Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 3, Problem 1P
To determine
Identify the appropriate answer for the given statement from the given choices.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
In an asset acquisition:
a.
A consolidation must be prepared whenever financial statements are issued.
b.
The acquiring company deals only with existing shareholders, not the company itself.
c.
The assets and liabilities are recorded by the acquiring company at their book values.
d.
Statements for the single combined entity are produced automatically and no consolidation process is needed.
What is a good response to?
The unrealized intercompany profits can assuredly have an impact on the consolidated financial statements, as true profits and losses will not be recognized until inventory is sold to an unrelated entity. Prior to this third-party sale the intercompany profit or loss in unrealized and must be removed from the reports consolidation to avoid overstating the consolidated net income (Hoyle, Schaefer, & Doupnik, 2024).
It is also important to determine if the inventory sale was upstream or downstream, as the considerations will vary based on the sale in relation to the parent company. For an upstream sale (subsidiary to parent company) any unrealized profit or loss can be partially allocated to non-controlling interests assuming such entities exist, and once the inventory has been resold the recognized revenue is subsequently split accordingly. During a downstream sale (parent to subsidiary company) the unrealized revenue is allocated to the parent company,…
Which of the following pertaining to Consolidated Financial Statements is correct?A. The preparation of Consolidated Financial Statements means that the companiesinvolved cease to operate as separate legal entities.B. The preparation of Consolidated Financial Statements is at the Parent Company'sdiscretion.C. When one company has control over another, Consolidated Financial Statementsmust be prepared for the combined entity.D. Before preparing Consolidated Financial Statements, a subsidiary's FinancialStatements prior to the date of acquisition must be restated.
Chapter 3 Solutions
Advanced Accounting
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Which of the following is incorrect regarding measurement period? a. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. b. During the measurement period, the acquirer shall also recognise additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date. c. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. d. During the measurement period, the acquirer shall prospectively adjust the provisional amounts recognised at the acquisition date…arrow_forwardWhich of the following regarding the preparation of Consolidated Financial Statement iscorrect?A. Once the parent company prepares Consolidated Financial Statements, it no longerneeds to prepare financial statements for its own activities.B. Only the subsidiaries are required to prepare Financial Statements.C. Consolidated Financial Statements are required by the Parent Company for reportingpurposes only; each company must continue to prepare its own FinancialStatements.D. Consolidated Financial Statements are required only when both companies arepublicly traded.arrow_forwardTrue or False Pls indicate if the statements are true or false. 1. The worksheet eliminations prepared subsequent to acquisition remove the allocated excess/purchase differential amortizations from the consolidated financial statements. 2. Allocated excess/purchase differential amortizations result in the Investment Income account disclosing the income that would have been allocated to the parent had the subsidiary’s financial records disclosed the market value of its assets and liabilities. 3.arrow_forward
- Which of the following statements is true regarding the acquisition method of accounting for a business combination? a. Assets of the acquired company are recorded at book values. b. Assets of the acquired company are recorded at fair value, but only if the acquisition cost equals or exceeds fair value of the subsidiary's net assets. c. Assets of the acquired company are recorded at fair values regardless of the acquisition cost. d. Consulting costs related to the combination reduce additional paid-in capital.arrow_forwardWhich of the following is incorrect regarding consolidated financial statements? a. Consolidation involves adding similar assets, liabilities, income and expenses of the parent and its subsidiaries. b. The subsidiary’s equity is eliminated and replaced with non-controlling interest. c. The consolidated profit pertains only to the parent. d. A parent is exempt from consolidation if it is in itself a subsidiary, its securities are not traded, and its parent produce PFRS (IFRS) consolidated financial statements.arrow_forwardStatement 1: 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. Statement 2: 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 Statement 1 is correct b. Both statements are correct c. Only Statement 2 is correct d. Both statements are incorrectarrow_forward
- Which of the following statements about pushdown accountling is correct? Select one: a. Pushdown accounting occurs when a subsidiary incurs the parent company's transaction costs related to the acquisition of the subsidiary. O b. On the date a parent company obtains control of a subsidiary, pushdown accounting will result in a subsidiary's pre-consolidation individual net assets being reported at fair value, consistent with FASB ASC 805. C. When a subsidiary applies pushdown accounting, the parent company's Equity Investment account is pushed down and reported on the subsidiary's balance sheet. d. When a subsidiary applies pushdown accounting, the parent company is no longer required to issue consolidated financial statements.arrow_forwardA company has included in its consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidation last year. This results in a. an accounting change that should be reported prospectively. b. an accounting change that should be reported by restating the financial statements of all prior periods presented. c. a correction of an error. d. neither an accounting change nor a correction of an error.arrow_forwardThe process of preparing Consolidated Financial Statements involves the elimination of intercompany transactions between a Parent Company and its subsidiary. Where would theseentries be recorded?A. On the Parent's books only.B. On the Subsidiary's books.C. The entries are not recorded in the books of either company. The entries are onlymade on the working papers.D. The effect of any inter-company transaction must be reflected on the books of bothcompaniesarrow_forward
- IFRS 10 is an accounting standard that provides guidelines to consolidate financial statements for group companies. The following questions relate to a transaction between companies within a group where a sale of a non-depreciable asset occurred in the current year. (a) Describe the consolidation procedure that will be applied to account for the sale of an asset between the parent and subsidiary in the consolidated financial statements. (b) Discuss the effect of a profit and loss on sale on: (i) The consolidated statement of financial position (ii) The consolidated statement of profit or loss and other comprehensive Please note: Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Journals and preparation of financial statements are not required.arrow_forwardWhen two proprietors decide to combine their businesses, generally accepted accounting principles usually require that noncash assets be taken over at their a.book value as of the date of formation. b.historical cost value as of the date of formation. c.fair market value as of the date of formation. d.residual value as of the date of formation.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
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning