Advanced Financial Accounting-II (Individual assignment)

ANSWER THE FOLLOWING QUESTIONS ACCORDINGLY

On any date, the balance of a parent company's retained earnings of subsidiary account attributable to wholly owned

subsidiary is equal to the:

Balance of the subsidiary's retained earnings account.

Net increase in the parent's Investment in subsidiary common stock account since the date of the business combination.

Total net income of the subsidiary since the date of the business combination.

Total dividends declared by the subsidiary since the date of business combination.

The end-of-period closing entries for a parent company that uses the equity method accounting for the operating results

of wholly owned subsidiary include a credit to the Retained Earnings of subsidiary ledger account in the amount of the :

Ending retained earnings of the subsidiary.

Net income of the subsidiary for the period.

Undistributed earnings of subsidiary for the period.

Dividends declared by the subsidiary during the period.

After completion of the parent company's equity-method journal entries for its profitable wholly owned subsidiary's

operating results, the balance of the parent's Intercompany Investment Income ledger is equal to the:

Subsidiary's net income.

Subsidiary's net income, less amortization of CFV differences of the subsidiary's identifiable net assets.

Subsidiary's net income, less amortization of CFV differences of the subsidiary's net assets, including goodwill.

Increase in the after-closing balance of the subsidiary's Retained Earnings ledger account.

Under the equity method for the operating results of a subsidiary, dividends declared by the subsidiary to the parent

company are accounted for by the parent company as:

Dividend revenue on the declaration date.

A reduction of the investment in subsidiary on the payment date.

Dividend revenue on the payment date.

A reduction of the investment in subsidiary on the declaration date.

Under the equity method, dividends declared by the subsidiary to the parent company are credited to the parent's:
Intercompany Dividends Receivable account.

Investment in Subsidiary Common stock account.

Retained Earnings of Subsidiary account.

Retained Earnings account.

On April 1, 2014, Plum Corporation, paid for all issued & outstanding common stock of Long-Corporation. On that date,

the Carrying & CFV of Long's recorded assets & liabilities were as follows:

In Plum' March 31, 2015, consolidated balance sheet, what is the amounts of goodwill that should be reported as a

result of this business combination?

360,000

$ 396,000

$ 400,000

$ 440,000

Item 7 and 8 are based on the following information:

On January 1, 2008, Ritt Corporation Purchased 80% of Shaw Corporation's $ 10 par common stock for $ 975,000. On

this date, the carrying amount of Shaw's net assets was $ 1,000,000. The fair values of Shaw's identifiable assets &

Liabilities were the same as their carrying amounts except for plant assets (net), which were $ 100,000 in excess of the

carrying amount. For the year ended December 31, 2008, Shaw had net income of $ 190,000 and paid cash dividends

totaling $ 125,000.

In the January 1,2008, consolidated balance sheet, goodwill should be reported at:

$0

$ 75,000

$95,000

$ 175,000

In the December 31, 2008, consolidated balance sheet, non-controlling interest should be reported at:

$ 200,000

$ 213,000
$ 220,000

$ 233,000

On January 1, 2005, Post Company purchased an 80% investment in Stake company. The acquisition cost was equal to

Post's equity in Stake's net assets at that date. On January 1, 2005, Post & Stake had retained earnings of $ 500,000

and $ 100,000, respectively. During 2005, Post had net income of $ 200,000, which included its equity in Stake's

earnings, and declared dividends of $ 50,000; Stake had net income of $ 40,000 & declared dividends of $ 20,000; and

there were no other intercompany transactions between the parent & subsidiary. On December 31, 2005, the

consolidated retained earnings should be:

$ 650,000

$ 666,000

$ 766,000

$ 770,000

Items 10 and 11 are based on the following information:

The Nugget Company's balance sheet on December 31, 2006, is as follows:

On December 31, 2006, the Gold Company purchased all the outstanding common stock of Nugget for $ 1,500,000

cash. On that date, the fair(market) value of Nugget's inventories was $ 450,000, and the fair value of Nugget's plant

assets was $1,000,000. The fair values of all other assets & Liabilities of Nugget were equal to their book values.

