1.When comparing two companies that hold investments in other corporations, which of the following statements is most accurate? All else being equal, a firm using: A) the equity method will report more favorable-looking results than a firm using consolidation. B) consolidation will report more favorable-looking results than a firm using the equity method. C) the equity method will report results that look the same as a firm using consolidation. D) consolidation will report results that look more or less favorable than a firm using the equity method, and it is not possible to generalize without additional information. The correct answer was A) In general, the use of the equity method will result in more favorable-looking results for leverage, profit margin, and ROA measures, relative to an otherwise equivalent firm using consolidation. 2.Under both U.S. GAAP and IAS rules, when a firm takes an ownership share of more than 50 percent and has control over the company in which they have invested, the investment should be accounted for using: A) the cost method. B) the equity method. C) consolidation. D) the market method. The correct answer was C) Under both U.S. GAAP and IAS rules, an investment resulting in ownership of more than 50 percent of the investee firm’s shares should be accounted for using consolidation. 3.Accounting for intercorporate investments under International Accounting Standards (IAS) differs from the U.S. GAAP method for which of the following ownership positions? A) 15 percent ownership with no significant influence. B) 50 percent ownership with shared control. C) 75 percent ownership with control. D) 45 percent ownership with significant influence. The correct answer was B) IAS permits investors to choose either the equity method or proportionate consolidation for a 50% position with shared control. For the same investments, GAAP requires the equity method of accounting. 4.Which of the following investments would most likely require the use of the equity method under U.S. GAAP standards? A) 50,000 common shares of Wal-Mart Corporation. B) $500,000,000 of five year U.S. Treasuries. C) 50 percent equity position in local newspaper publisher. D) $5,000,000 of crude oil futures. The correct answer was C) The standard for determining the use of the equity method is the percentage ownership acquired by the investing entity, as well as the accompanying degree of influence or control. Of these examples, only the 50% position in the local newspaper would provide the owner with significant influence or control, thus meeting the standard for the equity method. 5.Which one of the following scenarios would require the application of the equity method of accounting for investments under U.S. GAAP standards? A) Company X acquires all of the assets of Company Y for $100 million in cash. B) Company X acquires a 15 percent stake in Company Y for $100 million in Company X common stock. C) Company X acquires a 75 percent stake in Company Y for $100 million in Company X common stock. D) Company X acquires a 50 percent stake in Company Y for a combination of cash and Company X common stock totaling $100 million. The correct answer was D) According to GAAP, two scenarios that require the use of the equity method. The first scenario occurs when a company acquires a position in another company that represents 20% to 50% ownership. The second is a situation in which each party owns a 50% stake and share control of the company. | 
发表于 2008-4-12 18:37
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