Acct425 Unit 2

43 Questions  I  By Lpalmer8
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Chapters 6-10

  
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  • 1. 
    2. Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying  value of the bonds. According to the most practical view of this intra-entity transaction, to whom would the loss be attributed?
    • A. 

      A. To Safire because the bonds were issued by Safire.

    • B. 

      B. The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt.

    • C. 

      C. The loss should be amortized over the life of the bonds and need not be attributed to either party.

    • D. 

      D. The loss should be deferred until it can be determined to whom the attribution can be made.

    • E. 

      E. To Regency because Regency is the controlling party in the business combination.


  • 2. 
    3. Where do dividends paid to the noncontrolling interest of a subsidiary appear on a consolidated statement of cash flows? 
    • A. 

      A. Cash flows from operating activities.

    • B. 

      B. Cash flows from investing activities.

    • C. 

      C. Cash flows from financing activities.

    • D. 

      D. Supplemental schedule of noncash investing and financing activities.

    • E. 

      E. They do not appear in the consolidated statement of cash flows.


  • 3. 
    4. Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows? 
    • A. 

      A. Cash flows from operating activities.

    • B. 

      B. Cash flows from investing activities.

    • C. 

      C. Cash flows from financing activities.

    • D. 

      D. Supplemental schedule of noncash investing and financing activities.

    • E. 

      E. They do not appear in the consolidated statement of cash flows.


  • 4. 
    5. Where do intra-entity sales of inventory appear in a consolidated statement of cash flows? 
    • A. 

      A. They do not appear in the consolidated statement of cash flows.

    • B. 

      B. Supplemental schedule of noncash investing and financing activities.

    • C. 

      C. Cash flows from operating activities.

    • D. 

      D. Cash flows from investing activities.

    • E. 

      E. Cash flows from financing activities.


  • 5. 
     Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.   1a. When Buckette prepared consolidated financial statements, it should include 
    • A. 

      A. Shuvelle but not Tayle.

    • B. 

      B. Tayle but not Shuvelle.

    • C. 

      C. either Shuvelle or Tayle.

    • D. 

      D. Shuvelle and Tayle.

    • E. 

      E. neither Shuvelle nor Tayle.


  • 6. 
     Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.     2. What is this pattern of ownership called?
    • A. 

      A. Pyramid ownership.

    • B. 

      B. A connection or affiliation.

    • C. 

      C. Mutual ownership.

    • D. 

      D. An indirect affiliation

    • E. 

      E. An affiliated group.


  • 7. 
     Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle. 3. What percentage of Tayle's income is attributed to Buckette's ownership interest? 
    • A. 

      A. 100%.

    • B. 

      B. 75%.

    • C. 

      C. 61%.

    • D. 

      D. 40%.

    • E. 

      E. 74%.


  • 8. 
    5. In a tax-free business combination, 
    • A. 

      A. the income tax basis for acquired assets and liabilities is adjusted to current fair value.

    • B. 

      B. any goodwill created by the combination may be amortized in calculating taxable income.

    • C. 

      C. the subsidiary's assets and liabilities are assigned an income tax basis of zero dollars, so that they will have no future income tax consequences.

    • D. 

      D. any goodwill created by the combination must be deducted in total in calculating taxable income.

    • E. 

      E. the subsidiary's cost basis for assets are retained for income tax calculations.


  • 9. 
    8. Which of the following statements is true regarding the filing of income taxes for an affiliated group? 
    • A. 

      A. Domestic subsidiaries greater than 50% ownership must file a consolidated tax return.

    • B. 

      B. Domestic subsidiaries greater than 60% ownership must file a consolidated tax return.

    • C. 

      C. Domestic subsidiaries greater than 80% ownership must file a consolidated tax return.

    • D. 

      D. Domestic subsidiaries greater than 80% ownership may file a consolidated tax return.

    • E. 

      E. Foreign subsidiaries must file a consolidated tax return.


  • 10. 
    2. Kaycee Corporation's revenues for the year ended December 31, 2012, were as follows:        Consolidated revenue per the income statement: $1,200,000        Upstream intersegment sales: $180,000        Downstream intersegment sales: $60,000 For purposes of the Revenue Test, what amount will be used as the benchmark for determining whether a segment is reportable?
    • A. 

      A. $24,000.

    • B. 

      B. $120,000.

    • C. 

      C. $138,000.

    • D. 

      D. $144,000.

    • E. 

      E. $0.


  • 11. 
    1. Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle.      A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle. On June 12,      when the parts were received and payment was made, the spot rate was $.28 per stickle.      At what amount should inventory be reported? 
    • A. 