As a result of the acquisition of Nugget by Gold, the consolidated balance sheet of Gold & Nugget should reflect goodwill

in the amount of:

$ 500,000

$ 550,000

$ 600,000

$ 650,000

Assuming that the balance sheet of Gold(unconsolidated) on December 31, 2006, reflected retained earnings of $

2,000,000, what amount of retained earnings should be shown in the December 31,2006, consolidated balance sheet of

Gold and its new subsidiary, Nugget?

$ 2,000,000
$ 2,600,000

$ 2,800,000

$ 3,150,000

The traditional definition of control for a parent company-subsidiary relationship (parent's ownership of more than 50% of

the subsidiary's outstanding common stock) emphasizes:

Legal form

Economic substance

Both legal form and economic substance.

None

A parent company's correctly prepared journal entry to record the out-of-pocket costs of the acquisition of the

subsidiary's outstanding common stock in business combination was as follows

The implementation of the foregoing journal entry is that the consideration issued by the parent company for the

outstanding common stock of the subsidiary was;

Cash

Bonds

Common stock

Cash , bonds, or Common stock

If, on the date of the business combination, C= consideration given to the former stockholders of wholly owned

subsidiary Salam Company by Parrot Corporation; DOP= direct out-of-pocket costs of the combination; CA= carrying

amount, and CFV=current fair value of Salam's identifiable net assets; and GW= goodwill:

C + DOP =CA + GW

C - DOP = CFV - GW

C + DOP = CFV + GW

C = CA + GW - DOP

In a completed working paper elimination for a parent company and its wholly owned subsidiary on the date of the

business combination, the total of the debits generally equals the:

Parent company's total cost of its investment in the subsidiary.

Current fair value of the subsidiary's identifiable net assets

Total paid- in capital of the subsidiary.

In a working paper elimination for consolidated balance sheet of a parent company and its wholly owned subsidiary on

the date of a business combination, the subtotal of the debits to the subsidiary's stockholders' equity accounts equals

the:

Current fair value of the subsidiary's total net assets, including goodwill.

Current fair value of the subsidiary's identifiable net assets.

Balance of the parent company's investment ledger account.

Carrying amount of the subsidiary's identifiable net assets

In the working paper for consolidated balance sheet prepared on the date of the business combination of a parent

company & its wholly owned subsidiary, whose liabilities had current fair values equal to their carrying amounts, the total

of the Eliminations column is equal to:

The current fair value of the subsidiary's identifiable net assets.

The total stockholder's equity of the subsidiary.

The current fair value of the subsidiary's total net assets, including goodwill.

An amount that is not determinable.

On the date of the business combination of Luna Corporation and its wholly owned subsidiary. Saba Company, Luna

paid (i) Birr. 100,000 to the former stockholders of Saba for their stockholders' equity of Birr. 65,000 and (ii) Birr. 15,000

for direct out-of-pocket costs of the combination. Goodwill recognized in the business combination was Birr. 10,000. The

current fair value of Saba's identifiable net Assets was:

Birr. 65,000

Birr 75,000

Birr. 105,000

Birr. 115,000

Birr. 125,000

Differences between current fair values and carrying amounts of the identifiable net assets of a subsidiary on the date of
a business combination are recognized in a:

Working paper elimination.

Subsidiary journal entry.

Parent company journal entry.

Note to the consolidated financial statements.

In a business combination resulting in a parent company-wholly owned subsidiary relationship, goodwill developed in the

working paper elimination is attributed:

In its entirety to the subsidiary.

In its entirety to the parent company.

To both the parent company & the subsidiary, in the ratio of current fair values of identifiable net assets.

In its entirety to the consolidated entity.

On the date of the business combination of a parent company and its partially owned subsidiary, the amount assigned to

minority interest in net assets of subsidiary is based on the:

Cost of the parent company's investment in the subsidiary's common stock.

Carrying amounts of the subsidiary's identifiable net assets.

Current fair value of the subsidiary's identifiable net assets.

Current fair value of the subsidiary's total net assets, including goodwill.

The debits in the working paper elimination for the consolidated balance sheet of parent Corporation and 90%-owned

subsidiary company totaled Birr. 2,080,000, including a debit of Birr. 80,000 to goodwill-parent. The credit elements of

the elimination are:

On March 31, 2014, G-Corporation acquired for cash all the outstanding common stock of HIME Company when HIME's

balance sheet showed net assets of Birr. 400,000. Out-of-pocket costs of the business combination may be disregarded.

