Consolidated Financial Statements
Exam Solutions
Course Introduction
This course provides a comprehensive understanding of consolidated financial statements, focusing on the principles and procedures for preparing consolidated accounts for corporate groups. Students will explore the accounting standards and techniques applied when a parent company controls one or more subsidiaries, including the elimination of intercompany transactions, treatment of non-controlling interests, and the measurement and reporting of goodwill. The course also addresses complex group structures, associates, and joint ventures, equipping students with the analytical skills to interpret and prepare group financial statements in accordance with relevant international financial reporting standards.
Recommended Textbook
Modern Advanced Accounting in Canada 6th Edition by Murray Hilton
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12 Chapters
691 Verified Questions
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Page 2
Chapter 1: A Survey of International Accounting
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Sample Questions
Q1) Many large corporations have operation in many countries around the world.As a result,they need to raise debt and equity in order to finance their operations in many different countries.Will the movement towards converging reporting standards around the world make it easier for corporations to raise capital in many different capital markets around the world?
Answer: At the present time investors have to delay with a wide range of diverse accpounting standards and principles in countries around the world.As a result,many investors were in the past reluctant to invest in companies who accounting principles and standards they did not understand or ,who had at great expense,devoted considerable time and money developing an understanding of local accounting principles and standards.With the convergence of accountant standards and principles under IFRS investors around the world will be in a better position to evaluate those companies that they should invest in.The harmonization of accounting principles and standards will pave the way to the integration of capital markets.Around the globe. Note: The above analysis is not necessarily exhaustive.Students may be able to identify other valid differences.
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Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) What is the amount of unrealized after-tax profit from downstream sales during 2002?
A)$8,000
B)$3,000
C)$5,000
D)$4,000
Answer: B
Q2) Assuming that X's Investment in Y qualifies as a significant influence investment,what journal entry should be made at the end of the year?
Answer: 11ea8eda_c611_5277_9698_7735b13a1843_TB4094_00_TB4094_00
Q3) Which of the following types of share investment does not qualify as a strategic investment?
A)Significant influence investments.
B)Joint Control investments.
C)Held for Trading.
D)Control investments.
Answer: C
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Chapter 3: Business Combinations
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Sample Questions
Q1) Company A makes a hostile take-over bid for control of Company B.In response,Company B makes a counter-offer to purchase shares from Company A's shareholders.Which of the following best describes Company B's response?
A)Pac-man defence.
B)Selling the crown jewels.
C)Poison Pill.
D)A Hostile Defence.
Answer: A
Q2) The process of preparing Consolidated Financial Statements involves the elimination of inter-company transactions between a Parent Company and its subsidiary.Where would these entries be recorded?
A)On the Parent's books only.
B)On the Subsidiary's books.
C)The entries are not recorded in the books of either company.The entries are only made on the working papers.
D)The effect of any inter-company transaction must be reflected on the books of both companies.
Answer: C
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5
Chapter 4: Consolidated Statements on Date of Acquisition
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Sample Questions
Q1) Contingent consideration will be classified as a liability when
A)it will be paid in the form of additional equity.
B)it will be paid in the form of cash or another asset.
C)the form of payment will be determined at a future date.
D)the acquirer decides the appropriate time to make a payment.
Q2) Any negative goodwill arising on the date of acquisition
A)is recognized as a gain on the date of acquisition.
B)is prorated among the parent company's identifiable net assets.
C)should be amortized over a predetermined period)
D)is recognized as a loss on the date of acquisition.
Q3) 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.
Q4) Assuming that Keen Inc.purchases 100% of Lax Inc.for $200,000,prepare the Consolidated Balance Sheet on the Date of Acquisition.
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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) The amount of Goodwill arising from this business combination is:
A)Nil.
B)-$40,000.
C)$50,000.
D)$64,000.
Q3) Intangible assets with definite useful lives should be amortized:
A)over their useful lives.
B)over the time periods provided under IAS 36 which prescribes amortization periods for different classes of assets.
C)under the applicable capital cost allowance rates provided by the Canada Revenue Agency.
D)not at all.
Q4) Prepare a Consolidated Balance Sheet for Remburn Inc.as at December 31,2002.
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Chapter 6: Intercompany Inventory and Land Profits
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Q1) What would be the balance in the non-controlling interest account on the date of acquisition?
A)$266,667.
B)$397,000.
C)$400,000.
D)$403,000.
Q2) Which of the following theories views non-controlling interest and the controlling shareholders as being two distinct shareholder groups?
A)The Ownership Theory.
B)The Entity Theory.
C)The Proprietary Theory.
D)The Parent Theory.
Q3) What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for trademarks?
A)$200,000.
B)$245,000.
C)$240,000.
D)$236,000.
