Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Question
Chapter 3, Problem 3.19.1P
To determine
Introduction:
Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary
To choose: The correct option.
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S1: The preparation of consolidated financial statements after acquisition is materially different concept from preparing them in the acquisition date in the sense that reciprocal accounts are eliminated and remaining balances are combined. S2: All revenues and expenses of individual consolidating companies arising from transactions and actions with affiliated companies are included in the consolidated financial statements.
A. Only S2 is correct
B. Both statements are incorrect
C. Only S1 is correct
D. Both statements are correct
Choose the correct. A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. Which of the following statements is true?a. Whether the balances agree or not, both the subsequent interest income and interest expense should be reported in a consolidated income statement.b. The interest income and interest expense will agree in amount and should be offset for consolidation purposes.c. In computing any noncontrolling interest allocation, the interest income should be included but not the interest expense.d. Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes.
S1: The preparation of consolidated financial statements after acquisition is materially different concept from preparing them in the acquisition date in the sense that reciprocal accounts are eliminated and remaining balances are combined. S2: All revenues and expenses of individual consolidating companies arising from transactions and actions with affiliated companies are included in the consolidated financial statements.
Only S2 is correct
Both statements are correct
Both statements are incorrect
Only S1 is correct
Chapter 3 Solutions
Advanced Financial Accounting
Ch. 3 - What is the basic idea underlying the preparation...Ch. 3 - How might consolidated statements help an investor...Ch. 3 - Prob. 3.3QCh. 3 - Prob. 3.4QCh. 3 - Prob. 3.5QCh. 3 - Prob. 3.6QCh. 3 - Prob. 3.7QCh. 3 - Prob. 3.8QCh. 3 - Prob. 3.9QCh. 3 - Prob. 3.10Q
Ch. 3 - Prob. 3.11QCh. 3 - Prob. 3.12QCh. 3 - What is meant by indirect control? Give an...Ch. 3 - Prob. 3.14QCh. 3 - Prob. 3.15QCh. 3 - Prob. 3.16QCh. 3 - Prob. 3.17QCh. 3 - Prob. 3.18QCh. 3 - Prob. 3.1CCh. 3 - Prob. 3.2CCh. 3 - Prob. 3.1.1ECh. 3 - Prob. 3.1.2ECh. 3 - Prob. 3.1.3ECh. 3 - Prob. 3.1.4ECh. 3 - Multiple-Choice Question on Variable Interest...Ch. 3 - Multiple-Choice Question on Variable Interest...Ch. 3 - Prob. 3.2.3ECh. 3 - Prob. 3.2.4ECh. 3 - Prob. 3.3.1ECh. 3 - Prob. 3.3.2ECh. 3 - Prob. 3.3.3ECh. 3 - Prob. 3.4.1ECh. 3 - Prob. 3.4.2ECh. 3 - Prob. 3.4.3ECh. 3 - Prob. 3.4.4ECh. 3 - Balance Sheet Consolidation On January 1, 20X3,...Ch. 3 - Prob. 3.6ECh. 3 - Prob. 3.7ECh. 3 - Prob. 3.8ECh. 3 - Prob. 3.9ECh. 3 - Reporting for a Variable Interest Entity Gamble...Ch. 3 - Prob. 3.11ECh. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Prob. 3.15ECh. 3 - Prob. 3.16ECh. 3 - Prob. 3.17ECh. 3 - Prob. 3.18ECh. 3 - Prob. 3.19.1PCh. 3 - Prob. 3.19.2PCh. 3 - Prob. 3.20PCh. 3 - Prob. 3.21PCh. 3 - Prob. 3.22PCh. 3 - Prob. 3.23PCh. 3 - Prob. 3.24PCh. 3 - Prob. 3.25PCh. 3 - Prob. 3.26PCh. 3 - Prob. 3.27PCh. 3 - Prob. 3.28PCh. 3 - Prob. 3.29PCh. 3 - Consolidated Worksheet at End of the First Year of...Ch. 3 - Prob. 3.31P
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- PFRS 3 must be applied when accounting for business combinations, but does not apply to:i. Formation of a joint arrangementii. The acquisition of an asset or group of assets that is not a business although general guidance is provided on how such transactions should be accounted foriii. Combination of entities or businesses under common controliv. Acquisitions by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss under PFRS 10 Consolidated Financial Statementsv. Mutual entitiesvi. Not-for-profit organizations i, ii, iii, iv, v, and iv i, ii, iii, and iv i, ii, iii, iv, and vi i, ii, iii, iv, and varrow_forwardPFRS 3 must be applied when accounting for business combinations, but does not apply to:i. Formation of a joint arrangementii. The acquisition of an asset or group of assets that is not a business although general guidance is provided on how such transactions should be accounted foriii. Combination of entities or businesses under common controliv. Acquisitions by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss under PFRS 10 Consolidated Financial Statementsv. Mutual entitiesvi. Not-for-profit organizations a. i, ii, iii, iv, and v b. i, ii, iii, and iv c. i, ii, iii, iv, v, and iv d. i, ii, iii, iv, and viarrow_forwardWhich of the following statements is incorrect concerning the preparation of consolidated financial statements? * A. Consolidated financial statem ents shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. b. The financial statements of the parent and its subsidiaries shall be consolidated on a line by line basis by adding together like items of assets, liabilities, equity, income and expenses. c. Intragroup balances, transactions, income and expenses shall be eliminated in full. d. When the reporting dates of the parent and a subsidiary are different, the difference shall be no more than six months.arrow_forward