HIME's identifiable net assets fair values different from carrying amounts as follows:

The amount of goodwill to be displayed in the consolidated balance sheet of HIME Corporation and Subsidiary on March

31,2014.

Birr.400,000

Birr.1,800,000
Birr. 200,00

None

At the end of an accounting period, a parent company that uses the equity method of accounting for its partially owned

subsidiary closes its:

Dividends Declared ledger account.

Intercompany Dividends Receivable ledger account.

Dividends Payable ledger account.

Intercompany Dividends Payable ledger account.

On May 31, 2014, the date of business combination of ICU Corporation and its 80%-owned subsidiary, 4CU Company,

for which ICU uses the equity method of accounting the balance of 4CU's Retained Earnings account was Birr. 100,000,

and on May 31,2015,the after-closing balance was Birr. 120,000. Prior to ICU's May 31,2014, closing entries, the

balance of its Retained Earnings of Subsidiary ledger account was:

Zero

Birr. 80,000

Birr. 100,000

None

Under equity method of accounting, apparent company uses the Retained Earnings of Subsidiary ledger account for a

subsidiary:

For closing entries only.

For dividends declared by the subsidiary only.

For both dividends declared by the subsidiary and closing entries.

None

An inter company Dividends Receivable ledger account is used in:

The fairvalue method of accounting only.

The equity method of accounting only.

Both

None
The post-closing balances of the Retained Earnings ledger accounts of P-corporation & its 80%-owned subsidiary,

S-Company, on February 28,2003, were as follows(there was no intercompany profit or losses):

Consolidated retained earnings of P-Corporation and Subsidiary on February 28, 2003, is:

Birr. 1,600,000

Birr. 1,680,000

Birr. 1,968,000

Birr. 2,060,000

None

The 80%-owned subsidiary of a parent company reported a net income of Birr. 80,000 for the year ended May 31, 2003.

The parent company's appropriate journal entry under the equity method of accounting is;

During a fiscal year, the balance of parent company's Investment in Subsidiary common stock ledger account for a

wholly owned subsidiary, for which the parent company uses the equity method of accounting, increases by the amount

of the subsidiary's:

Adjusted net income

Dividends

Adjusted net income plus dividends

Unadjusted earnings.

On 12/1/08, Nuuk sells inventory to Coventry Corp. on credit. Coventry will pay Nuuk 10,000 British pounds in 90 days.

The current exchange rate is $1 = .6425 . Prepare Nuuk's journal entry. :

Prepare the journal entry on the books of Teletex Systems, Inc. During December of the current year, Teletex Systems,

Inc., a company based in Seattle, Washington, entered into the following transactions:

Dec. 12 Purchased computer chips from a Taiwan company. Contract was denominated in 500,000 Taiwan dollars.

Direct exchange rate on this date was $.0391.

Purchased computer chips from a company domiciled in Taiwan. The contract was denominated in 500,000 Taiwan

dollars. The direct exchange spot rate on this date was $.0391.

Assume that on December 31 the direct exchange rates was Taiwan dollar $.0351.

Assume that the direct exchange rate on the settlement date (January 10) was Taiwan dollar $.0398.
33.. Why is segment reporting necessary in financial reporting?