Q4) Calculate the non-controlling interest (Balance Sheet)as at June 30,2010.
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Chapter 7: Aintercompany Profits in Depreciable Assets
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Sample Questions
Q1) What would be the amount of consolidated patents appearing on King's Consolidated Statement of Financial Position as at December 31,2009?
A)10,000
B)$15,000
C)$8,000
D)$12,000
Q2) Ignoring income taxes and any minority interest effects,what is the amount of unrealized profit remaining from the intercompany sale of equipment at December 31,2009?
A)Nil
B)$15,000
C)$20,000
D)$10,000
Q3) Assuming that Plax uses the equity method,prepare a computation showing the balance in Plax's investment in Slate account on December 31,2009.
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.
Q5) Compute the amount of income tax that would be deferred as at December 31,2010.
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Chapter 8: Consolidated Cash Flows and Ownership Issues
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Sample Questions
Q1) What would be the balance in Hanson's investment in Marvin account on December 31,2010?
A)$236,000
B)$200,000
C)$303,000
D)$304,625.
Q2) What is the Consolidated Net Income for the year?
A)$2,170,000
B)$660,000
C)$1,510,000
D)$1,773,625
Q3) What is the amount of the acquisition differential amortization for 2010?
A)$1,500
B)$7,750
C)$6,500
D)$16,500
Q4) Prepare a statement of non-controlling interest as at December 31,2011.
Q5) Compute the Consolidated Cost of Goods Sold for 2009.
Q6) Compute the Goodwill on the date of the acquisition.
Page 10
Q7) Compute the Consolidated Net Income for 2011.Do not prepare an Income Statement.
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Chapter 9: Other Consolidated Reporting Issues
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Sample Questions
Q1) Company A and B agree to engage in a joint venture.Which of the following statements pertaining to joint ventures is correct?
A)Both parties to a joint venture must contribute an equal amount of resources to the venture.
B)The party contributing the most resources to the venture has control over the venture.
C)Both parties have joint control over the venture.
D)All joint ventures have a stated economic useful life.
Q2) Assume that the facts provided above with respect to the Jinxtor joint venture remain unchanged except that John receives $200,000 in return for investing its plant and equipment.What would be the amount of the unrealized gain?
A)$75,000
B)$50,000
C)$135,000
D)$150,000
Q3) Prepare Alpha's Balance Sheet as at December 31,2010.
Q4) Assuming that Larmer is NOT a joint venture and that it is also NOT a portfolio investment,prepare Roller's 2010 Income Statement in accordance with current Canadian GAAP.
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Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) The rate charged by commercial banks for the purchase of any foreign currency (in Canadian dollars)on any given day would be based on which of the following?
A)The Foreign currency hedge.
B)The forward contract.
C)The spot rate.
D)The forward exchange contract.
Q2) Prepare the 2013 journal entries to record the above transactions.In addition,prepare any adjusting journal entries that you deem necessary.
Q3) What is the amount of the foreign exchange gain or loss recognized on the 2010 Income Statement?
A)A $5,000 gain.
B)A $5,000 loss.
C)A $10,000 gain.
D)A $10,000 loss.
Q4) What is the amount of interest expense (in Canadian Dollars)recorded for 2011?
A)$250,080
B)$249,920
C)$287,175
D)$287,250
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Chapter 11: Translation and Consolidation of the Financial
Statements of Foreign Operations
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Q1) Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial Statements.
Q2) Which of the following rates would be used to translate the company's other expenses?
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) Which of the following rates would be used to translate the company's accounts receivable?
A)$1CDN=$0.815 U.S.
B)$1CDN=$0.8175 U.S.
C)$1CDN=$0.8250 U.S.
D)$1CDN=$0.83 U.S.
Q4) For a self-sustaining foreign operation,exchange gains and losses are to be included in or along with:
A)Other comprehensive income.
B)An exchange account.
C)Non-Controlling interest.
D)The acquisition differential amortization.
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Chapter 12: Accounting for Not-For-Profit Organizations and Governments
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Q1) In which fund would the receipt of the unrestricted contribution be recorded?
A)The General Fund
B)The Operating Fund
C)The Capital Fund
D)The Encumbrance Fund
Q2) Which of the following statements is correct?
A)Unrestricted resources can be used for any purposes by a Not-for-Profit Organization.
B)Unrestricted resources can be used for any purposes that are consistent with the goals and objectives of the Not-for-Profit Organization.
C)Restricted resources can only be used in the case of a serious financial deficit situation.
D)Both restricted and unrestricted funds must be used in accordance with the wishes of the contributor.
Q3) What would be the balance in the Capital Fund on December 31,2012?
A)$8,000
B)$6,400
C)$6,000
D)($1,600)
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