Question

Section I - Multiple-choice questions (each question carries 1 mark)

1. The goal in preparing eliminating entries related to asset transfers among affiliated companies is to:

a. Emphasize gains and losses in the consolidated financial statements.

b. Eliminate gains and losses and re-adjust the basis of the transferred asset to what it would have been on the original owner’s books.

c. Augment consolidated income.

d. Decrease consolidated income.

2. On 7/1/X8, Pale, Inc. reported a SAR 30,000 gain on equipment sold to Sunny, Inc. (100% owned), which extended the then remaining life of 3 yrs. to 5 yrs. The adjustment to depreciation expense in consolidation at 12/31/X8 is :

a. SAR 3,000. ($30,000 / 5) x ½ year

b. SAR 5,000.

c. SAR 6,000.

d. SAR 10,000.

3. Which of the following statements is false?

a. Most currency exchange rates are determined by brokers on a daily basis.

b. Economic factors rarely affect exchange rates.

c. Some countries maintain control over their exchange rates.

d. When the U.S. dollar strengthens, it has greater buying power overseas and can buy more units of foreign currencies.

4. Which of the following situations best describes a business combination to be accounted for as a statutory merger?

1. Both companies in a combination continue to operate as separate, but related, legal entities.
2. Only one of the combining companies survives and the other loses its separate identity.
3. Two companies combine to form a new third company, and the original two companies are dissolved.
4. One company transfers assets to another company it has create

5. What portion of the balances of subsidiary stockholders' equity accounts are eliminated in preparing the consolidated balance sheet?

1. Common stock
2. Additional paid-in capital
3. Retained Earnings
4. All of the balances are eliminated

Answer 1

Answers:

1) b. Eliminate gains and losses and re-adjust the basis of the transferred asset to what it would have been on the original owner’s books.

2) a. SAR 3,000. ($30,000 / 5) x ½ year

3) b. Economic factors rarely affect exchange rates.

4) b. Only one of the combining companies survives and the other loses its separate identity.

5) d. All of the balances are eliminated