Monday, June 17, 2013

Multiple-Choice Question on Consolidation overview [AICPA Adapted] | E3-1 |


Advanced Financial Accounting 
The Reporting Entity and Consolidated Financial Statement


E3-1 Multiple-Choice Question on Consolidation overview [AICPA Adapted]
Select the correct answer for each of the following question.
1. When a parent-subsidiary relation exists, consolidated financial statement are prepared in recognition of the accounting concept of:

a) Reliability
b) Materiality
c) Legal entity
d) Economic entity

2. Consolidated financial statement are typically prepared when one company has a controlling interest in another unless:

a) The subsidiary is a finance company
b) The fiscal year-ends of the companies are more than three months apart.
c) Circumstance prevent the exercise of control
d) The two company are in unrelated industries, such as real estate and manufacturing.

3. Penn Inc., a manufacturing company, own 75 percent of the common stock of Sell Inc., . . In Penn’s consolidated statements, should consolidation accounting or equity-method accounting be used for Sell and Vane?

a) Consolidation used for Sell and equity method used for Vane.
b) Consolidation used for both Sell and Vane
c) Equity method used for Sell and consolidation used for Vane.
d) Equity method used for both Sell and Vane.

4. Shep Company has a receivable from its parent, Pep company. Should this receivable be separately reported on Shep’s balance sheet and in Pep’s consolidated balance sheet?

5. Which of the following is the best theoretical justification for consolidated financial statements?
a) In form the companies are one entity; in substance they are separate.
b) In form the companies are separate; in substance they are one entity
c) In form and substance the companies are on entity
d) In form and substance the companies are separate. Please Click on Read more>>


SOLUTIONS TO EXERCISES

E3-1  Multiple-Choice Questions on Consolidation Overview
         [AICPA Adapted]

1.  d

2.  c

3.  b

4.  a

5.  b