2 - The consolidation process is performed:

a) Each year since the entries is recorded in the journal and ledger only by the parent company.

b) Each year since the entries is recorded in the journal and ledger only by the subsidiary company.

c) Each year, since the consolidation entries are not recorded in the journal or ledger by either the parent or the subsidiary.

4 - An arm's length transaction, that would be reflected in consolidated financial statements would include:

a) The purchase of material from a supplier abroad

b) The sale of fixed assets that are no longer needed to the subsidiary

c) Sales of inventory to a subsidiary

18 - You are the controller of Parent company and have been asked to communicate your findings on a situation that is in the best interest of the company. Parent company would like to sell bonds to obtain financing. Parent company owns an 80% interest in Subsidiary company and interest rates are down. Subsidiary company is smaller than Parent company and has a lower credit rating. Parent company would like to reduce interest costs on Subsidiary company debt. You have decided

a) The intercompany debt would not be eliminated when consolidated statements are prepared therefore showing a high current ratio to the parent.

b) The intercompany debt would not be eliminated when consolidated statements are prepared therefore showing a high current ratio to the subsidiary

c) A parent cannot incur debt for a subsidiary.

19 - Company A invested in Company B. The market value of company B has significantly declined in the current year and this trend is predicated to continue. Company A uses the equity-method and as controller would be acting ethically if you:

a) Do nothing and carry the investment at its original cost

b) Write down the investment temporarily and write it back up when the company improves in future years

c) Write down the investment to its market value and recognize a loss