ATI707 Mid term Exam with All Solutions

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1. Which of the following would not be a reason to obtain a greater understanding of accounting practices in other nations? a. Financial Results are disclosed in different currencies. b. One nee... ds to be aware of differing disclosure requirements from nation to nation, as this impacts the preparation of Financial Statements. c. Income-smoothing may have affected a Foreign Subsidiary’s results; such smoothing practices are not permitted in North America. d. Departures from the Historical Cost Principle may be possible in other nations. Ans: A 2. Which of the following is/are LEAST likely to influence a country’s accounting standards? a. Taxation Policies. b. Differing Legal Systems. c. The currency used. d. Ties between countries. Ans: C 3. Which of the following bodies is responsible for the harmonization of international accounting standards? a. The European Union. (EU) b. The Federal Accounting Standards Board (FASB) c. The International Accounting Standards Board (IASB) d. The Canadian Institute of Chartered Accountants (CICA). Ans: C 4. Which of the following does NOT constitute a Business Combination? a. A Corp purchases the net assets of B Corp. b. A Corp enters into a Joint Venture with B Corp. c. A Corp acquires 51% of B Corp’s voting shares for $1,000,000 in Cash. d. A Corp acquires 51% of B Corp’s voting shares for future considerations. Ans: B 5. Which of the following statements is TRUE? a. All unrealized gains and losses on equity investments are flow through Other Comprehensive Income. b. Unrealized gains and losses on held-for-trading securities are included in Other Comprehensive Income. c. Unrealized gains and losses on available-for-sale investments are included in Other Comprehensive Income. d.Other Comprehensive Income is included in Retained Earnings. Ans: C 6. Differential reporting is permitted in certain instances for a. all privately held companies. b. all publicly held companies. c. all Canadian companies. d. Canadian companies consolidating its foreign subsidiaries. Ans: A 7. Parent Company acquires Sub Company’s common shares for cash. On the date of acquisition, Sub had Goodwill of $100,000 on its books. Which of the following statements regarding Sub’s Goodwill on the date of acquisition is correct? a. Sub’s goodwill is considered an identifiable asset and should therefore be included in Parent Company’s Purchase Price Discrepancy calculation. b. Sub’s goodwill is considered an identifiable asset and should therefore be excluded from Parent Company’s Purchase Price Discrepancy calculation. c. Sub’s goodwill is not considered an identifiable asset and should therefore be excluded from Parent Company’s Purchase Price Discrepancy calculation. d. Sub’s goodwill is not considered an identifiable asset and should therefore be included in Parent Company’s Purchase Price Discrepancy calculation. Ans: C 8. Which of the following pertaining to Consolidated Financial Statements is correct? a. The preparation of consolidated Financial Statements means that the companies involved cease to operate as separate legal entities. b. The preparation of Consolidated Financial Statements is at the Parent Company’s discretion. c. When one company has control over another, Consolidated Financial Statements must be prepared for the combined entity. d. Before preparing Consolidated Financial Statements, a subsidiary’s Financial Statements prior to the date of acquisition must be restated. Ans: C 9. One weakness associated with the Entity Theory is that a. it is inconsistent with the Historical Cost Principle. b. Non-Controlling Interest is computed using the Fair Market Values of the subsidiary’s net assets. c. Non-Controlling interest is computed using the Book Values of the subsidiary’s net assets. d. the presumed acquisition cost may be unrealistic when the Parent purchases significantly less than 100% of the subsidiary’s voting shares, or voting control is achieved incrementally. Ans: D 10. Intangible assets should only be recognized apart from Goodwill when a. the asset results from contractual or other legal rights. b. the asset is capable of being separated or divided from the acquired enterprise and sold, transferred, licensed, rented or exchanged. c. the asset results from contractual or other legal rights, OR the asset is capable of being separated or divided from the acquired enterprise and sold, transferred, licensed, rented or exchanged. d. the asset results from contractual or other legal rights, AND the asset is capable of being separated or divided from the acquired enterprise and sold, transferred, licensed, rented or exchanged. Ans: C PART 2 - SHORT ANSWERS QUESTIONS 15 MARKS Answer the problems (narrative questions, etc.) in your examination booklet using the instructions for each question. Address all the issues required. Each question is worth the stated value. Be sure that all the key points are covered. Be brief and concise. QUESTION 11 3 MARKS The FASB in the U.S and the International Accounting Standards Board are working on a convergence project to be completed by 2007. What is the main goal of this project and what are some of the potential difficulties arising from this initiative? Solution The goal of this project is to have IASB standards acceptable for use by countries reporting under the SEC rules in the United States. Initially, the project will aim to eliminate any differences that can be quickly resolved. [Show More]

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