      A. $0.

    • B. 

      B. $28,000.

    • C. 

      C. $24,000.

    • D. 

      D. $25,000.

    • E. 

      E. $2,000.


  • 12. 
    2. Mills Inc. had a receivable from a foreign customer that is due in the local currency of the customer (stickles). On      December 31, 2010, this receivable for §200,000 was correctly included in Mills' balance sheet at $132,000. When the      receivable was collected on February 15, 2011, the U.S. dollar equivalent was $144,000. In Mills' 2011 consolidated income      statement, how much should have been reported as a foreign exchange gain? 
    • A. 

      A. $0.

    • B. 

      B. $36,000.

    • C. 

      C. $48,000.

    • D. 

      D. $10,000.

    • E. 

      E. $12,000.


  • 13. 
    3. A spot rate may be defined as 
    • A. 

      A. The price a foreign currency can be purchased or sold today.

    • B. 

      B. The price today at which a foreign currency can be purchased or sold in the future.

    • C. 

      C. The forecasted future value of a foreign currency.

    • D. 

      D. The U.S. dollar value of a foreign currency.

    • E. 

      E. The Euro value of a foreign currency.


  • 14. 
    4. The forward rate may be defined as 
    • A. 

      A. The price a foreign currency can be purchased or sold today.

    • B. 

      B. The price today at which a foreign currency can be purchased or sold in the future.

    • C. 

      C. The forecasted future value of a foreign currency.

    • D. 

      D. The U.S. dollar value of a foreign currency.

    • E. 

      E. The Euro value of a foreign currency.


  • 15. 
    5. Which statement is true regarding a foreign currency option? 
    • A. 

      A. A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future.

    • B. 

      B. A foreign currency option gives the holder the obligation only to sell foreign currency in the future.

    • C. 

      C. A foreign currency option gives the holder the obligation to only buy foreign currency in the future.

    • D. 

      D. A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future.

    • E. 

      E. A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate on the future date.


  • 16. 
    6. A U.S. company sells merchandise to a foreign company denominated in U.S. dollars.     Which of the following statements is true? 
    • A. 

      A. If the foreign currency appreciates, a foreign exchange gain will result.

    • B. 

      B. If the foreign currency depreciates, a foreign exchange gain will result.

    • C. 

      C. No foreign exchange gain or loss will result.

    • D. 

      D. If the foreign currency appreciates, a foreign exchange loss will result.

    • E. 

      E. If the foreign currency depreciates, a foreign exchange loss will result.


  • 17. 
    7. A U.S. company sells merchandise to a foreign company denominated in the foreign currency.     Which of the following statements is true? 
    • A. 

      A. If the foreign currency appreciates, a foreign exchange gain will result.

    • B. 

      B. If the foreign currency depreciates, a foreign exchange gain will result.

    • C. 

      C. No foreign exchange gain or loss will result.

    • D. 

      D. If the foreign currency appreciates, a foreign exchange loss will result.

    • E. 

      E. Any gain or loss will be included in comprehensive income.


  • 18. 
    9. Which of the following approaches is used in the United States in accounting for foreign currency transactions? 
    • A. 

      A. One-transaction perspective; defer foreign exchange gains and losses.

    • B. 

      B. Two-transaction perspective; accrue foreign exchange gains and losses.

    • C. 

      C. Three-transaction perspective; defer foreign exchange gains and losses.

    • D. 

      D. One-transaction perspective; accrue foreign exchange gains and losses.

    • E. 

      E. Two-transaction perspective; defer foreign exchange gains and losses.


  • 19. 
    1. In accounting, the term translation refers to 
    • A. 

      A. the calculation of gains or losses from hedging transactions.

    • B. 

      B. the calculation of exchange rate gains or losses on individual transactions in foreign currencies.

    • C. 

      C. the procedure required to identify a company's functional currency.

    • D. 

      D. the calculation of gains or losses from all transactions for the year.

    • E. 

      E. a procedure to prepare a foreign subsidiary's financial statements for consolidation.


  • 20. 
    2. What is a company's functional currency? 
    • A. 

      A. The currency of the primary economic environment in which it operates.

    • B. 

      B. The currency of the country where it has its headquarters.

    • C. 

      C. The currency in which it prepares its financial statements.

    • D. 

      D. The reporting currency of its parent for a subsidiary.

    • E. 

      E. The currency it chooses to designate as such.


  • 21. 
    4. The translation adjustment from translating a foreign subsidiary's financial statements should be shown as 
    • A. 

