Investment in equity securities and consolidation


Question 1: Which of the following statements is true?

a. IFRS requires a greater application of professional judgment by the preparer of the financial statements
b. IFRS requires a lesser application of professional judgment by the auditors of the financial statements
c. IFRS is rule-based rather than principle based
d. U.S. FASB pronouncements are identical to IFRS

Question 2: Under which type of investment in equity securities would unrealized gains be reported in net income?

a. fair value through profit or loss
b. available-for-sale, market value available
c. available-for-sale, market value not available
d. significant influence

Question 3: Under the cost method, the investor’s share of dividends is:

a. reported in net income when received
b. reported in net income when declared
c. reported as a reduction to the investment account when received
d. reported as a reduction to the investment account when declared

Question 4: For purposes of calculating a parent company’s separate-entity income,

a. unrealized profits on intercompany transactions have no effect
b. unrealized profits on upstream transactions must be deducted
c. unrealized profits on downstream transactions must be deducted
d. unrealized profits on both upstream and downstream transactions must be deducted 

Question 5: After January 1, 2011, what is the preferred method of consolidation?

a. proprietary method
b. parent company method
c. parent company extension method
d. entity method

Question 6: Under the acquisition method, goodwill is defined as the excess of the pur    over the
a. fair value of the identifiable assets
b. fair value of the tangible assets
c. fair value of the net assets
d. book value of the net assets

Question 7: Which of the following stakeholders would find a company’s consolidated financial statements more useful than its separate-entity financial statements?

a. parent company’s creditors
b. subsidiary company’s creditors
c. minority shareholders
d. tax department

Question 8: What is the acquisition date for a business combination?

a. date of the first fiscal year-end when the business combination
b. when the acquirer obtains control of the acquiree
c. when the acquirer obtains an interest in the acquiree
d. when the acquirer obtains significant influence in the acquiree

Question 9: Where is the negative goodwill reported on the consolidated financial statements

a. under liabilities on the consolidated balance sheet
b. as a component on the consolidated statement of retained earnings
c. as a loss on the consolidated income statement
d. as a gain on the consolidated income statement

Question 10: Under IFRS, goodwill impairment testing is done:

a. on tangible assets as a group and on intangible assets as a group
b. on assets with definite lives as a group and on assets with indefinite lives as a group
c. at the cash-generating unit level
d. using whatever assets groupings are determined appropriate by the company

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Financial Accounting: Investment in equity securities and consolidation
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