TEST BANK For Modern Advanced
Accounting In Canada, 10th Edition By
Darrell Herauf, Chima Mbagwu,| All
Chapters 1 - 12 Included, Complete
Solutions
1. Which of the following best describes consolidated financial
statements?
a) Financial statements of a single company
b) Financial statements of a parent and its subsidiaries presented
as one entity
c) Financial statements prepared only for internal use
d) Financial statements of two unrelated companies
b) Financial statements of a parent and its subsidiaries presented as
one entity
Consolidated financial statements combine the financial information of
the parent and its subsidiaries to present them as a single economic
entity.
2. When a parent acquires less than 100% of a subsidiary, the
portion not owned is referred to as:
a) Non-controlling interest
b) Minority goodwill
c) Equity method
d) Deferred acquisition
,a) Non-controlling interest
Non-controlling interest represents the portion of equity in a subsidiary
not attributable to the parent.
3. Goodwill is recognized in a business combination when:
a) The purchase price equals the fair value of net assets
b) The purchase price exceeds the fair value of net assets acquired
c) The purchase price is less than the book value of net assets
d) Assets are fully depreciated
b) The purchase price exceeds the fair value of net assets acquired
Goodwill arises when the parent pays more than the fair value of the
identifiable net assets of the subsidiary.
4. Under the acquisition method, the fair value of consideration paid
includes:
a) Cash only
b) Cash and the fair value of other assets transferred
c) Only contingent liabilities
d) Only marketable securities
b) Cash and the fair value of other assets transferred
The acquisition method requires recognizing all forms of consideration
at fair value at the acquisition date.
5. Intra-group transactions should be:
a) Ignored in consolidation
b) Adjusted to eliminate unrealized profits or losses
c) Reported as revenue
d) Allocated to the parent only
,b) Adjusted to eliminate unrealized profits or losses
Unrealized gains or losses from transactions within the group must be
eliminated to avoid overstating profits.
6. The equity method is primarily used when:
a) The investor has no influence
b) The investor has significant influence over the investee
c) The investor fully controls the investee
d) The investee is publicly traded
b) The investor has significant influence over the investee
Significant influence typically exists when ownership is 20–50%,
allowing the investor to influence operational and financial policies.
7. Under the equity method, dividends received from the investee
are:
a) Recognized as income
b) Deducted from the investment account
c) Ignored
d) Recognized as a liability
b) Deducted from the investment account
Dividends reduce the carrying amount of the investment under the
equity method.
8. Which of the following is an example of a temporary difference for
tax purposes?
a) Depreciation of an asset with different tax and accounting rates
b) Long-term investments held for strategic purposes
c) Paid-in capital
d) Cash on hand
, a) Depreciation of an asset with different tax and accounting rates
Temporary differences arise when accounting and tax treatments differ
but will reverse over time.
9. Deferred tax assets arise when:
a) Taxable income exceeds accounting income
b) Accounting income exceeds taxable income
c) Taxes are paid in advance
d) Liabilities are overstated
b) Accounting income exceeds taxable income
Deferred tax assets occur when future tax deductions are expected due
to temporary differences.
10. Which of the following is true regarding foreign currency
translation under IFRS?
a) Assets and liabilities are translated at historical rates
b) Income statement items are translated at the closing rate
c) Assets and liabilities are translated at the closing rate, and
income statement items at the average rate
d) Exchange differences are ignored
c) Assets and liabilities are translated at the closing rate, and income
statement items at the average rate
IFRS requires monetary items to be translated at the closing rate, while
revenue and expense items use an average rate for the period.
11. The functional currency is defined as:
a) The currency of the parent
b) The currency of the primary economic environment in which
the entity operates
Accounting In Canada, 10th Edition By
Darrell Herauf, Chima Mbagwu,| All
Chapters 1 - 12 Included, Complete
Solutions
1. Which of the following best describes consolidated financial
statements?
a) Financial statements of a single company
b) Financial statements of a parent and its subsidiaries presented
as one entity
c) Financial statements prepared only for internal use
d) Financial statements of two unrelated companies
b) Financial statements of a parent and its subsidiaries presented as
one entity
Consolidated financial statements combine the financial information of
the parent and its subsidiaries to present them as a single economic
entity.
2. When a parent acquires less than 100% of a subsidiary, the
portion not owned is referred to as:
a) Non-controlling interest
b) Minority goodwill
c) Equity method
d) Deferred acquisition
,a) Non-controlling interest
Non-controlling interest represents the portion of equity in a subsidiary
not attributable to the parent.
3. Goodwill is recognized in a business combination when:
a) The purchase price equals the fair value of net assets
b) The purchase price exceeds the fair value of net assets acquired
c) The purchase price is less than the book value of net assets
d) Assets are fully depreciated
b) The purchase price exceeds the fair value of net assets acquired
Goodwill arises when the parent pays more than the fair value of the
identifiable net assets of the subsidiary.
4. Under the acquisition method, the fair value of consideration paid
includes:
a) Cash only
b) Cash and the fair value of other assets transferred
c) Only contingent liabilities
d) Only marketable securities
b) Cash and the fair value of other assets transferred
The acquisition method requires recognizing all forms of consideration
at fair value at the acquisition date.
5. Intra-group transactions should be:
a) Ignored in consolidation
b) Adjusted to eliminate unrealized profits or losses
c) Reported as revenue
d) Allocated to the parent only
,b) Adjusted to eliminate unrealized profits or losses
Unrealized gains or losses from transactions within the group must be
eliminated to avoid overstating profits.
6. The equity method is primarily used when:
a) The investor has no influence
b) The investor has significant influence over the investee
c) The investor fully controls the investee
d) The investee is publicly traded
b) The investor has significant influence over the investee
Significant influence typically exists when ownership is 20–50%,
allowing the investor to influence operational and financial policies.
7. Under the equity method, dividends received from the investee
are:
a) Recognized as income
b) Deducted from the investment account
c) Ignored
d) Recognized as a liability
b) Deducted from the investment account
Dividends reduce the carrying amount of the investment under the
equity method.
8. Which of the following is an example of a temporary difference for
tax purposes?
a) Depreciation of an asset with different tax and accounting rates
b) Long-term investments held for strategic purposes
c) Paid-in capital
d) Cash on hand
, a) Depreciation of an asset with different tax and accounting rates
Temporary differences arise when accounting and tax treatments differ
but will reverse over time.
9. Deferred tax assets arise when:
a) Taxable income exceeds accounting income
b) Accounting income exceeds taxable income
c) Taxes are paid in advance
d) Liabilities are overstated
b) Accounting income exceeds taxable income
Deferred tax assets occur when future tax deductions are expected due
to temporary differences.
10. Which of the following is true regarding foreign currency
translation under IFRS?
a) Assets and liabilities are translated at historical rates
b) Income statement items are translated at the closing rate
c) Assets and liabilities are translated at the closing rate, and
income statement items at the average rate
d) Exchange differences are ignored
c) Assets and liabilities are translated at the closing rate, and income
statement items at the average rate
IFRS requires monetary items to be translated at the closing rate, while
revenue and expense items use an average rate for the period.
11. The functional currency is defined as:
a) The currency of the parent
b) The currency of the primary economic environment in which
the entity operates
