Consolidated Financial Statements
Chapter Exam Questions
Course Introduction
This course focuses on the principles and procedures involved in preparing consolidated financial statements, which present the financial position and operations of a parent company and its subsidiaries as a single economic entity. Students will explore topics such as the concept of control, acquisition methods, intercompany transactions, the elimination of intercompany profits, and the impact of non-controlling interests. The course also addresses the treatment of investments in associates and joint ventures, fair value adjustments, and relevant reporting standards. By the end of the course, students will develop the analytical and technical skills required to interpret and prepare consolidated financial reports in accordance with International Financial Reporting Standards (IFRS) and other pertinent accounting frameworks.
Recommended Textbook
Modern Advanced Accounting in Canada 6th Edition by Murray Hilton
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Chapter 1: A Survey of International Accounting
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Q1) Which enterprises will need to report under IFRSs in Canada:
A)All corporations,government agencies and private companies..
B)Public companies and private companies whose shareholders' equity is in excess of $500,000,000 at any particular year end.
C)Public companies,private companies and not-for-profit organizations.
D)Publically accountable enterprises.
Answer: D
Q2) One of the underlying assumptions of the Historical Cost Principle is that a stable unit measure (currency)can be used for Financial Reporting.Is this always the case? How have some countries attempted to adjust for any limitations associated with the Historical Cost Principle?
Answer: The Historical Cost Principle is not very useful when inflation rates are high.As a result of the eroding purchase power associated with periods of high inflation,many countries have had to experiment with price-level adjustments.These adjustments often include asset revaluations to reflect their current values.South American countries such as Mexico and Brazil have experimented with price-level adjustments,due to their high inflation rates.Canada,the U.S.and the United Kingdom have also experimented with price-level accounting in the 1970s when inflation rates in these countries were high.
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Chapter 2: Investments in Equity Securities
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Q1) The difference between the Investor's cost and the Investor's percentage of the net identifiable assets of the Associate is known as:
A)goodwill.
B)the Acquisition Differential.
C)the Fair Value Increment.
D)the Excess Book Value.
Answer: B
Q2) Any unallocated positive Acquisition Differential is normally:
A)pro-rated across the Associate's identifiable net assets.
B)charged to Retained Earnings.
C)recorded as Goodwill.
D)expensed during the year following the acquisition.
Answer: C
Q3) What would be the amount of the Acquisition Differential amortization for 2002?
A)$3,200
B)$32,000
C)$28,000
D)$2,800
Answer: A
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Chapter 3: Business Combinations
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Sample Questions
Q1) How much Goodwill was amortized during 2003?
A)$700
B)($1,700)
C)$1,700
D)None - Goodwill is never amortized.
Answer: D
Q2) One company is considering entering into a business combination with another.The potential acquirer wishes to acquire the subsidiary's assets and liabilities but wishes to prepare Consolidated Financial Statements using the Fair Market Values of its own assets and liabilities as well of those of its potential subsidiary.Can this be accomplished?
A)Yes,this is permissible under the Pooling of Interests method)
B)Yes,this is permissible under the Purchase Method under certain circumstances.
C)Yes,this would be possible,but only if the New Entity Method is used)
D)No,this would not be possible under any circumstances as it would be a violation of GAAP.
Answer: C
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Chapter 4: Consolidated Statements on Date of Acquisition
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Q1) Contingent consideration should be valued at
A)the fair value of the consideration on the date of acquisition.
B)the book value of the consideration at the date of acquisition.
C)the acquirer's pro-rata share of the subsidiary's net assets at book value at the date of acquisition.
D)the acquirer's pro-rata share of the subsidiary's net assets at fair value at the date of acquisition.
Q2) Assume that Parent Inc.decides to prepare an Income Statement for the combined entity on the date of acquisition.Assuming that Parent acquires 100% of Sub Inc.on that date,what would be the net income reported for the combined entity?
A)$180,000
B)$120,000
C)$ 60,000
D)Nil
Q3) Any goodwill on the subsidiary's company's books on the date of acquisition:
A)must be revalued)
B)must be eliminated)
C)must be recorded as a loss on acquisition.
D)must be subject to an impairment test.
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Q1) Assuming that GNR Inc uses the Equity Method,what effect would the above information have on GNR's investment in NMX account?
A)An increase of $30,000.
B)An increase of $40,000.
C)An increase of $10,000
D)No effect.
Q2) An impairment loss can be reversed when
A)the impairment loss no longer exists or has been reduced and there has been a change in the estimates used to determine the assets recoverable amount.
B)with the exception of goodwill,all intangible assets carrying values exceed their fair market values.
C)the intangible assets carrying values exceed their undiscounted future cash flows.
D)the recoverable amount is determined and compared to the carrying amount.If the recoverable amount is greater than the carrying amount then the impairment loss previously recorded is reversed)
Q3) Explain how the amount was derived for Remburn's investment in Stanton account on December 31,2002.
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Chapter 6: Intercompany Inventory and Land Profits
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Q1) Calculate Consolidated Retained Earnings as at December 31,2009.
Q2) Calculate the non-controlling interest (Balance Sheet)as at December 31,2009.
Q3) Which of the following statements best describes the required accounting treatment with respect to income taxes on intercompany profits?
A)These taxes can be ignored since an increase in income tax expense for one company is offset by an equivalent reduction in Income Tax expense for the other.
