Advanced Financial Accounting - Exam 1
Questions With Solutions 100% Correct
Intercompany Sales The ending inventory from intercompany sales must be restated to it's
original cost, the profit recognized on intercompany sales and the amount included in retained
earnings must be removed
Difference Between FV and BV The fair value reflects the current value of the acquired
assets. First we allocate it to the differential, then to Goodwill
Noncontrolling Interest The shareholders of the subsidiary other than the parent
Presentation of Noncontrolling Interest Consolidated Net Income
Less Consolidated Net Income from noncontrolling interest
=Consolidated Net Income attributable to the controlling interest
Special Purpose Entities Are corporations, trusts, or partnerships created for a single
specified purpose. They have no substantive operations and are used only for financing purposes.
, Advanced Financial Accounting - Exam 1
Questions With Solutions 100% Correct
Variable Interest Entity Is a legal structure used for business purposes, usually a
corporation, trust, or partnership that either (1) does not have equity investors that have voting
rights and share in all the entity's profits and losses (2) has equity investors that do not provide
sufficient financial resources to support the entity's activities. Specific agreements may limit the
extent to which the equity investors share the entity's profits or losses and the agreements may
limit the control the equity investors have over the entity's activities.
Primary Beneficiary An enterprise that will absorb a majority of the VIE's expected
losses, receive a majority of the VIE's expected residual return, or both. The primary beneficiary
must consolidate the VIE
Proprietary Theory Views the firm as an extension of the owners. The firms' assets,
liabilities, revenues, and expenses are viewed as those of the owners
Pro Rata Consolidation In which the parent company consolidates only its proportionate
share of a less-than-wholly owned subsidiary's assets, liabilities, revenues, and expenses
Questions With Solutions 100% Correct
Intercompany Sales The ending inventory from intercompany sales must be restated to it's
original cost, the profit recognized on intercompany sales and the amount included in retained
earnings must be removed
Difference Between FV and BV The fair value reflects the current value of the acquired
assets. First we allocate it to the differential, then to Goodwill
Noncontrolling Interest The shareholders of the subsidiary other than the parent
Presentation of Noncontrolling Interest Consolidated Net Income
Less Consolidated Net Income from noncontrolling interest
=Consolidated Net Income attributable to the controlling interest
Special Purpose Entities Are corporations, trusts, or partnerships created for a single
specified purpose. They have no substantive operations and are used only for financing purposes.
, Advanced Financial Accounting - Exam 1
Questions With Solutions 100% Correct
Variable Interest Entity Is a legal structure used for business purposes, usually a
corporation, trust, or partnership that either (1) does not have equity investors that have voting
rights and share in all the entity's profits and losses (2) has equity investors that do not provide
sufficient financial resources to support the entity's activities. Specific agreements may limit the
extent to which the equity investors share the entity's profits or losses and the agreements may
limit the control the equity investors have over the entity's activities.
Primary Beneficiary An enterprise that will absorb a majority of the VIE's expected
losses, receive a majority of the VIE's expected residual return, or both. The primary beneficiary
must consolidate the VIE
Proprietary Theory Views the firm as an extension of the owners. The firms' assets,
liabilities, revenues, and expenses are viewed as those of the owners
Pro Rata Consolidation In which the parent company consolidates only its proportionate
share of a less-than-wholly owned subsidiary's assets, liabilities, revenues, and expenses
