Question 2

When the affiliated companies sell on credit the commercial balances, the accounts receivable and the intercompany payables:

a-Appear only in the books of the parent in the consolidated statements

b- They appear only in the books of the subsidiary in the consolidated statements

c-Appear in the books of both the parent company and the subsidiary in the consolidated statements

d-They do not appear in the consolidated statements

Question 3

You are the controller of company P and you have been asked to review this situation to see if it is in the best interest of the company. Company P would like to sell bonds to obtain financing. Company P has an 80% interest in company S and interest rates are down. Company S is smaller than company P and has a lower credit rating. Company P wants to reduce interest costs on company debt S. You have decided

a-Intercompany debt is eliminated when the consolidated statements are prepared so it would be a good idea

bThe intercompany debt would not be eliminated when the consolidated statements are prepared, therefore, it shows a high current relation with the parent company.

c-The intercompany debt would not be eliminated when the consolidated statements were prepared, which would show a high current ratio with the subsidiary

d-A parent can not incur debt for a subsidiary

Question 4

A sign of significant influence in the accounting of capital investments would be:

a-Shared management, employees or technology between the investment and the investor

b-Shared external auditor.

c-Greater percentage of ownership by third parties.

d-Great decrease in the market price per common share

Question 5

A company has purchased, for 50,000 FCs, an electric generator from a foreign company. The exchange rates were 1 FC = $ 0.90 on the delivery date and 1 FC = $ 0.76 when the payment was paid. What is the final value registered if the two-transaction method is used?

a- $ 38,000

b- $ 40,000

c- $ 45,000

d- $ 50,000

Question 6

A arm's length transaction, which would be reflected in the consolidated financial statements, would include:

a-A loan to the president of the subsidiary company

b-The purchase of material from a supplier abroad

c-The sale of fixed assets that are no longer needed to the subsidiary

d-Sales of inventory to a subsidiary

Question 7

The equity method of investment accounting would apply in which situation:

a-When 20-50% of preferred shares are owned

b-When a threshold of 15-20% of the ownership of ordinary shares is reached.

c-When consolidation is impracticable.

d - When less than 20% of the ordinary shares are owned, if the investor can exercise a significant influence over the operations of the investees.

Question 8

An economic advantage of a business combination includes

a-Use of duplicate assets

b-Create separate management teams

c-Coordinated marketing campaigns

d-Combination of levels horizontally within the marketing chain

Question 9

Assuming that the functional currency of a foreign subsidiary is not the local currency, which of the following accounts would be re-evaluated at the historical rate?

a-Accounts Payable

b-Notes payable in the long term

c-Lands

d-Sales Income