      A. an asset or liability (depending on the balance) in the consolidated balance sheet.

    • B. 

      B. a revenue or expense (depending on the balance) in the consolidated income statement.

    • C. 

      C. a component of stockholders' equity in the consolidated balance sheet.

    • D. 

      D. a component of cash flows from financing activities in the consolidated statement of cash flows.

    • E. 

      E. an element of the notes which accompany the consolidated financial statements.


  • 22. 
    5. Which accounts are translated using current exchange rates? 
    • A. 

      A. All revenues and expenses.

    • B. 

      B. All assets and liabilities.

    • C. 

      C. Cash, receivables, and most liabilities.

    • D. 

      D. All current assets and liabilities.

    • E. 

      E. All noncurrent assets and liabilities.


  • 23. 
    8. Under the current rate method, common stock would be translated at what rate? 
    • A. 

      A. Beginning of the year rate.

    • B. 

      B. Average rate.

    • C. 

      C. Current rate.

    • D. 

      D. Historical rate.

    • E. 

      E. Composite amount.


  • 24. 
    9. Where is the disposition of a translation loss reported in the parent company's financial statements? 
    • A. 

      A. Net loss in the income statement.

    • B. 

      B. Cumulative translation adjustment as a deferred asset.

    • C. 

      C. Cumulative translation adjustment as a deferred liability.

    • D. 

      D. Accumulated other comprehensive income.

    • E. 

      E. Retained earnings.


  • 25. 
    Ch.6  1. An enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and noncontrolling interest of that entity if: 
    • A. 

      The VIE has issued no voting stock

    • B. 

      The variable interest held by the enterprise involves a lease

    • C. 

      The enterprise has a controlling financial interest in the VIE

    • D. 

      Other equity interests in the VIE have the obligation to absorb the expected losses of the VIE


  • 26. 
    Ch. 6 3. The parent company acquires all of a subsidiary's common stock but only 70 percent of its preferred shares. This preferred stock pays a 7 percent annual cumulative dividend. No dividends are in arrears at the current time. How is the noncontrolling interest's share of the subsidiary's income computed?
    • A. 

      As 30 percent of the subsidiary's preferred dividend.

    • B. 

      No allocation is made because the dividends have been paid.

    • C. 

      As 30 percent of the subsidiary's income after all dividends have been subtracted.

    • D. 

      Income is assigned to the preferred stock based on total par value and 30 percent of that amount is allocated to the noncontrolling interest.


  • 27. 
    Ch. 6 11. Mattoon, Inc., owns 80 percent of Effingham Company. For the current year, this combined entity reported consolidated net income of $500,000. Of this amount $465,000 was attributable to Mattoon's controlling interest while the remaining $35,000 was attributable to the noncontrolling interest. Mattoon has 100,000 shares of common stock outstanding and Effingham has 25,000 shares outstanding. Neither company has issued preferred shares or has any convertible securities outstanding. On the face of the consolidated income statement, how much should be reported as Mattoon's earnings per share?
    • A. 

      %5.00

    • B. 

      $4.65

    • C. 

      $4.00

    • D. 

      $3.88


  • 28. 
    Ch. 7 1. In a father-son-grandson business combination, which of the following is true? 
    • A. 

      The father company always must have its realized income computed first

    • B. 

      The computation of a company's realized income has no effect on the realized income of other companies within a business combination

    • C. 

      A father-son-grandson configuration does not require consolidation unless one company owns shares in all of the other companies

    • D. 

      All companies solely in subsidiary positions must have their realized income computed first within the consolidation process


  • 29. 
    Ch. 7  4. Which of the following is correct for two companies that want to file a consolidated tax return as an affiliated group?
    • A. 

      One company must hold at least 51 percent of the other company's voting stock

    • B. 

      One company must hold at least 65 percent of the other company's voting stock.

    • C. 

      One company must hold at least 80 percent of the other company's voting stock

    • D. 

      They cannot file one unless one company owns 100 percent of the other's voting stock


  • 30. 
    Ch. 7  5. How does the amortization of tax-deductible goodwill affect the computation of a parent company's income taxes? 
    • A. 

      It is a deductible expense only if the parent owns at least 80 percent of a subsidiary's voting stock

    • B. 

      It is deductible only as impairments are recognized

    • C. 

      It is a deductible item over a 15-year period

    • D. 

      It is deductible only if a consolidated tax return is filed


  • 31. 
    Ch. 7 11. Plumas, Inc., owns 85 percent of Santa Cruz Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $100,000 merchandise costing $70,000 to the subsidiary, which still held 20 percent of this merchandise at the end of the year. Assume that the tax rate is 25 percent and that separate tax returns are filed. What deferred income tax asset is created? 
    • A. 

