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Flashcards in Chapter 9 Additional Financial Reporting Issues Deck (53):
1

What does it mean to say that the inflation rate last year was 5%?

C. On average, a typical basket of goods costs 5% more at the end of the year than it did at the beginning of the year.

2

A representative market basket of products cost $250 at the beginning of the year, and the same collection of products costs $280 at the end of the year. What is the annual rate of inflation?

B. 12%

3

Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?

A. Asset understatement
B. Overpayment of income taxes
C. Overstated income

4

Holding monetary assets during a period of inflation results in:

B. purchasing power losses.

5

Holding monetary liabilities during a period of inflation results in:

A. purchasing power gains.

6

Which method of accounting for changing prices (inflation) updates assets by applying inflation rates to historical costs?

D. General purchasing power method

7

Which method of accounting for changing prices (inflation) reflects current replacement cost of specific assets?

A. Current replacement cost method

8

Under general purchasing power accounting, how is the gain or loss in purchasing power reported?

C. As an element of income in the current year

9

What is a "holding gain?"

C. The increase in owners' equity resulting from holding nonmonetary assets during a period of inflation

10

Which method of accounting for inflation is used under U.S. GAAP?

D. Inflation accounting is not required under U.S. GAAP.

11

Why inflation accounting is NOT required in the United States and the United Kingdom since late 1980s?

B. Inflation is insignificant in the U.S. and the U.K. since late 1980's.

12

Which of the following countries requires companies to use current replacement cost accounting to prepare primary financial statements?

D. None of the above

13

Prior to 2007, which method of accounting for inflation most closely represented the supplemental reporting required in Mexico?

C. General purchasing power

14

Since 2003, what method for supplemental disclosure of inflation-adjusted financial statements is required of all companies affected by the IASB standards?

A. No rule is currently in place that generally requires inflation-adjusted financial statements

15

What issue of reporting effects of changing prices is addressed by IAS 29, issued by the International Accounting Standards Board in 1989?

D. Mandating inflation adjustment for primary financial statements of companies in hyperinflationary economies

16

Which method most closely represents the requirement of IAS 29 for reporting financial statements of companies in hyperinflationary economies?

B. General purchasing power.

17

Which of the following is NOT a characteristic which is indicative of hyperinflation under IAS 29?

A. The cumulative inflation rate over a three-year period is 75% or higher.

18

How do multinational corporations combine operations?

A. The acquired firm is dissolved and is merged into the acquiring company.
B. One company acquires a majority of shares of another company, but both entities continue to exist
C. Two or more entities dissolve their legal status and merge to create a new corporation.

19

For the purpose of financial reporting under IASB standards, what is a "group?"

A. A parent corporation and all of its subsidiary corporations

20

According to IAS 27, how can effective control be achieved without owning more than 50% of another company's voting shares?

A. Representation on the company's board of directors
B. Being the primary entity exercising voting rights
C. Through a contract between the entities

21

Under IAS 27, how is "control" defined?

C. The power to govern financial and operating policies of an entity so as to obtain the benefits from its activities

22

Under ARB 51, "controlling financial interest" is:

A. criterion for consolidation purposes.

23

In January 2003, the FASB released Interpretation 46, "Consolidation of Variable Interest Entities," which:

B. expanded U.S. GAAP to consider effective control rather than legal control for consolidated financial statements.

24

What term is used to refer to presenting the financial statements for a group of enterprises as if it was a single entity?

C. Consolidation

25

Which of the following terms is often used to describe the equity method of accounting?

B. One-line consolidation

26

How does U.S. GAAP differ from IFRS with respect to presenting consolidated financial statements?

B. IFRS excludes subsidiaries acquired for disposal within one year from the consolidation requirement, whereas U.S. GAAP requires all controlled subsidiaries to be consolidated.

27

Mega Corporation acquired 65% of the voting shares of Forko Ltd. Mega consolidated its accounts by restating assets and liabilities of the subsidiary at fair value on the date the shares were acquired. Which of the following methods for accounting for the business combination is being used by Mega Corporation?

