1. The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method.

02. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements? a. Assets under Construction; Billings on Construction in Progress; Earned Income on LongTerm Contracts b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable

03. The method of accounting for subsidiaries that is required for influential investments is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. '

04. A fair value hedge may include hedges against the change in the fair value of all but: a. an accounts receivable. b. a purchase order. c. a long-term loan. d. a forecasted sale.

05. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. d. Consolidated Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest.

06. Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process? a. The subsidiarys payment of rent to its parent. b. The sale of merchandise by a parent to its subsidiary. c. The amount of a loan to the subsidiary made by its parent. d. None of the above.

07. When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a a. domestic rate. b. hedge rate. c. rate of currency change. d. rate of exchange.

08. The best definition for direct quotes would be "direct quotes measure a. how much foreign currency must be exchanged to receive 1 domestic currency." b. current or spot rates." c. how much domestic currency must be exchanged to receive 1 foreign currency." d. exchange rates at a future point in time."

09. The sale of inventory items by a parent company to an affiliated 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 entities. d. does not require a working paper adjustment if the merchandise was transferred at cost.

10. In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the a. subsidiary's income earned for the entire year. b. subsidiary's income earned from the beginning of the year to the date of acquisition. c. subsidiary's income earned from the date of acquisition to the end of the year. d. dividends received from the subsidiary during the period of ownership. 11. Under IASB for small and medium entities, goodwill: a. is subject to impairment procedures. b. is never adjusted. c. is amortized over ten years. d. is not recorded in an acquisition.

12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements. b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary. c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation. d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income.

13. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use.

14. The time value of an option is the difference between the a. premium paid and its current rate. b. premium paid and its intrinsic value. c. exercise price and its current rate. d. call option price and the put option price.

15. In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as a. a component of stockholders' equity. b. a component of other comprehensive income. c. an extraordinary item. d. income from continuing operations.

16. Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliates books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary.

17. Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the interest rate differential over time c. the current cross rate between the two currencies d. all are factors that may influence the spread

18. The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method.

19. The forward rate in a forward contract a. is the spot rate at the expiration date of the contract. b. changes as the spot rate changes. c. is said to be at a discount if it exceeds the spot rate at the inception of the contract. d. None of the above are true.

20. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is sold by Humphrey to an outside party in 20X3. What is the effect of the intercompany sale of land on 20X1 consolidated net income? a. Consolidated net income will be the same as it would have been had the sale not occurred. b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred. c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred. d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred.

