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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Pumpworks Inc. and Seaworthy Rope Company agreed to merge on January 1, 20X3. On the date of the merger agreement, the companies reported the following data:Pumpworks has 10,000 shares of its $20 par
Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it carries the investment at fair value or if it uses the equity
In 20X0, Neil Company held the following investments in common stock:25,000 shares of B&K Inc.’s 100,000 outstanding shares. Neil’s level of ownership gives it the ability to exercise
An investor uses the equity method to account for an investment in common stock. Assume that (1) the investor owns less than 50 percent of the outstanding common stock of the investee, (2) the
A corporation exercises significant influence over an affiliate in which it holds a 40 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how
On January 2, 20X3, Kean Company purchased a 30 percent interest in Pod Company for $250,000. Pod reported net income of $100,000 for 20X3 and declared and paid a dividend of $10,000. Kean accounts
Investor Inc. owns 40 percent of Alimand Corporation. During the calendar year 20X5, Alimand had net earnings of $100,000 and paid dividends of $10,000.During 20X5, the market value of Alimand’s
A corporation using the equity method of accounting for its investment in a 40 percent-owned investee, which earned $20,000 and paid $5,000 in dividends, made the following entries:What effect will
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept ofa. Reliability.b. Materiality.c. Legal entity.d. Economic
Consolidated financial statements are typically prepared when one company has a controlling interest in another unlessa. The subsidiary is a finance company.b. The fiscal year-ends of the two
Penn Inc., a manufacturing company, owns 75 percent of the common stock of Sell Inc., an investment company. Sell owns 60 percent of the common stock of Vane Inc., an insurance company. In Penn’s
Variable interest entities may be established asa. Corporations.b. Trusts.c. Partnerships.d. All of the above.
An enterprise that will absorb a majority of a variable interest entity’s expected losses is called thea. Primary beneficiary.b. Qualified owner.c. Major facilitator.d. Critical management director.
In determining whether or not a variable interest entity is to be consolidated, the FASB focused ona. Legal control.b. Share of profits and obligation to absorb losses.c. Frequency of intercompany
In Paint’s December 31, 20X8, consolidated balance sheet, what amount should be reported as noncontrolling interest in net assets?a. $0b. $30,000c. $45,000d. $105,000 Items 1 and 2 are based on the
In its consolidated balance sheet at December 31, 20X8, what amount should Paint report as common stock outstanding?a. $50,000b. $100,000c. $137,500d. $150,000 Items 1 and 2 are based on the
Aaron Inc. owns 80 percent of the outstanding stock of Belle Inc. Compare the total consolidated net earnings of Aaron and Belle (X) and Aaron’s operating earnings before considering the income
On October 1, X Company acquired for cash all of Y Company’s outstanding common stock. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income
Ownership of 51 percent of the outstanding voting stock of a company would usually result ina. The use of the cost method.b. The use of the lower-of-cost-or-market method.c. The use of the equity
Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Problem 3–27
Wright Corporation includes several subsidiaries in its consolidated financial statements. In its December 31, 20X2, trial balance, Wright had the following intercompany balances before consolidation
Beni Corporation acquired 100 percent of Carr Corporation’s outstanding capital stock for $430,000 cash. Immediately before the purchase, the balance sheets of both corporations reported the
As a result of Gold’s acquisition of Nugget, the consolidated balance sheet of Gold and Nugget should reflect goodwill in the amount ofa. $500,000.b. $550,000.c. $600,000.d. $650,000.Nugget
Assuming Gold uses the equity method to account for investments and that Gold’s (unconsolidated) balance sheet on December 31, 20X6, reflected retained earnings of $2,000,000, what amount of
Consolidated financial statements are being prepared for a parent and its four wholly owned subsidiaries that have intercompany loans of $100,000 and intercompany profits of $300,000. How much of
On April 1, 20X8, Plum Inc. paid $1,700,000 for all of Long Corp.’s issued and outstanding common stock. On that date, the costs and fair values of Long’s recorded assets and liabilities were as
What amount of inventory will be reported?a. $70,000b. $130,000c. $200,000d. $215,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31, 20X2. Balance
What amount of goodwill will be reported?a. $0b. $23,000c. $43,000d. $58,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31, 20X2. Balance sheet
What amount of total assets will be reported?a. $84,400b. $1,051,000c. $1,109,000d. $1,249,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31, 20X2.