B)They would be recognized as assets for the purchasing entity and liabilities for the selling entity.
C)They would be recognized as liabilities for the purchasing entity and assets for the selling entity.
D)They would be charged to retained earnings during the preparation of Financial Statements.
Q4) Prepare a schedule showing the realized and unrealized profits for Q Inc.for 2006 and 2007.Your schedule should include both pre-tax and after-tax amounts.
Q5) Calculate the non-controlling interest (Balance Sheet)as at June 30,2010.
Q6) Compute MAX's Consolidated Net Income for 2009.
Q7) Prepare YIN's Consolidated Income Statement for the Year ended June 30,2010
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Chapter 7: Aintercompany Profits in Depreciable Assets
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Q1) What would be the carrying value of the bonds payable appearing on Ting's December 31,2010 Consolidated Statement of Financial Position?
A)$130,000
B)$65,000
C)$64,500
D)$65,500
Q2) What was the pre-tax gain or loss to Duff Inc.on the intercompany sale of the bonds? A)Nil.
B)$10,000 loss.
C)$10,000 gain.
D)$20,000 loss.
Q3) What is the balance the Investment in Stempy account at the end of 2010?
A)$350,000
B)$300,000
C)$469,000
D)$444,960
Q4) Prepare a summary of intercompany bond transactions.Be sure to show the gain or loss for each company as well as the effect on the consolidated entity.
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Chapter 8: Consolidated Cash Flows and Ownership Issues
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Q1) Approximately what percentage of the non-controlling interest was due to D's own earnings?
A)19%
B)45%
C)30%
D)5%
Q2) How much of the acquisition differential was allocated to patents?
A)$36,000
B)$18,000
C)$6,000
D)Nil.
Q3) What was the amount of acquisition differential amortization for 2010?
A)$6,000
B)$8,000
C)$12,000
D)Nil.
Q4) Compute consolidated inventory for Ash as at December 31,2009.
Q5) Prepare Lime's December 31,2011 Consolidated Balance Sheet.
Q6) Compute the Goodwill on the date of the acquisition.
Q7) Compute the Consolidated Cost of Goods Sold for 2009.
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Chapter 9: Other Consolidated Reporting Issues
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Q1) According to GAAP,what is the key feature of a joint arrangement?
A)One venturer has a controlling interest in the joint arrangement.
B)More than one venturer has a controlling interest in the joint arrangement.
C)Joint control,namely,no one venturer can unilaterally control the venture regardless of the size of the equity contribution.
D)The two largest equity contributors will have joint control over the venture.
Q2) Which of the following methods is the current method used to account for intraperiod tax allocation?
A)The Income Statement Approach.
B)The Deferral Approach.
C)The Balance Sheet Approach.
D)Deferred Tax Accounting.
Q3) What is the total amount of intercompany receivables to be eliminated from the financial statements?
A)$50,000
B)$10,000
C)$40,000
D)Nil
Q4) Compute Alcor's Consolidated Retained Earnings as at December 31,2010.
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Chapter 10: Foreign Currency Transactions
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Q1) At what amount would CDN record its Inventory purchase from RNB at the time of purchase?
A)$820 U.S.
B)$820 CDN.
C)$810 CDN.
D)$805 CDN.
Q2) What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date under the one-transaction approach?
A)Nil.
B)A $10 Exchange Loss.
C)A $10 Exchange Gain.
D)A $15 Exchange Loss.
Q3) What is the amount of North's deferred exchange gain or loss arising from this transaction?
A)Nil
B)$7,800 Gain
C)$3,900 Loss
D)$4,000 Gain
Q4) Prepare GRL's journal entries for each of 2011,2012 and 2013.
Q5) Prepare any and all journal entries arising from this transaction.
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Chapter 11: Translation and Consolidation of the Financial
Statements of Foreign Operations
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Q1) Which of the following statements is FALSE?
A)If a subsidiary is self-sustaining,the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
B)If a subsidiary is an integrated foreign subsidiary,the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
C)If a subsidiary is an integrated foreign subsidiary,a write-down to market may be required in the translated financial statements.
D)If a subsidiary is an integrated foreign subsidiary,no write-down is required in the foreign currency financial statements.
Q2) Which of the following rates would be used to translate the company's inventory?
A)$1CDN=$0.815 U.S.
B)$1CDN=$0.8175 U.S.
C)$1CDN=$0.8250 U.S.
D)$1CDN=$0.83 U.S.
Q3) Translate Wilsen's December 31,2014 Statement of Retained Earnings.
Q4) Translate Wilsen's December 31,2014 Statement of Retained Earnings.
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Chapter 12: Accounting for Not-For-Profit Organizations and
Governments
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Q1) Prepare journal entries for these transactions,using the deferred contribution method,assuming that the assets were purchased using restricted funds in the amount of $11,000.
Q2) Which of the following statements is correct?
A)An endowment is a donation that is received with the proviso that it be spent in a specified manner and often in the form of invested funds and only the earnings from the fund may be spent on the organization.
B)Endowments are unrestricted donations which can be used for any purposes that are consistent with the goals and objectives of the not-for-profit organization.
C)Endowments are provided as donations which only allow a not-for-profit organization to invest in other not-for-profit organizations only.
D)Endowments may be restricted and unrestricted funds which must be used in accordance with the wishes of the contributor and only available during the life of the donor.
Q3) Describe what fund accounting is and why is it used for not-for-profit organizations.
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