- The preparation of consolidated financial statements: Select one alternative: does not obviate the need for separate entities to prepare and release their own separate financial statements and should be done in accordance with IFRS 10 will eliminate the result derived from operations with parties external to the group of entities highlights income derived as a result of transactions within the group obviates the need for separate entities to prepare and release their own separate financial statementsarrow_forwardChoose the correct. A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?a. It is a relatively easy method to apply.b. Operating results appearing on the parent’s financial records reflect consolidated totals.c. GAAP now requires the use of this particular method for internal reporting purposes.d. Consolidation is not required when the parent uses the initial value method.arrow_forward3. Which is true regarding the Investment in SubsidiaryStock account?*A. It is accounted for in the parent's books and is included as non - current assets in the parent's balance sheetB. It is not included in the consolidated balance sheet ofparent and subsidiaryC. It is decreased and or increased by the differencebetween fair value and book value of net assets of thesubsidiary for consolidation purposes.Id] All of the abovearrow_forward
- Issue B Assuming there is the need for CONVEX Ltd. to prepare consolidated financial statements and CONCAVE Ltd. has presented its separate financial statement to CONVEX Ltd., comment on how the following transactions between CONVEX Ltd. and CONCAVE Ltd. will be accounted for in the consolidated financial statements and explain to management the reason for the suggested treatment. (a) At the date of acquisition, the fair value of all the assets of CONVEX Ltd. were the same as their carrying amounts with the exception of one of its equipment. This had a fair value of GH¢2million. The book value of this equipment was GH¢1.6 million before the acquisition. As a result of the fair valuation, the useful life of the equipment has been reviewed to 10 years remaining life. (b) At the acquisition date, CONVEX Ltd. paid GH¢20 million cash and promised to pay additional GH¢2 million if the vaccine production is successful. However, the value of net assets of CONCAVE Ltd. was just GH¢16 million.arrow_forwardWhich statement is incorrect regarding reclassification of financial assets? Group of answer choices None of these. Reclassifications are only permitted on the change of an entity's business model and are expected to occur only infrequently. An entity shall restate any previously recognized gains, losses (including impairment gains or losses) or interest. An entity shall account for transfers between categories prospectively, at the beginning of the period after the change in the business model.arrow_forwardKey questions to consider when determining the appropriate consolidation adjustment entries include the following except for: a. What has been recorded by the legal entities? b. What is the tax effect of the adjustments made? c . Does the transaction involve the parent entity selling assets to the subsidiary, or the subsidiary selling assets to the parent entity? d. Is this a prior period or a current period transaction?arrow_forward
- Question 2Each of the following independent statements may be true or false. Discuss the circumstances whereby the statement is true and the circumstances whereby it is false. (a) Goodwill on consolidation in the Consolidated Statement of Financial Position is the difference between consideration paid by the Parent and the Parent's share of fair value of identifiable net assets of a partially-owned Subsidiary. (b) Dividends declared by a Group (which is shown as an appropriation in the Consolidated Statement of Changes in Equity) comprises dividends declared by the Parent and dividends declared by a Subsidiary to its Non-controlling Interests. (c) A Group will always report a Consolidated Profit after Tax that is larger than the Consolidated Profit after Tax attributable to the Shareholders of the Parent.arrow_forwardRequirements: WHAT IS THE AMOUNT OF: A. Goodwill to be reported on the consolidated balance sheet on January 1, 2x19? B. Non-controlling interest on January 1, 2x19? C. Consolidated operating expenses for 2x19? D. Consolidated profit attributable to parent on December 31, 2x19? E. Non-controlling interest in profit of Subsidiary Company on December 31, 2x19? F. Non-controlling interest is to be presented in the consolidated statement of financial position on December 31, 2x19? G. Consolidated retained earnings attributable to Parent's shareholder equity on December 31, 2x19? H. Total consolidated assets on December 31, 2x19?arrow_forwardWhich consolidation method should be used in preparing consolidated financial statements in accordance with IFRS? A. Proportionate consolidation method.B. Either identifiable net assets or fair value enterprise method.C. New entity method.D. Parent company method.arrow_forward
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