What amount of total liabilities will be reported?a. $265,000b. $436,500c. $701,500d. $1,249,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on December 31,
What amount of consolidated retained earnings will be reported?a. $547,500b. $397,500c. $347,500d. $257,500 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on
What amount of total stockholders’ equity will be reported?a. $407,500b. $547,500c. $844,000d. $1,249,000 Pocket Corporation acquired 100 percent of Strap Corporation’s common stock on
Price Corporation acquired 100 percent ownership of Saver Company on January 1, 20X8, for $128,000. At that date, the fair value of Saver’s buildings and equipment was $20,000 more than the book
Monsanto Company, a St. Louis–based company, is a leading provider of agricultural products for farmers. It sells seeds, biotechnology trait products, and herbicides worldwide.Requireda. How did
Explain how a deferred tax liability and a deferred tax asset conform to the definitions of a liability and an asset in the IFRS Framework.
Explain the concept of a taxable temporary difference.
Provide examples of situations where the taxable or deductible temporary difference should not be recognized.
Explain the rationale for the treatment of tax losses under IAS 12.
How may an investor use the information on deferred taxes in financial analysis of an entity?
In your opinion, is the information reported on deferred taxes relevant for decision-making? Explain.
You have been assigned to prepare the deferred tax computations for Co A for the years ended 31 December 20x2 and 20x3. The following details relate to Co A’s assets and liabilities.(a) Fixed
Company X seeks your assistance to determine its tax expense under IAS 12 Income Taxes. The accountant has provided you with a schedule below of carrying amounts of assets and liabilities and
Explain the significance of earnings per share to investors in publicly traded shares of listed companies.
Entity A reported the following basic earnings per share and diluted earnings per share: Basic EPS Diluted EPS. 20x5 $0.90 0.85 20x4 $1.00 0.80 Explain the possible reason(s) for basic earnings per
Explain why an anti-dilutive potential ordinary share is excluded from the calculation of diluted earnings per share.
Excelsior Corporation reported profit after tax of $5,000,000 for the year ended 31 December 20x3. The following information is provided for the year 20x3:(a) The number of outstanding ordinary
The accountant of Kops Ltd has just prepared the financial statements for the financial year ended 31 December 20x4. The income statement reported a consolidated profit after tax of $14,500,000
The following information pertains to First Corporation Ltd:(a) The number of ordinary shares outstanding at the beginning of 20x1 was 30,000,000.(b) On 1 April 20x0, 6,000,000 convertible preference
Gold Ltd is a publicly listed company and has to provide earnings per share information in accordance with IAS 33 Earnings per Share. The following information relates to the change in ordinary
Sapphire Ltd has a complex capital structure that includes both ordinary shares and potential ordinary shares.Sapphire Ltd reported the following net profit and dividends information for the current
Sapphire Ltd, the company in P12.8 , reported the following net profit after tax for the year ended 31 December 20x1.Required1. Determine the basic earnings per share of Sapphire Ltd for the year
Diamonds Ltd has issued share capital of 2,000,000 ordinary shares as at 31 December 20x6. Profit for the year attributable to ordinary shareholders amounted to $6.5 million. In 20x2, a total of
What “vesting assumptions” need to be made in calculating remuneration expense?
Explain the general principles in the accounting for share-based transactions.
Explain the types of vesting conditions and their significance in accounting for share-based transactions.
Explain how a share appreciation rights plan work.
Under what circumstances is it permissible to use the intrinsic value to measure remuneration expense?
Explain the differences in accounting treatment between an equity-settled share-based transaction and a cash-settled share-based transaction.
P Co has an obligation to settle share-based payment with employees of its subsidiary S Co in P Co’s equity instruments. How should the share-based payment transaction be accounted for by P Co, S
P Co has an obligation to settle share-based payment with employees of its subsidiary S Co in S Co’s equity instruments. How should the share-based payment transaction be accounted for by P Co, S
S Co has an obligation to pay its employees remuneration that is pegged to the price of shares of its parent, P Co.How should the share-based payment transaction be accounted for by P Co, S Co, and
P Co has an obligation to pay to employees of its subsidiary, S Co, remuneration that is pegged to the price of shares of P Co. How should the share-based payment transaction be accounted for by P
The following information appeared in the footnote disclosure to the 20x1 annual report of SG Company Ltd.The company has introduced a share appreciation rights plan on 1 January 20x1, whereby
On 1 June 20x3, Delphi Company granted 100,000 share options with an exercise price of $3 to its chief executive officer. The fair value of the options was $2.30 at the date of the grant. The
On 1 December 20x1, Eastern Corporation engaged the services of an investment bank to provide consultancy services on its initial public offering (IPO) in May 20x2. The agreed fee for the consultancy
On 1 January 20x1, Delco Company initiated a share-based compensation plan for its ten employees. Under the plan, each employee was given two choices: either a right to a cash payment equal to the
On 31 December 20x0, Carmen Corporation granted 10,000 share options to 35 employees. The share options would vest at 31 December 20x3 provided the employees remained in service until then. The share
On 1 January 20x2, Bonjour Company granted 100,000 shares to its chief financial officer, conditional upon the completion of three years’ service. The share price of Bonjour Company was $3.00 at
Icon Company initiated a share option plan for its chief executive officer on 1 January 20x1. The terms of the share option plan are as follows:(a) The vesting date is 31 December 20x3 and the chief
On 2 January 20x1, Alcato Company introduced an executive share option plan for its top ten executives. Under the plan, each executive was granted 100,000 share options that gave them the right to
On 1 January 20x1, ACE Corporation introduced a share appreciation rights (SARs) plan for 20 selected senior managers. Under the plan, each manager was granted 10,000 share appreciation rights, which
If the nature of an acquisition takes the form of an asset acquisition, it will not qualify as a business acquisition under IFRS 3 or a business combination under common control.