A. It helps calculate the net profit for shareholders

B. It ensures all subsidiaries are audited

C. It discloses detailed performance of different areas within an entity

D. It is mandatory under all local GAAPs

34. Which of the following is NOT a criterion for identifying an operating segment?

A. The component earns revenue and incurs expenses

B. The component must be audited separately

C. CODM reviews its operating results regularly

D. Discrete financial information is available-

35. A start-up unit that hasn't yet generated revenue can still be an operating segment if:

A. It incurs costs and has assets

B. It is expected to earn revenue in future

C. CODM reviews its results and discrete info is available

D. It is funded separately by investors

36. Which of the following would typically NOT be considered an operating segment?

A. Research and development unit

B. Unit producing and selling a product line

C. Geographical division of a company

D. Start-up unit with monitored results

37. An operating segment becomes reportable if:

A. It is profitable for three consecutive quarters

B. It exceeds any one of the 10% thresholds

C. Its profit margin is higher than 5%

D. Its results are publicly disclosed

38. What is included when calculating the 10% revenue threshold for identifying reportable segments?

A. Only external revenue

C. External and intersegment revenue

D. Only cash-based revenue

39. Which of the following would make a segment reportable based on the profit/loss test?

A. Profit of $8M when total profit is $100M

B. Loss of $12M when total losses are $100M

C. Profit of $11M when combined profit/loss is $90M

D. Loss of $5M when total losses are $30M

40. What must happen if the reportable segments' external revenues do NOT reach 75% of the total?

A. Remove the largest segment from reporting

B. Stop reporting segment information

C. Add more segments until threshold is met

D. Ignore the rule if costs are too high

41. What is the purpose of disclosing general segment information?

A. To explain accounting policies

B. To identify CODM decisions and how segments are organized

C. To outline tax strategies

D. To comply with audit standards

42. When presenting segment results, profit or loss is measured:

A. Based on national accounting standards

B. In a consistent manner across all segments

C. As reviewed and used by the CODM

D. According to IFRS 10

43.. Which of the following is NOT required for disclosure under segment profit or loss?

A. Segment income tax expense

B. Segment manager's performance bonus

D. Segment depreciation and amortization

44. The reconciliation of segment results with consolidated financial statements is necessary for:

A. Regulatory approval

B. Investor relations

C. Ensuring users can bridge segment and entity-level data

D. Tax authorities

45. Which of the following is not typically included in the reconciliations?

A. Segment assets to total assets

B. Segment revenues to consolidated revenue

C. Segment capital to market capitalization

D. Segment liabilities to total liabilities

46. When must geographic information be disclosed?

A. Only if the company operates in over five countries

B. If revenue or assets from any country are material

C. Only for foreign subsidiaries

D. Only if there's a tax treaty involved

47. Which of the following is true about immaterial items?

A. They must always be disclosed

B. They can be aggregated under "other"

C. They are ignored in reconciliation

D. They are reported in footnotes

48. Why may some segment items not be disclosed?

A. The entity failed to report them

B. The information is outdated

C. Internal reports are not generated for them

D. IFRS does not allow such disclosures

A. 60%

B. 80%

C. 75%

D. 50%

50. Which of the following is part of entity-wide disclosures?

A. Details of board meetings

B. Financial instruments used

C. Major customers contributing over 10%

D. Marketing strategies used

51. What is the primary purpose of segment reporting?

A) To simplify consolidated financial statements.

B) To provide detailed information about an entity's major operating segments for better decision-making.

C) To reduce the cost of financial reporting.

D) To comply with tax regulations.

52. Which of the following is NOT a requirement for a component to qualify as an operating segment?

A) Its operating results are reviewed by the CODM.

B) It earns at least 10% of the entity's consolidated revenue.

C) Discrete financial information is available.

D) It engages in business activities that generate revenues and incur expenses.

53. Which step is part of the qualitative identification of operating segments?**

A) Calculate 10% quantitative thresholds.

B) Ensure the segment's profit exceeds 75% of consolidated profit.

C) Identify the CODM and review discrete financial information.

D) Disclose all geographical regions.

54. Company A has Units X, Y, and Z. Unit Y derives most revenue from Unit Z. Which units are operating segments?

A) Only X and Z.
B) X, Y, Z, and corporate headquarters.

C) X, Y, and Z.

D) Only X.

55. A segment's revenue is $200, profit is $50, and assets are $800. Combined totals are $700 (revenue), $180 (profit),

and $2,050 (assets). Does this segment qualify as reportable?

A) No, it fails all thresholds.

B) Yes, based on revenue and profit.

C) Yes, based on revenue, profit, and assets.

D) Yes, based on assets only.

56. The 75% external revenue test requires:**

A) External revenue of reportable segments 75% of consolidated revenue.

B) Total segment revenue 75% of consolidated revenue.

C) Intersegment revenue 75% of total revenue.

D) None of the above.

57. If reportable segments account for 73% of consolidated external revenue, the entity must:

A) Disclose only the existing reportable segments.

B) Combine non-reportable segments into "Other."

C) Identify additional segments until 75% is met.

D) Restate prior-year financials.

58. Which disclosure is mandatory for segment reporting?

A) Interest income and expense for each segment.

