Multiple Choice Questions

Part II: Multiple Choices Choose the Correct Answer among the Following Alternatives and write your answer on
the Answer Sheet

1. In order for the financial statements of a foreign operation to be included in the consolidated financial
statements of the parent it is necessary to translate the foreign operation's financial statements into:
A. the functional currency of the foreign operation;
B. the local currency of the foreign operation;
C. the presentation currency of the reporting entity;
D. the domestic currency of the foreign operation
2. For the purposes of presenting consolidated financial statements a foreign operation's financial
statements must be converted from the foreign currency denominated currency into:
A. the currency in which the sales prices are denominated;
B. the currency in which financing activities are generated;
C. the presentation currency of the reporting entity;
D. the currency in which receipts from operating activities are retai
3. Foreign currency transaction must be initially recorded in which of the following currencies?
A. local currency;
B. domestic currency;
C. functional currency;
D. Presentation currency.
4. When translating into the functional currency monetary liabilities are translated using the:
A. exchange rate current at the date the item was first recorded;
B. exchange rate prevailing at the end of the last reporting period;
C. Exchange rate current at end of reporting period.
D. closing exchange rate;
5. When translating into the functional currency foreign currency denominated non-monetary items measured
using historical cost must be translated using the:
A. rate current at end of reporting period;
B. average rate for the reporting period;
C. exchange rate at the date of the transaction;
D. Rate prevailing at the end of the last financial year.
6. If foreign currency denominated non-monetary items are measured using the fair value method, they must
be translated into the functional currency using the:
A. exchange rate current at end of reporting period;
B. closing exchange rate for the financial year;
C. exchange rate at the date when the value was determined;
D. Exchange rate at the transaction date.
7. Monetary items are best described as:
A. all intangible items including goodwill;
B. plant and equipment;
C. units of currency held and assets and liabilities to be received or paid in fixed numbers of currency
units;
 D. All items that are contingent in nature.
8. Prior to translation into the functional currency, assets must first be classified as:
A. Current or deferred.
B. current or non-current;
C. monetary or non-monetary;
D. tangible or intangible;
9. When translating contra-asset accounts such as accumulated depreciation from a functional currency into a
presentation currency, the appropriate exchange rate is the:
A. acquisition date rate;
B. average rate for the current period;
C. rate current at the reporting date;
D. rate existing at the date of acquiring each underlying balance sheet item.
10. In a business combination, the excess of the price paid over the fair value of net assets acquired is:
A. Reported as a gain from a bargain purchase
B. Amortized according to its useful life
C. Subject to annual impairment tests
D. None of these
11. Noncontrolling interest (NCI), appearing in the consolidated balance sheet, refers to:
A. Owners of less than 50% of the parent company’s stock
B. Parent’s interest in subsidiary companies
C. Interest expense on subsidiary’s bonds payable
D. Equity in the subsidiary’s net assets held by shareholders other than the parent

Use the following information to answer questions (11) - (15):

PPP Corporation acquired an 70% interest in SSS Corporation on January 1, 2017, for$1,225,000. On this date the
assets and liabilities of Son were stated at fair values equal to book values. PPP uses the equity method to
account for its investment in SSS.Selected information for the affiliated companies during 2017 were as follows
(in thousands):

PPP SSS
Capital stock $3,600 $1,000
Retained earnings Jan 1, 2017 1,600 200
Net income $600 $180
Dividends declared 360 100
Dividends payable Dec 31, 2017 180 50
At which value the following items should appear in the consolidated balance sheet on December 31, 2017.

12. Consolidated capital stock

A. $4,300,000
B.$4,600,000
C.$4,825,000
D. $3,600,000
13. Goodwill
A. $0
B. $25,000
 C. $385,000
D. $550,000

14. Consolidated retained earnings

A. $1,600,000
B.$1,800,000
C.$2,096,000
D. $1,840,000
15. Non-controlling interest
A. $366,000
B.$525,000
C.$564,000
D. $549,000
16. Dividends payable
A. $180,000
B.$215,000
C.$230,000
D. $195,000
17. It is that portion of the profit or loss and net assets of a subsidiary attributable to equity interest that are not
owned directly or indirectly through subsidiaries by the parent.
A. Subsidiary interest
B. Residual interest
C. Controlling interest
D. Non-controlling interest
18. It is the entity that has the controlling financial interest.
A. Parent -subs
B. Associate
C. Affiliate
D. Acquirer
E. Investor
19. Which of the following terms best describes the financial statements of a parent in which the investments are
accounted for onthe basis of the direct equity interest?
A. Separate financial statements
B. Consolidated financial statements
C. Single financial statements
D. Combined financial statements
Part I: True or False
For the Following Statements write "True" if the Statement is correct or "False" if the Statement is Incorrect

TRU OR FALSE QUESTIONS

1. T Horizontal integration is the combination of companies in the same business lines and markets.
2. F It is frequently less expensive for a company to obtain needed facilities through development than
through business combination.
3. T A merger occurs when one corporation takes over all the operations of another company, and that
company is dissolved.
4. F The first step in recording an acquisition is to determine the fair values of only the liabilities assumed
in the combination.
5. F Under current IFRS, goodwill is amortized over 20 years.
6. T Under current IFRS, indirect costs of business combination such as costs of maintaining an internal
acquisitions department are expensed by the acquirer in the periods in which the costs are incurred.
7. T Goodwill is defined as the excess of the consideration transferred to the acquire over the fair value of
the net assets acquired.
8. T Business combination is a form of business external expansion.
9. T Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a
parent.
10. F IFRS requires the parent to present non-controlling interests in the consolidated balance sheet within
the assets section.
11 The current/noncurrent method of foreign currency translation is consistent with the historical cost
f valuation principle.
T When two entities competing in the same industry combine, it is called a horizontal business
combination.TRUE
Control over the acquiree assets is directly achieved in an asset for asset exchange but indirectly
achieved in an asset (acquirer) for stock (acquiree) exchange. TRUE
The acquiree entity is liquidated in a statutory merger. TRUE