      0

    • B. 

      $300

    • C. 

      $1,500

    • D. 

      $7,500


  • 32. 
    Ch. 8  3. Which of the following operating segment disclosures is not required under current U.S. accounting guidelines?
    • A. 

      Liabilities

    • B. 

      Interest expense

    • C. 

      Intersegment sales

    • D. 

      Unusual items and extraordinary items


  • 33. 
    Ch. 8  4. In determining whether a particular operating segment is of significant size to warrant disclosure, which of the following is true? 
    • A. 

      Three tests are applied, and all three must be met

    • B. 

      Four tests are applied, and only one must be met

    • C. 

      Three tests are applied, and only one must be met

    • D. 

      Four tests are applied, and all four must be met


  • 34. 
    Ch. 8  7. Which of the following is a criterion for determining whether an operating segment is separately reportable? 
    • A. 

      Segment liabilities are 10 percent or more of consolidated liabilities

    • B. 

      Segment profit or loss is 10 percent or more of consolidated net income

    • C. 

      Segment assets are 10 percent or more of combined segment assets

    • D. 

      Segment revenues from external sales are 5 percent or more of combined segment revenues from external sales.


  • 35. 
    Ch. 8  9. Plume Company has a paper products operating segment. Which of the following items does it not have to report for this segment? 
    • A. 

      Interest expense

    • B. 

      Research and development expense

    • C. 

      Depreciation and amortization expense

    • D. 

      Interest income


  • 36. 
    Ch 8  10. Which of the following items is required to be disclosed by geographic area? 
    • A. 

      Total assets

    • B. 

      Revenues from external customers

    • C. 

      Profit or loss

    • D. 

      Capital expenditures


  • 37. 
    Ch. 8  13. Which of the following information items with regard to a major customer must be disclosed? 
    • A. 

      The identity of the customer

    • B. 

      The percentage of total sales derived from the major customer

    • C. 

      The operating segment making the sale

    • D. 

      The geographic area from which the sale was made


  • 38. 
    Ch. 8  17. For interim financial reporting, an extraordinary gain occurring in the second quarter should be 
    • A. 

      Recognized ratably over the last three quarters

    • B. 

      Recognized ratably over all four quarters, with the first quarter being restated

    • C. 

      Recognized in the second quarter

    • D. 

      Disclosed by footnote only in the second quarter


  • 39. 
    Chapter 9 5. On July 1, 2013, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2014. The note due on July 1, 2014. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:  Date                                                                              Amount July 1, 2013 (date borrowed)..................................... 195,000 December 31,2013 (Houghton's year-end)............ 220,000 July 1, 2014 (date repaid) .......................................... 230,000 In its 2014 income statement, what amount should Houghton include as a foreign exchange gain or loss on the note? 
    • A. 

      35,000 gain

    • B. 

      35,000 loss

    • C. 

      10,000 gain

    • D. 

      10,000 loss


  • 40. 
    Chapter 9  8. A U.S. exporter has a Thai baht account receivable resulting from an export sale on April 1 to a customer in Thailand. The exporter signed a forward contract on April 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht receivable.  The spot rate was .022 on that date, and the forward rate was .023. Which of the following did the U.S. exporter report in net income? 
    • A. 

      Discount expense

    • B. 

      Discount revenue

    • C. 

      Premium expense

    • D. 

      Premium revenue


  • 41. 
    Chapter 10  2. In comparing the translation and the remeasurement process, which of the following is true? 
    • A. 

      The reported balance of inventory is normally the same under both methods.

    • B. 

      The reported balance of equipment is normally the same under both methods.

    • C. 

      The reported balance of sales is normally the same under both methods.

    • D. 

      The reported balance of depreciation expense is normally the same under both methods.


  • 42. 
    Chapter 10 16. Which of the following items is not remeasured using historical exchange rates under the temporal method? 
    • A. 

      Accumulated depreciation on equipment

    • B. 

      Cost of goods sold

    • C. 

      Marketable equity securities

    • D. 

      Retained earnings


  • 43. 
    Chapter 10 20. Gains from remeasuring a foreign subsidiary's financial statements from the local currency, which is not the functional currency, into the parent's currency should be reported as a(n) 
    • A. 

      Deferred foreign exchange gain

    • B. 

      Translation adjustment in Other Comprehensive Income

    • C. 

      Extraordinary item, net of income taxes

    • D. 

      Part of continuing operations


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