1. The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 02. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements? a. Assets under Construction; Billings on Construction in Progress; Earned Income on LongTerm Contracts b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable 03. The method of accounting for subsidiaries that is required for influential investments is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 04. A fair value hedge may include hedges against the change in the fair value of all but: a. an accounts receivable. b. a purchase order. c. a long-term loan. d. a forecasted sale. Page 3 of 8 05. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. d. Consolidated Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest. 06. Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process? a. The subsidiarys payment of rent to its parent. b. The sale of merchandise by a parent to its subsidiary. c. The amount of a loan to the subsidiary made by its parent. d. None of the above. 07. When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a a. domestic rate. b. hedge rate. c. rate of currency change. d. rate of exchange. 08. The best definition for direct quotes would be "direct quotes measure a. how much foreign currency must be exchanged to receive 1 domestic currency." b. current or spot rates." c. how much domestic currency must be exchanged to receive 1 foreign currency." d. exchange rates at a future point in time." 09. The sale of inventory items by a parent company to an affiliated 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 entities. d. does not require a working paper adjustment if the merchandise was transferred at cost. 10. In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the a. subsidiary's income earned for the entire year. b. subsidiary's income earned from the beginning of the year to the date of acquisition. c. subsidiary's income earned from the date of acquisition to the end of the year. d. dividends received from the subsidiary during the period of ownership. 11. Under IASB for small and medium entities, goodwill: a. is subject to impairment procedures. b. is never adjusted. c. is amortized over ten years. d. is not recorded in an acquisition. Page 4 of 8 12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements. b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary. c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation. d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income. 13. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. 14. The time value of an option is the difference between the a. premium paid and its current rate. b. premium paid and its intrinsic value. c. exercise price and its current rate. d. call option price and the put option price. 15. In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as a. a component of stockholders' equity. b. a component of other comprehensive income. c. an extraordinary item. d. income from continuing operations. 16. Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliates books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary. 17. Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the interest rate differential over time c. the current cross rate between the two currencies d. all are factors that may influence the spread 18. The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 19. The forward rate in a forward contract a. is the spot rate at the expiration date of the contract. b. changes as the spot rate changes. c. is said to be at a discount if it exceeds the spot rate at the inception of the contract. d. None of the above are true. Page 5 of 8 20. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is sold by Humphrey to an outside party in 20X3. What is the effect of the intercompany sale of land on 20X1 consolidated net income? a. Consolidated net income will be the same as it would have been had the sale not occurred. b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred. c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred. d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred. 1. The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 02. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements? a. Assets under Construction; Billings on Construction in Progress; Earned Income on LongTerm Contracts b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable 03. The method of accounting for subsidiaries that is required for influential investments is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 04. A fair value hedge may include hedges against the change in the fair value of all but: a. an accounts receivable. b. a purchase order. c. a long-term loan. d. a forecasted sale. Page 3 of 8 05. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. d. Consolidated Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest. 06. Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process? a. The subsidiarys payment of rent to its parent. b. The sale of merchandise by a parent to its subsidiary. c. The amount of a loan to the subsidiary made by its parent. d. None of the above. 07. When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a a. domestic rate. b. hedge rate. c. rate of currency change. d. rate of exchange. 08. The best definition for direct quotes would be "direct quotes measure a. how much foreign currency must be exchanged to receive 1 domestic currency." b. current or spot rates." c. how much domestic currency must be exchanged to receive 1 foreign currency." d. exchange rates at a future point in time." 09. The sale of inventory items by a parent company to an affiliated 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 entities. d. does not require a working paper adjustment if the merchandise was transferred at cost. 10. In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the a. subsidiary's income earned for the entire year. b. subsidiary's income earned from the beginning of the year to the date of acquisition. c. subsidiary's income earned from the date of acquisition to the end of the year. d. dividends received from the subsidiary during the period of ownership. 11. Under IASB for small and medium entities, goodwill: a. is subject to impairment procedures. b. is never adjusted. c. is amortized over ten years. d. is not recorded in an acquisition. Page 4 of 8 12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements. b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary. c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation. d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income. 13. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. 14. The time value of an option is the difference between the a. premium paid and its current rate. b. premium paid and its intrinsic value. c. exercise price and its current rate. d. call option price and the put option price. 15. In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as a. a component of stockholders' equity. b. a component of other comprehensive income. c. an extraordinary item. d. income from continuing operations. 16. Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliates books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary. 17. Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the interest rate differential over time c. the current cross rate between the two currencies d. all are factors that may influence the spread 18. The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 19. The forward rate in a forward contract a. is the spot rate at the expiration date of the contract. b. changes as the spot rate changes. c. is said to be at a discount if it exceeds the spot rate at the inception of the contract. d. None of the above are true. Page 5 of 8 20. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is sold by Humphrey to an outside party in 20X3. What is the effect of the intercompany sale of land on 20X1 consolidated net income? a. Consolidated net income will be the same as it would have been had the sale not occurred. b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred. c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred. d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred. 1. The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 02. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements? a. Assets under Construction; Billings on Construction in Progress; Earned Income on LongTerm Contracts b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable 03. The method of accounting for subsidiaries that is required for influential investments is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 04. A fair value hedge may include hedges against the change in the fair value of all but: a. an accounts receivable. b. a purchase order. c. a long-term loan. d. a forecasted sale. Page 3 of 8 05. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. d. Consolidated Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest. 06. Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process? a. The subsidiarys payment of rent to its parent. b. The sale of merchandise by a parent to its subsidiary. c. The amount of a loan to the subsidiary made by its parent. d. None of the above. 07. When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a a. domestic rate. b. hedge rate. c. rate of currency change. d. rate of exchange. 08. The best definition for direct quotes would be "direct quotes measure a. how much foreign currency must be exchanged to receive 1 domestic currency." b. current or spot rates." c. how much domestic currency must be exchanged to receive 1 foreign currency." d. exchange rates at a future point in time." 09. The sale of inventory items by a parent company to an affiliated 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 entities. d. does not require a working paper adjustment if the merchandise was transferred at cost. 10. In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the a. subsidiary's income earned for the entire year. b. subsidiary's income earned from the beginning of the year to the date of acquisition. c. subsidiary's income earned from the date of acquisition to the end of the year. d. dividends received from the subsidiary during the period of ownership. 11. Under IASB for small and medium entities, goodwill: a. is subject to impairment procedures. b. is never adjusted. c. is amortized over ten years. d. is not recorded in an acquisition. Page 4 of 8 12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements. b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary. c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation. d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income. 13. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. 14. The time value of an option is the difference between the a. premium paid and its current rate. b. premium paid and its intrinsic value. c. exercise price and its current rate. d. call option price and the put option price. 15. In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as a. a component of stockholders' equity. b. a component of other comprehensive income. c. an extraordinary item. d. income from continuing operations. 16. Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliates books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary. 17. Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the interest rate differential over time c. the current cross rate between the two currencies d. all are factors that may influence the spread 18. The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 19. The forward rate in a forward contract a. is the spot rate at the expiration date of the contract. b. changes as the spot rate changes. c. is said to be at a discount if it exceeds the spot rate at the inception of the contract. d. None of the above are true. Page 5 of 8 20. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is sold by Humphrey to an outside party in 20X3. What is the effect of the intercompany sale of land on 20X1 consolidated net income? a. Consolidated net income will be the same as it would have been had the sale not occurred. b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred. c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred. d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred. 1. The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 02. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements? a. Assets under Construction; Billings on Construction in Progress; Earned Income on LongTerm Contracts b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable 03. The method of accounting for subsidiaries that is required for influential investments is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 04. A fair value hedge may include hedges against the change in the fair value of all but: a. an accounts receivable. b. a purchase order. c. a long-term loan. d. a forecasted sale. Page 3 of 8 05. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. d. Consolidated Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest. 06. Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process? a. The subsidiarys payment of rent to its parent. b. The sale of merchandise by a parent to its subsidiary. c. The amount of a loan to the subsidiary made by its parent. d. None of the above. 07. When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a a. domestic rate. b. hedge rate. c. rate of currency change. d. rate of exchange. 08. The best definition for direct quotes would be "direct quotes measure a. how much foreign currency must be exchanged to receive 1 domestic currency." b. current or spot rates." c. how much domestic currency must be exchanged to receive 1 foreign currency." d. exchange rates at a future point in time." 09. The sale of inventory items by a parent company to an affiliated 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 entities. d. does not require a working paper adjustment if the merchandise was transferred at cost. 10. In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the a. subsidiary's income earned for the entire year. b. subsidiary's income earned from the beginning of the year to the date of acquisition. c. subsidiary's income earned from the date of acquisition to the end of the year. d. dividends received from the subsidiary during the period of ownership. 11. Under IASB for small and medium entities, goodwill: a. is subject to impairment procedures. b. is never adjusted. c. is amortized over ten years. d. is not recorded in an acquisition. Page 4 of 8 12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements. b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary. c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation. d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income. 13. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. 14. The time value of an option is the difference between the a. premium paid and its current rate. b. premium paid and its intrinsic value. c. exercise price and its current rate. d. call option price and the put option price. 15. In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as a. a component of stockholders' equity. b. a component of other comprehensive income. c. an extraordinary item. d. income from continuing operations. 16. Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliates books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary. 17. Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the interest rate differential over time c. the current cross rate between the two currencies d. all are factors that may influence the spread 18. The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 19. The forward rate in a forward contract a. is the spot rate at the expiration date of the contract. b. changes as the spot rate changes. c. is said to be at a discount if it exceeds the spot rate at the inception of the contract. d. None of the above are true. Page 5 of 8 20. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is sold by Humphrey to an outside party in 20X3. What is the effect of the intercompany sale of land on 20X1 consolidated net income? a. Consolidated net income will be the same as it would have been had the sale not occurred. b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred. c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred. d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred. 1. The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 02. The following accounts were noted in reviewing the trial balance for Parent Co. and Subsidiary Corp.: Assets under Construction Contracts Receivable Billings on Construction in Progress Earned Income on Long-Term Contracts Contracts Payable If these accounts pertain to a contract where Subsidiary Corp. is building an asset for Parent Co., which of these accounts do you expect to eliminate when producing Parent Co. consolidated financial statements? a. Assets under Construction; Billings on Construction in Progress; Earned Income on LongTerm Contracts b. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts c. Assets under Construction; Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable d. Contracts Receivable; Billings on Construction in Progress; Earned Income on Long-Term Contracts; Contracts Payable 03. The method of accounting for subsidiaries that is required for influential investments is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 04. A fair value hedge may include hedges against the change in the fair value of all but: a. an accounts receivable. b. a purchase order. c. a long-term loan. d. a forecasted sale. Page 3 of 8 05. In consolidated financial statements, it is expected that: a. Dividends declared equals the sum of the total parent company's declared dividends and the total subsidiary's declared dividends. b. Retained Earnings equals the sum of the controlling interest's separate retained earnings and the noncontrolling interest's separate retained earnings. c. Common Stock equals the sum of the parent company's outstanding shares and the subsidiary's outstanding shares. d. Consolidated Net Income equals the sum of the income distributed to the controlling interest and the income distributed to the noncontrolling interest. 06. Which of the following intercompany transactions would not require a worksheet elimination in the consolidation process? a. The subsidiarys payment of rent to its parent. b. The sale of merchandise by a parent to its subsidiary. c. The amount of a loan to the subsidiary made by its parent. d. None of the above. 07. When an economic transaction is denominated in a currency other than the entity's domestic currency, the entity must establish a a. domestic rate. b. hedge rate. c. rate of currency change. d. rate of exchange. 08. The best definition for direct quotes would be "direct quotes measure a. how much foreign currency must be exchanged to receive 1 domestic currency." b. current or spot rates." c. how much domestic currency must be exchanged to receive 1 foreign currency." d. exchange rates at a future point in time." 09. The sale of inventory items by a parent company to an affiliated 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 entities. d. does not require a working paper adjustment if the merchandise was transferred at cost. 10. In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the a. subsidiary's income earned for the entire year. b. subsidiary's income earned from the beginning of the year to the date of acquisition. c. subsidiary's income earned from the date of acquisition to the end of the year. d. dividends received from the subsidiary during the period of ownership. 11. Under IASB for small and medium entities, goodwill: a. is subject to impairment procedures. b. is never adjusted. c. is amortized over ten years. d. is not recorded in an acquisition. Page 4 of 8 12. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but consolidated statements are being prepared for the parent company and other subsidiaries? a. All of the unconsolidated subsidiary's accounts will be included individually in the consolidated statements. b. The consolidated retained earnings will not reflect the earnings of the unconsolidated subsidiary. c. The consolidated retained earnings will be the same as if the subsidiary had been included in the consolidation. d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net income. 13. Emron Company owns a 100% interest in the common stock of the Dietz Company. On January 1, 20X2, Emron sold Dietz a fixed asset that Dietz will use over a 5-year period. The asset was sold at a $5,000 profit. In the consolidated statements, this profit will a. not be recorded. b. be recognized over 5 years. c. be recognized in the year of sale. d. be recognized when the asset is resold to outside parties at the end of its period of use. 14. The time value of an option is the difference between the a. premium paid and its current rate. b. premium paid and its intrinsic value. c. exercise price and its current rate. d. call option price and the put option price. 15. In a hedge of a forecasted transaction, gains or losses on derivative instruments prior to the occurrence of the actual transaction should be reported as a. a component of stockholders' equity. b. a component of other comprehensive income. c. an extraordinary item. d. income from continuing operations. 16. Which of the following should appear in consolidated financial statements? a. All intercompany transactions properly recorded on each affiliates books. b. Transactions between the consolidated company and outside parties. c. Transactions not accounted for by the simple equity method. d. Lease transactions between a parent and subsidiary. 17. Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the interest rate differential over time c. the current cross rate between the two currencies d. all are factors that may influence the spread 18. The method of accounting for subsidiaries where investment income is limited to dividends received is the a. cost method. b. simple equity method. c. investment method. d. sophisticated equity method. 19. The forward rate in a forward contract a. is the spot rate at the expiration date of the contract. b. changes as the spot rate changes. c. is said to be at a discount if it exceeds the spot rate at the inception of the contract. d. None of the above are true. Page 5 of 8 20. On January 1, 20X1 Bullock, Inc. sells land to its 80%-owned subsidiary, Humphrey Corporation, at a $20,000 gain. The land is sold by Humphrey to an outside party in 20X3. What is the effect of the intercompany sale of land on 20X1 consolidated net income? a. Consolidated net income will be the same as it would have been had the sale not occurred. b. Consolidated net income will be $20,000 less than it would have been had the sale not occurred. c. Consolidated net income will be $16,000 less than it would have been had the sale not occurred. d. Consolidated net income will be $20,000 greater than it would have been had the sale not occurred.