B) Reconciliations of segment assets to consolidated assets.

C) Salary details of segment managers.

D) Projections for future growth.

59. Entity-wide disclosures include:

A) Intersegment pricing policies.

B) Revenues from external customers by product/service.

D) All internal audit findings.

60. A customer contributes 12% of total revenue. What must be disclosed?

A) The customer's name and exact revenue.

B) The fact that revenue from a single customer exceeds 10%.

C) Segment-specific profit from this customer.

D) No disclosure is required.

61. How should segment items be measured?

A) Using GAAP exclusively.

B) As reported to the CODM for internal decision-making.

C) At fair market value.

D) Using tax accounting standards.

62. Which item is NOT required in segment disclosures?

A) Segment depreciation.

B) Non-cash expenses other than depreciation.

C) Corporate advertising costs.

D) Income tax expense for the segment.

63. Intersegment transactions should be:

A) Eliminated in consolidation but disclosed in segment reports.

B) Treated as external revenue.

C) Ignored in segment reporting.

D) Disclosed at fair value.

64. Aggregation of segments is allowed if they share:

A) The same geographic region.

B) Similar production processes and customers.

C) Identical profit margins.

D) Both A and B.
65. A start-up unit with no revenue but incurring expenses:

A) Is always an operating segment.

B) Qualifies if it is regularly reviewed by the CODM.

C) Cannot be an operating segment.

D) Must be combined with profitable segments.

66. The difference between operating and reportable segments is:

A) Operating segments are internal, while reportable segments are disclosed externally.

B) Reportable segments are always larger.

C) Operating segments exclude geographic divisions.

D) There is no difference.

67. Corporate headquarters' costs are typically:

A) Allocated to operating segments.

B) Disclosed separately as non-reportable.

C) Included in entity-wide disclosures.

D) Both B and C.

68. Segment liabilities must be disclosed if:

A) They exceed 10% of consolidated liabilities.

B) The CODM uses them for performance evaluation.

C) They relate to intersegment transactions.

D) They are interest-bearing.

69. Required reconciliations include:

A) Segment revenue to consolidated revenue.

B) Segment profit to CEO's bonus.

C) Segment assets to total equity.

D) All of the above.

70. Geographical disclosures require:

A) Detailed profit/loss for each country.

C) Currency translation adjustments.

D) Tax rates for all jurisdictions.

71. Intercompany receivables/payables are eliminated by:

A. Offsetting adjacent columns in consolidation worksheets

B. Adjusting retained earnings

C. Reclassifying to equity

D. Ignoring immaterial amounts

72. Which statement about the Equity Method is false?

A. It emphasizes economic substance over legal form.

B. Subsidiary dividends reduce the investment account.

C. It aligns with the accrual basis of accounting.

D. Net income is recognized only when dividends are received.

73. A subsidiary's land had a fair value Br60,000 higher than book value. Over time, this difference:

A. Is amortized

B. Increases depreciation expense

C. Remains unchanged

D. Reduces goodwill

74. In consolidation, subsidiary dividends declared are:

A. Added to consolidated retained earnings

B. Eliminated as intercompany transactions

C. Treated as revenue

D. Disclosed in footnotes

75. Why are consolidated statements considered superior to parent-only statements?

A. They exclude non-controlling interests.

B. They reflect the total economic entity.

C. They use the Fair Value Method exclusively.

76. A subsidiary primarily sources raw materials from the parent's country, prices products based on global competition,

and finances operations through the parent's bank. Its functional currency is:

A. Local currency

B. Parent's currency

C. Reporting currency

D. Hybrid of local and parent's currency

77. Under the current rate method, which exchange rate is used to translate a subsidiary's revenue?

A. Historical rate

B. Average rate for the year

C. Spot rate at the balance sheet date

D. Rate at the transaction date

78.Under the temporal method, translation gains/losses are reported in:

A. Other Comprehensive Income (OCI)

B. Retained Earnings

C. Consolidated Net Income

D. Shareholder's Equity

79.Where is the cumulative translation adjustment recorded under the current rate method?

