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. 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