AIT707 Mid-Term Exam with Solutions (Scored A)

1. Which of the following would not be a reason to obtain a greater understanding of accounting practices in other nations? 2. Which of the following is/are LEAST likely to influence a country’s accounting standards? ...

1. Which of the following would not be a reason to obtain a greater understanding of accounting practices in other nations? 2. Which of the following is/are LEAST likely to influence a country’s accounting standards? 3. Which of the following bodies is responsible for the harmonization of international accounting standards? 4. Which of the following does NOT constitute a Business Combination? 5. Which of the following statements is TRUE? a. All unrealized gains and losses on equity investments are flow through Other Comprehensive Income. b. Unrealized gains and losses on held-for-trading securities are included in Other Comprehensive Income. c. Unrealized gains and losses on available-for-sale investments are included in Other Comprehensive Income. d.Other Comprehensive Income is included in Retained Earnings. 6. Differential reporting is permitted in certain instances for 7. Parent Company acquires Sub Company’s common shares for cash. On the date of acquisition, Sub had Goodwill of $100,000 on its books. Which of the following statements regarding Sub’s Goodwill on the date of acquisition is correct? 8. Which of the following pertaining to Consolidated Financial Statements is correct? 9. One weakness associated with the Entity Theory is that 10. Intangible assets should only be recognized apart from Goodwill when QUESTION 11 3 MARKS The FASB in the U.S and the International Accounting Standards Board are working on a convergence project to be completed by 2007. What is the main goal of this project and what are some of the potential difficulties arising from this initiative? QUESTION 12 5 MARKS List 5 factors that can influence a country’s accounting standards. QUESTION 13 7 MARKS Most Canadian companies disclose their policies with regard to long-term investments in accordance with the requirements of Section 1505 “Disclosure of Accounting Policies”. Draft the financial statement note for a company. Assume that the company is a large public company and holds all types of long-term investments. QUESTION 11 3 MARKS The FASB in the U.S and the International Accounting Standards Board are working on a convergence project to be completed by 2007. What is the main goal of this project and what are some of the potential difficulties arising from this initiative? QUESTION 12 5 MARKS List 5 factors that can influence a country’s accounting standards. QUESTION 13 7 MARKS Most Canadian companies disclose their policies with regard to long-term investments in accordance with the requirements of Section 1505 “Disclosure of Accounting Policies”. Draft the financial statement note for a company. Assume that the company is a large public company and holds all types of long-term investments. QUESTION 14 7 MARKS On January 1, 2002, Jonson Inc. paid $400,000 to purchase 20% of Mike Inc’s outstanding voting shares. Jonson has significant influence over Mike. On the date of acquisition, Mike’s net assets were valued at $1,200,000. Any purchase price discrepancy was allocated to a Patent a remaining useful life of 10 years. Mike’s earnings for 2002 and 2003 were $50,000 and $80,000 respectively. Mike paid dividends in the amount of $10,000 and $15,000 during 2002 and 2003, respectively. QUESTION 15 3 MARKS X owns 20% of Y. During the last fiscal year, Y sold Inventory to X for $100,000. X is still in possession of this inventory. Y marks up all its sales at 100% above cost. Assume a 20% tax rate. a. Assuming that X’s Investment in Y qualifies as a portfolio investment (ie; available-for-sale), what journal entry should be made at the end of the year? (1 Mark) b. Assuming that X’s Investment in Y qualifies as a significant influence investment, what journal entry should be made at the end of the year? (2 Marks)