Assuming the other conditions are met, the following acquisition would qualify for business combination under common control. Contractual agreement Individ X 40% Individ Y 50% Company A Individ Z 10%
In analyzing whether a restructuring transaction qualifies as a business combination under common control, the intention to spin-off or dispose the restructured group post-combination in itself will
The extent of non-controlling interests in each of the combining entities before and after the business combination is not relevant to determining whether the combination involves entities under
In applying the predecessor method of accounting, the carrying values of the assets and liabilities of the acquiree reported in the consolidated financial statements of the ultimate parent company
To the extent that there is no change in control arising from the corporate restructuring process, the corporate restructuring within the group should have an impact on the consolidated financial
In the case of group organization when a new company is inserted within an existing group, in accounting for the transaction as a continuation of the existing group, the full year results of the new
Company X owns 100% of Company Y and 80% of Company Z. The remaining 20% are held by a third party, Company A. On 1 August 20x5, Company Y obtains 100% control of Company Z by issuing its shares to
For the following scenarios below, discuss the appropriate accounting treatment. All companies are wholly owned by its immediate holding company.Discuss the appropriate accounting treatment from the
Explore the reasons as to why a parent may choose not to acquire 100% of the shares in an acquiree at the date of acquisition and how it can safeguard the remaining interests by entering in
Discuss how a put option, call option or a combination of call and put option may be utilized by a parent to safeguard the shareholdings held by non-controlling interests.
Explain the rationale as to why the combination of a symmetrical call and put option will effectively result in a forward contract being entered into when such transactions are entered as part of a
Discuss the accounting treatment of put option entered into as part of a business combination transaction in both the separate and consolidated financial statements
Discuss the factors to consider in the assessment of whether the derivatives contracts entered into by the parent accord itself with ownership interests over the underlying shares.
On 30 June 20x8, Company P acquires 90% of Company S for cash consideration amounting to $3 million. The fair value of the identifiable net assets of Company S as at the date of acquisition is $2.8
On 1 January 20x4, Company P acquires 70% of Company S for cash consideration amounting to $35 million. The fair value of the identifiable net assets of Company S as at the date of acquisition is $28
Eastern Company had inventory of 5,000,000 one-ounce silver coins, which were carried at a cost of $15 million(current market value is $16.5 million). The selling price of the silver coins was
Cambell Corporation had the following transactions in derivatives in 20x5:Transaction 1 Cambell Corporation bought 100,000 shares of Hindz Company on 31 July 20x5 at $2.50 per share. The long term
Explain the concept of a deductible temporary difference.
Details of assets and liabilities of Company XYZ are as follows:(a) Fixed assets Depreciation is on a straight line basis. Capital allowances of $1,000,000 are recognized in full in 20x1. Recovery
Refer to Problem 11.2. If instead of a profit, Company A recorded a loss of $1,000,000 for 20x3, what would be the tax expense or credit for 20x3 assuming that future profitability is not assured? In
Discuss the limitations of earnings per share as an indicator of an entity’s performance.
Do the follow contractual cash flows meet the SPPI (solely payments of principal and interest) test?(a) A bond with stated maturity date, and principal and interest linked to an inflation index of
Each of the following bond has contractual cash flows that meet the SPPI (solely payments of principal and interest) test. Determine the business model.(a) The entity invests surplus cash in short
It was the scene of yet another lengthy board meeting. The directors had just been informed that IAS 32 required the separate presentation on an issuer’s statement of financial position of
Explain the differences in classifications between IAS 39 and IFRS 9.
What is the rationale for the move from incurred loan provisioning method to the expected loan provisioning method? What are the pros and cons of each method?
What are the three categories/buckets of financial instruments and the key factors in determining expected credit losses?
Does the following financial instrument qualify as a contractually linked financial instrument under IFRS 9? Senior tranche of mortgage-backed security with the tranche’s cash flows based on the

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