Problem 1: A special-purpose entity (SPE), in general, is defined as:
A Taking the form of a corporation, trust or partnership
B A financing vehicle that is not a substantive operating entity
C An entity usually created for a single specified purpose
D All of the above
E None of the above
Problem 2: When two or more companies join under common control, this is referred to as a:
A Joint venture
B Statutory consolidation
C Business combination
D Acquisition
E None of the above
Problem 3: Which method of accounting for one company's investment in another is used most often when the investment is between 20 and 50 percent of the investee's common stock:
A Cost method
B Equity method
C Fair market method
D Consolidation
E None of the above
Problem 4: A Company owns 25% of Z Company's outstanding common stock. Z Company is currently undergoing bankruptcy proceedings. Which method of accounting for A's investment in Z is appropriate?
A Consolidation
B Fair market method
C Cost method
D Equity method
E None of the above
Problem 5: If the investee reports net income, what effect does this have on the investor's accounts under the equity method?
A Record loss from investment, increase investment account
B Record income from investment, increase investment account
C Record income from investment, decrease investment account
D Record asset, increase investment account
E None of the above
Problem 6: The official pronouncement which governs accounting for foreign currency-denominated transactions that require payment or receipt of foreign currency is which of the following?
A FASB Statement No. 52
B FASB Statement No. 133
C FASB Statement No. 138
D FASB Statement No. 149
E None of the above
Problem 7: An exchange rate based on future exchanges of currencies is known as the:
A Spot rate
B Direct exchange rate
C Forward exchange rate
D Indirect exchange rate
E None of the above
Problem 8: For a hedge transaction, if the spot rate is greater than the forward rate, the foreign currency is selling at a premium in the forward market.
A TRUE
B FALSE
Problem 9: Which of the following is NOT an indicator that must be assessed in determining an entity's functional currency?
A Financing
B Expenses
C Cash flows
D Retained earnings
E None of the above
Problem 10: Consolidated financial statements present the financial position and results of operations for:
A A single company
B A single subsidiary
C A parent and one or more subsidiaries
D A parent company only
E None of the above
Problem 11: Parties who may be interested in the information presented in consolidated financial statements include:
A Creditors
B Long-term investors
C Parent company management
D All of the above
E None of the above
Problem 12: "Pyramiding" is another term for:
A Indirect control
B Direct control
C Horizontol control
D Vertical control
E None of the above
Problem 13: The reasons a company might acquire the common stock of another at a price less than book value include:
A Bargain purchase
B Impairment of previously recorded goodwill
C Excess of book value over the fair value of the subsidiary's net identifiable assets
D All of the above
E None of the above
Problem 14:m Consolidated net income and the parent company's equity-method net income are normally equal
A TRUE
B FALSE
Problem 15: When a goodwill impairment loss is recognized when preparing consolidated financial statements, under the equity method, the parent company should make an entry on its books to reflect this impairment of goodwill.
A TRUE
B FALSE