A. Income Statement

B. Retained Earnings

C. OCI in Equity

D. Notes to Financial Statements

80. A subsidiary declared dividends when the spot rate was ETB 12.40. Under the current method, dividends are

translated using:

A. Historical rate at declaration date

B. Average rate

C. Rate at payment date

81. In the temporal method, beginning retained earnings are translated using:

A. Average rate

B. Rate at the beginning of the year

C. Current rate

D. Rate when earnings were accumulated

82. Under the temporal method, which account uses historical exchange rates?

A. Accounts Receivable

B. Inventory (at cost)

C. Cash

D. Sales Revenue

83. A parent's net investment in a foreign subsidiary is hedged. Gains/losses on the hedge are recorded in:

A. OCI

B. Net Income

C. Retained Earnings

D. Deferred Revenue

84.A forex gain on a payable transaction at year-end will reverse if the spot rate:

A. Increases further

B. Returns to the transaction date rate

C. Decreases

D. Remains stable

85.When is the average exchange rate most appropriate?

A. Translating sales revenue under the current method

B. Translating fixed assets under the temporal method

C. Recording loan repayments

D. Adjusting retained earnings

86. Intercompany receivables/payables are eliminated using:

B. Historical rate

C. Spot rate at consolidation date

D. They are not translated

87. On 1 January 2021, Alpha Ltd acquired 85% of the ordinary shares of Beta Ltd for a cash consideration of

$2,500,000.

At acquisition:

The fair value of Beta's identifiable net assets was $2,700,000.

Included in Beta's net assets was equipment with a carrying amount of $400,000 but a fair value of $500,000 (remaining

useful life: 5 years).

Inventory had a book value of $300,000 but a fair value of $350,000. All was sold by year-end.

The fair value of the 15% non-controlling interest (NCI) at acquisition was $450,000.

By 31 December 2023, Beta Ltd's retained earnings were $800,000. On 1 July 2023, Beta sold goods to Alpha worth

$400,000 at a 25% markup. At year-end, Alpha still held 40% of these goods.

Required:

Calculate goodwill at the date of acquisition using the full goodwill method.

Compute consolidated retained earnings and non-controlling interest as at 31 December 2023.

Prepare elimination entries for intercompany transactions and inventory unrealized profit.

Gamma Ltd held a 30% interest in Delta Ltd, accounted for using the equity method. On 1 January 2023, Gamma

acquired an additional 50% of Delta for $3,000,000, gaining control.

At that date:

The fair value of the previously held 30% interest was $1,500,000.

The fair value of Delta's net assets was $5,200,000, including a revaluation surplus of $200,000 (OCI).

The remaining 20% NCI had a fair value of $1,100,000.

Goodwill is not impaired.

By 31 December 2023, Delta's profit was $800,000. Dividends paid by Delta: $100,000.

Required:
Calculate the total consideration transferred and goodwill on acquisition.

Show the journal entries for the step acquisition and remeasurement.

Prepare consolidation adjustments for goodwill and NCI.

Omega Ltd is a parent company based in the UK. It owns 100% of Zeta Ltd, a foreign subsidiary operating in Japan,

where the functional currency is JPY. The reporting currency of Omega is GBP.

Zeta Ltd's summarized statement of financial position at 31 December 2024 (in JPY):

Cash: 3,000,000

Trade receivables: 5,000,000

Inventory: 8,000,000

Equipment (net): 25,000,000 (acquired when 100 = 1)

Trade payables: 4,000,000

Share capital: 20,000,000

Retained earnings: 17,000,000

Exchange rates:

Historical rate (equipment): 100 = 1

Closing rate: 120 = 1

Average rate for the year: 115 = 1

Required:

Translate the statement of financial position using the current rate method.

Compute the translation adjustment and explain where it appears in the consolidated financial statements.

Theta Inc., a US-based parent, has a subsidiary in Brazil with a functional currency of BRL. The following financial items

are reported at 31 December 2024:

Inventory (measured at historical cost): BRL 500,000

Property, plant and equipment: BRL 1,200,000 (historical exchange rate: 5 BRL = 1 USD)

Cash and receivables: BRL 300,000

Payables: BRL 200,000

Share capital: BRL 800,000

Exchange rates:

Historical: 5 BRL = 1 USD

Closing: 4 BRL = 1 USD

Average (for income): 4.5 BRL = 1 USD

Required:

Translate the financial statements using:

The temporal method

B. The current rate method