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

Question 19

You have just been hired by ABC Inc. and are preparing consolidated statements. The company has had some difficult financial problems lately and they expect you to help them solve their financial problems. You would be acting ethically if:

a-Does not eliminate any intercompany transactions in the consolidation process

b-Does not eliminate any intercompany transaction in the consolidation process, including inter-company profit not realized

c-Eliminates all transactions between companies in the consolidation process, including the unrealized inter-company profit

d-Eliminates intercompany transactions in the consolidation process but does not eliminate the unrealized inter-company profit since it has not been carried out