6.The main factors that determine whether a firm must use the equity method or consolidation for its intercorporate investments, and the main ramifications of the choice between the two are most accurately described as: A) percentage ownership/degree of control; reported financial results for leverage, net profit margin, and ROE will differ by method. B) percentage ownership/degree of control; reported financial results for leverage, net profit margin, and ROA will differ by method. C) managerial intent for the invested securities; reported financial results for leverage, net profit margin, and ROA will differ by method. D) managerial intent for the invested securities; reported financial results for leverage, net profit margin, and ROE will differ by method. The correct answer was B) The main factors that determine whether a firm must use the equity method or consolidation for its intercorporate investments are the percentage ownership and resulting degree of control over the investee firm. The main ramifications of the choice between the two are that reported financial results for leverage, net profit margin, and ROA (but not ROE) will differ by method. 7.In a circumstance wherein two firms have equal ownership of a joint venture: A) U.S. GAAP requires the use of the equity method, IAS provides for a choice between the equity method and proportionate consolidation. B) U.S. GAAP requires the use of the equity method, IAS requires the use of the equity method. C) U.S. GAAP provides for a choice between the equity method and proportionate consolidation, IAS requires the use of the equity method. D) U.S. GAAP provides for a choice between the equity method and proportionate consolidation, IAS provides for a choice between the equity method and proportionate consolidation. The correct answer was A) In a circumstance wherein two firms have equal ownership of a joint venture, U.S. GAAP requires the use of the equity method, while IAS provides for a choice between the equity method and proportionate consolidation. 8.Which of the following accounting method or methods is most likely to be appropriate for passive intercorporate investments? A) Cost or equity. B) Cost or market. C) Market or equity. D) Consolidation. The correct answer was B) Depending upon the classification of the passive investment (trading, available-for-sale, or held-to-maturity), the most appropriate classifications are cost or market. The equity method is required when the investment is more than just passive, where there is some degree of influence, but not control. Consolidation is required when the ownership interest constitutes control. 9.Under both U.S. GAAP and IAS rules, when a firm takes an ownership share of between 20 and 50 percent and has significant influence over the company in which they have invested, the investment should be accounted for under the: A) cost method. B) consolidation. C) market method. D) equity method. The correct answer was D) Under both U.S. GAAP and IAS rules, the investment should be accounted for under the equity method. 10.According to GAAP, what is the main criterion considered when evaluating whether an intercorporate investment should be accounted for using the consolidation method by the acquiring entity? A) Percentage ownership in the acquired entity. B) Type of compensation paid by the acquiring entity (i.e. cash, stock). C) Passive or active management by the acquiring entity. D) Value of the position in the acquired entity as a percentage of the acquiring entity’s total value. The correct answer was A) The percentage ownership in the acquired entity is the main determinant of which accounting method to use. A firm that acquires a stake greater than 50% in another company will account for the investment using the consolidation method. | 
发表于 2008-4-12 18:39
|