting from

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