Reading 21:Intercorporate Investments LOS b ～ Q10-13

exactly, equity, white, style, black

Q10. For instances in which Omricon holds exactly 50% of the outstanding equity of the investee firm’s equity (i.e., the investee firm

is a joint venture), which of the following statements is most accurate?

A) US GAAP requires that the equity method be used; IAS permits a choice between the equity method and proportional consolidation.

B) IAS and US GAAP both permit a choice between the equity method and proportional consolidation.

C) IAS requires that the equity method be used; US GAAP permits a choice between the equity method and proportional consolidation.

Q11. The three classifications for passive investments in securities that trade in secondary markets are:

A) trading securities, available-for-sale securities, held-to-maturity securities.

B) marketable securities, available-for-sale securities, held-to-maturity securities.

C) trading securities, marketable securities, held-to-maturity securities.

Q12. When a passive investment in marketable equity securities is classified as available-for-sale:

A) US GAAP requires that unrealized gains and losses are reported on the income statement, while under IAS the firm can elect to report on either the income statement or in comprehensive income on the balance sheet.

B) US GAAP requires that unrealized gains and losses are reported in comprehensive income on the balance sheet, while under IAS the firm can elect to report on either the income statement or in comprehensive income on the balance sheet.

C) IAS requires that unrealized gains and losses are reported in comprehensive income on the balance sheet, while under US GAAP the firm can elect to report on either the income statement or in comprehensive income on the balance sheet.

Q13. With respect to Lee’s statement concerning securities that are currently worth less than when they were acquired, a security

should be considered impaired when the:

A) decline in value is other than temporary, its value should be written down to the new fair value, and a loss reported on the income statement.

B) decline in value is permanent, its value should be written down to the new fair value, and a loss reported on the income statement.

C) decline in value is other than temporary, its value should be written down to the new fair value, and a loss reported in comprehensive income in equity on the balance sheet.