ADVANCED FINANCIAL ACCOUNTING IN
CANADA 1E NATHALIE JOHNSTONE
KRISTIE DEWALD CHERYL WILSON
SOLUTION MANUAL WITH TEST BANK
LATEST FINAL PAPER COMPLETE
SOLUTIONS 2026 GRADED A+
⫸ What are some common economic consequences of financial
reporting on the reporting firm? Answer: Failure to maintain certain
financial statement ratios may cause a firm to violate debt covenants.
Certain financial statement performance metrics may affect the ability of
a firm to raise capital in debt or equity markets.
Managerial compensation may depend on reported net income.
⫸ When is an investor firm required to prepare consolidated financial
statements? Answer: When the investor firm controls an investee's
operations.
⫸ True or False: When firms are affiliated through a common set of
owners, measurements that recognize the relationships among the firms
help provide subjectivity that can be used to create the footnotes for
financial reporting. Answer: False
It helps provide OBJECTIVITY
,⫸ An investor that accounts for an equity investment under the cost
method records income from the investment based on its share of
___________ declared from the investee. Answer: Dividends
⫸ An investor originally purchased 5% of an investee and appropriately
applied the fair-value method to account for its investment. Later, the
investor purchased sufficient additional shares to qualify the investment
for the equity method. How should the investor account for the newly
qualified equity investment? Answer: Add the cost of the shares to the
current basis of its previous 5% investment.
⫸ True or false: Because reported income can affect market perceptions
of the underlying value of publicly traded shares, managers will often
assess prospective effects of equity method income prior to making an
equity-method investment in another firm's shares. Answer: True
Equity method income directly affects the reported net income of the
investor firm.
⫸ When one firm controls the entire decision making process of another
firm, Answer: such control may result from majority voting stock
ownership or contracts with a variable interest entity.
one set of financial statements are created for the combined assets,
liabilities, revenues and expenses of both firms.
for reporting purposes the two companies are considered to be a single
economic entity.
,⫸ When one firm can significantly influence the decisions of another
firm through its ownership of voting shares, transactions between the
two firms Answer: do not provide an objective basis for financial
reporting.
Transactions with outside parties must be used to provide a basis for
accounting valuation.
⫸ Under the equity method for investments with significant influence,
the direction of the sale between the investor and investee (upstream or
downstream) can only increase but cannot decrease the final amounts
reported in the financial statements. Answer: False
Under the equity method for investments with significant influence, the
direction of the sale between the investor and investee (upstream and
downstream) has no effect on the final amounts reported in the financial
statements.
⫸ What factors indicate if the equity method should be used for an
investment in another firm's equity securities? Answer: Technological
dependency between the investor and investee.
Investor representation on the investee's board of directors.
Investor participation in the policy-making process of the investee.
⫸ Which of the following accounting approaches is used when an
investment share is increased and the investment now qualifies for the
equity method? Answer: Prospective approach
, ⫸ As opposed to the cash basis of accounting, the equity method
follows the ________ basis for recognizing investment income. Answer:
Accrual
⫸ Goodwill is: Answer: An intangible asset.
⫸ What are the two main reasons that firms purchase equity shares in
other firms? Answer: To earn a return on idle cash and to achieve voting
privileges in the other firm.
⫸ When does a company like Coca-Cola account for its investment
using the equity method? Answer: When the investment provides the
company with the ability to exercise significant influence over the
decisions of the investee.
⫸ Which of the following represent potential conditions where one firm
has the ability to control the operations of another? Answer: One firms
owns more than 50% of the voting stock of another firm.
One firm has contractual arrangements that provide decision-making
power over another firm.
Key word: Control (of ownership)
CANADA 1E NATHALIE JOHNSTONE
KRISTIE DEWALD CHERYL WILSON
SOLUTION MANUAL WITH TEST BANK
LATEST FINAL PAPER COMPLETE
SOLUTIONS 2026 GRADED A+
⫸ What are some common economic consequences of financial
reporting on the reporting firm? Answer: Failure to maintain certain
financial statement ratios may cause a firm to violate debt covenants.
Certain financial statement performance metrics may affect the ability of
a firm to raise capital in debt or equity markets.
Managerial compensation may depend on reported net income.
⫸ When is an investor firm required to prepare consolidated financial
statements? Answer: When the investor firm controls an investee's
operations.
⫸ True or False: When firms are affiliated through a common set of
owners, measurements that recognize the relationships among the firms
help provide subjectivity that can be used to create the footnotes for
financial reporting. Answer: False
It helps provide OBJECTIVITY
,⫸ An investor that accounts for an equity investment under the cost
method records income from the investment based on its share of
___________ declared from the investee. Answer: Dividends
⫸ An investor originally purchased 5% of an investee and appropriately
applied the fair-value method to account for its investment. Later, the
investor purchased sufficient additional shares to qualify the investment
for the equity method. How should the investor account for the newly
qualified equity investment? Answer: Add the cost of the shares to the
current basis of its previous 5% investment.
⫸ True or false: Because reported income can affect market perceptions
of the underlying value of publicly traded shares, managers will often
assess prospective effects of equity method income prior to making an
equity-method investment in another firm's shares. Answer: True
Equity method income directly affects the reported net income of the
investor firm.
⫸ When one firm controls the entire decision making process of another
firm, Answer: such control may result from majority voting stock
ownership or contracts with a variable interest entity.
one set of financial statements are created for the combined assets,
liabilities, revenues and expenses of both firms.
for reporting purposes the two companies are considered to be a single
economic entity.
,⫸ When one firm can significantly influence the decisions of another
firm through its ownership of voting shares, transactions between the
two firms Answer: do not provide an objective basis for financial
reporting.
Transactions with outside parties must be used to provide a basis for
accounting valuation.
⫸ Under the equity method for investments with significant influence,
the direction of the sale between the investor and investee (upstream or
downstream) can only increase but cannot decrease the final amounts
reported in the financial statements. Answer: False
Under the equity method for investments with significant influence, the
direction of the sale between the investor and investee (upstream and
downstream) has no effect on the final amounts reported in the financial
statements.
⫸ What factors indicate if the equity method should be used for an
investment in another firm's equity securities? Answer: Technological
dependency between the investor and investee.
Investor representation on the investee's board of directors.
Investor participation in the policy-making process of the investee.
⫸ Which of the following accounting approaches is used when an
investment share is increased and the investment now qualifies for the
equity method? Answer: Prospective approach
, ⫸ As opposed to the cash basis of accounting, the equity method
follows the ________ basis for recognizing investment income. Answer:
Accrual
⫸ Goodwill is: Answer: An intangible asset.
⫸ What are the two main reasons that firms purchase equity shares in
other firms? Answer: To earn a return on idle cash and to achieve voting
privileges in the other firm.
⫸ When does a company like Coca-Cola account for its investment
using the equity method? Answer: When the investment provides the
company with the ability to exercise significant influence over the
decisions of the investee.
⫸ Which of the following represent potential conditions where one firm
has the ability to control the operations of another? Answer: One firms
owns more than 50% of the voting stock of another firm.
One firm has contractual arrangements that provide decision-making
power over another firm.
Key word: Control (of ownership)