A. Purchase method

28

Mega Corporation acquired 65% of the voting shares of Forko Ltd for €10 billion and used the purchase method of accounting for the merger. Mega Corporation's interest in Forko Ltd. had a restated value of €950 million. How should the difference be accounted for by Mega Corporation?

B. As Goodwill on the consolidated balance sheet

29

Under IFRS 3, which concept must be used to report the assets and liabilities of an acquired company on the parent company financial statements?

C. Entity concept

30

IFRS 3, issued in 2004, eliminated the use of which concept for reporting assets and liabilities of an acquired company on the parent company's consolidated financial statements?

A. Parent company concept

31

How must Goodwill resulting from business combinations be treated under U.S. GAAP?

C. It must be written down when its fair value is less than its carrying value.

32

How is Goodwill resulting from business combinations treated under Japanese GAAP?

B. It is allowed to be expensed in the year the subsidiary is acquired.

33

According to IFRS 3, which of the following statements is true about the treatment of Goodwill arising from business combinations?

C. It is required to be tested for impairment every year.

34

According to IFRS 3, how should companies account for negative goodwill arising from business combinations?

C. It should be recognized immediately as a gain in the income statement.

35

How is negative goodwill accounted for under U.S. GAAP?

D. It is treated as an extraordinary gain on the consolidated income statement.

36

Canto Ltd, a Spanish corporation, acquired 100% interest in Bevo, Inc., a U.S. corporation for $50,000,000. The net assets of Bevo had a book value of $35,000,000 and a fair value of $56,000,000. How should Canto record the business combination?

D. Entry D

37

Canto Ltd, a Spanish corporation, acquired 100% interest in Bevo, Inc., a U.S. corporation for $50,000,000. The net assets of Bevo had a book value of $35,000,000 and a fair value of $46,000,000. How should Canto record the business combination?

B. Entry B

38

Which of the following statements is true about pooling of interests method of accounting for business combinations?

A. The pooling of interests method is no longer acceptable under IFRS.

39

Since 2001, which method of accounting for a business combination is required under U.S. GAAP?

B. Purchase method

40

How are IASB requirements to account for joint ventures different from U.S. GAAP?

C. IASB standards and U.S. GAAP are essentially the same for accounting for joint ventures

41

Under U.S. GAAP and IASB standards, the threshold for determining "significant influence" in an associate enterprise is:

C. 20% ownership of voting shares.

42

Under both IFRS and U.S. GAAP, which of the following methods should be used by an investing entity to report accounting for investment in nonconsolidated subsidiaries?

B. Fair value

43

IFRS 8 adopts which approach to report segmented financial information?

C. Management approach

44

Under IFRS 8, which of the following criteria is NOT considered by all segments that are considered reportable business segments?

C. The segment must have revenue that is more than half from external sources.

45

Which of the following is a reason to report segmented accounting information for multinational enterprises?

A. There are different risks in different parts of the world that a reader may need to know about.
B. Different lines of business have different levels of risk that may affect business success
C. Growth opportunities differ from one nation to another that could affect share value.

46

Which of the following is a difference that exists between IFRS 8 and U.S. GAAP?

C. U.S. GAAP does not require reporting of segment liabilities.

47

Which of the following entity-wide disclosures is NOT required under both IFRS 8 and U.S. GAAP?

B. Information about intersegmental transfer pricing

48

According to both IFRS 8 and U.S. GAAP, which of the following information should be disclosed for each separate reportable operating segment?

A. The factors used to identify operating segments

49

Which of the following disclosures is required by U.S. GAAP in addition to separate reporting for operating segments?

B. Additions to long-lived assets where such assets are hard to be readily removed

50

With regard to convergence of accounting for business combinations between IFRS and U.S. GAAP, the major changes to U.S. GAAP include:

B. use of acquisition method for business combination.

51

For a business combination in which the acquirer achieves control without acquiring all the equity of the acquiree, the noncontrolling equity interest is measured:

A. either at fair value or at noncontrolling interests' proportionate share of the acquiree's net identifiable assets.

52

As per IFRS 11, which of the following statements is true of the joint arrangement?

D. A joint arrangement is either a joint operation or a joint venture.

53

Which of the following tests is performed to determine if an operating segment should be reported separately?

B. Asset test