International Accounting Chapter 9 (part 1)

For the purpose of financial reporting under IASB standards, what is a "group"? A) A parent corporation and all of its subsidiary corporations B) Any multinational corporation under the jurisdiction of the IASB C) All countries that have adopted IASB standards D) A company that is comprised of foreign corporations dissolved into one entity

A) A parent corporation and all of its subsidiary corporations

How is accounting for a pooling of interests different from a purchase when business entities combine? A) Assets and liabilities are not revalued when the pooling of interests is used. B) Goodwill arises only when the pooling of interests method is used for business combinations. C) Pooling of interests is used for international consolidations but never for domestic consolidations. D) The purchase method is used only when less than 100% of an entity's voting shares are acquired.

A) Assets and liabilities are not revalued when pooling of interests is used

Mega Corporation acquired 65% of the voting shares of Forko Ltd and consolidated its accounts by restating assets and liabilities of the subsidiary at fair value on the date the shares were acquired. What method of accounting for the business combination is Mega Corporation using? A) Purchase method B) Fair value method C) Pooling method D) Current replacement cost method

A) Purchase method

Under ARB 51, "controlling financial interest "is: A) not defined B) defined as 50% ownership of another entity's voting shares. C) the direct or indirect ability to make decisions about another entity's activities D)the right to receive the expected residual returns of another entity if they occur

A) not defined

How is Goodwill resulting from business combinations treated under Japanese GAAP? A) It is capitalized and amortized over a period of no more than 40 years. B) It may be expensed in the year the subsidiary is acquired. C) It is capitalized and written down when its fair value becomes less than its carrying value. D) It is amortized over between 5 and 40 years.

B) It may be expensed in the year the subsidiary is acquired

How are IASB requirements to account for joint ventures different from U.S. GAAP? A) International standards require the equity method, but U.S. GAAP allows for flexibility in accounting for joint ventures. B) U.S. GAAP requires the equity method, whereas the international standards allow for proportionate consolidation. C) IASB standards and U.S. GAAP are essentially the same for accounting for joint ventures. D) IASB standards do not specify which methods are allowed to account for joint ventures, whereas U.S. GAAP requires proportional consolidation.

B) U.S. GAAP requires the equity method, whereas the international standards allow for proportionate consolidation

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 Mega account for the difference? A) as Gain from Acquisition on the current period income statement B) as Goodwill on the consolidated balance sheet C) as a Loss from Merger on the current period income statement D) as Additional Paid-in Capital on the consolidated balance sheet

B) as goodwill on the consolidated balance sheet

In January 2003, the FASB released Interpretation 46, "Consolidation of Variable Interest Entities," which: A) re-emphasized the need for 50% stock ownership to exert effective control. B) expanded U.S. GAAP to consider effective control rather than legal control for consolidated financial statements. C) took a "form-over-substance" approach to define control in determining requirements for consolidated financial statements. D) defined effective control as ownership of 30% or more of another entity's voting shares.

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

Under both IFRS and U.S. GAAP, how should an investing entity report nonconsolidated subsidiaries? A) equity method B) fair value C) proportionate consolidation D) parent concept

B) fair value

What is a term often used to describe the equity method of accounting? A) the 20% rule B) one-line consolidation C) significant influence D) disaggregated consolidation

B) one-line consolidation

Since 2001, which method of accounting for a business combination is required under U.S. GAAP? A) pooling B) purchase C) Both purchase and pooling are allowed. D) Purchase is required for transnational combinations, but pooling is allowed for domestic combinations.

B) purchase

Under U.S. GAAP and IASB standards, the threshold for determining "significant influence" in an associate enterprise is: A) 50% ownership of voting shares B) 5% ownership of voting shares C) 20% ownership of voting shares D) 10% ownership of voting shares

C) 20% of ownership voting shares

According to IFRS 3, how should companies account for Goodwill arising from business combinations? A) It is capitalized and amortized over a period of no more than 40 years. B) It is expensed in the year the subsidiary is acquired. C) It is capitalized and written down when its fair value become less than its carrying value. D) It is amortized over between 5 and 40 years.

C) It is capitalized and written down when its fair value becomes less than its carrying value

How must Goodwill resulting from business combinations be treated under U.S. GAAP? A) It must be amortized over a period of no more than 40 years. B) It must be expensed when it is acquired. C) It must be written down when its fair value is less than its carrying value. D) It must be written down in no less than 5 years and no more than 40 years.

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

According to IFRS 3, how should companies account for negative goodwill arising from business combinations? A) It should be capitalized and amortized over a period of no more than 40 years. B) It should be treated as a loss on the consolidated income statement. C) It should be treated as a gain on the consolidated income statement. D) There is no rule for negative goodwill, because there is no such thing.

C) It should be treated as a gain on the consolidated income statement

Under IAS 27, how is "control" defined? A) Ownership of 50% of more of the voting shares of another entity B) Representation on another entity's board of directors C) The power to govern financial and operating policies of an entity D) Ownership of 30% or more of the voting shares of another entity

C) The power to govern financial and operating policies of an entity

What term is used to refer to presenting the financial statements for a group of enterprises as if it was a single entity? A) harmonization B) translation C) consolidation D) transformation

C) consolidation

Under IFRS 3, which concept must be used to report the assets and liabilities of an acquired company on the parent company financial statements? A) parent company concept B) equity concept C) entity concept D) historical cost concept

C) entity concept

What term does IAS 31 use for "a contractual arrangement whereby two or more parties undertake an activity which is subject to joint control?" A) merger B) consolidation C) joint venture D) business combination

C) joint venture

How do multinational corporations combine operations? A) The acquired firm is dissolved and is merged into the acquiring company B) One company acquired 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 D) All of the above

D) All of the above

According to IAS 27, how can effective control be achieved without owning more than 50% of another companies' 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 D) All of the above may result in control by one corporation over another

D) All of the above may result in control by one corporation over another

How is negative goodwill accounted for under U.S. GAAP? A) There is no rule for negative goodwill, because there is no such thing. B) It should be capitalized and amortized over a period of no more than 40 years. C) It should be treated as an extraordinary loss on the consolidated income statement. D) It should be treated as an extraordinary gain on the consolidated income statement.

D) It should be treated as an extraordinary gain on the consolidated income statement

How does U.S. GAAP differ from IFRS with respect to presenting consolidated financial statements? A) U.S. GAAP requires all controlled subsidiaries to be consolidated, whereas IFRS allows for optional 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. C) U.S. GAAP allows a company to exclude subsidiaries it is holding for sale from the consolidation process. D) IFRS requires the parent company to own 50% of the voting shares of the subsidiary before consolidation is allowed.

not used

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 B) economic concept C) entity concept D) All of the above

not used