CA Consolidations & Group Accounts 2

Question 1

In a step acquisition where a parent increases ownership from 25% to 80%, how is the previously held 25% interest treated on the acquisition date?

Accepted Answer

It is remeasured at fair value on the acquisition date, with any gain or loss recognized in earnings

Answer

It is retained at cost with no remeasurement required

Answer

It is written off against newly recognized goodwill

Answer

It is restated retroactively to its original historical cost

Question 2

When a parent sells a portion of a subsidiary's shares but retains control, how is the transaction accounted for?

Accepted Answer

As an equity transaction with no gain or loss recognized in consolidated net income

Answer

As a disposal with a gain or loss recognized in consolidated net income

Answer

As a deconsolidation event requiring remeasurement of the retained interest

Answer

As a treasury stock retirement transaction

Question 3

How are unrealized profits on upstream sales (subsidiary selling to parent) eliminated in consolidation?

Accepted Answer

Eliminated with the effect allocated between NCI and the parent based on ownership percentages

Answer

Eliminated entirely against the parent's retained earnings only

Answer

Not eliminated because the subsidiary legally recognized the profit

Answer

Eliminated only if the goods remain unsold in the parent's inventory at year-end

Question 4

Under the equity method of accounting, how does an investor record its share of an investee's net income?

Accepted Answer

As an increase in the investment account and a credit to investment income

Answer

As dividend income only when dividends are declared by the investee

Answer

As a direct credit to the investor's retained earnings

Answer

Only when cash dividends are actually received from the investee

Question 5

When translating a foreign subsidiary's income statement for consolidation under ASC 830 (current rate method), which exchange rate is used?

Accepted Answer

The weighted-average exchange rate for the reporting period

Answer

The historical exchange rate on the original acquisition date

Answer

The spot exchange rate at the balance sheet date

Answer

The historical rate on the date of each individual transaction

Question 6

When a parent loses control of a subsidiary, how is any retained non-controlling equity interest measured?

Accepted Answer

At fair value on the date control is lost

Answer

At historical cost at the original acquisition date

Answer

At book value on the date control was originally obtained

Answer

At the lower of cost or net realizable value

Question 7

A bargain purchase in a business combination occurs when:

Accepted Answer

The fair value of net identifiable assets acquired exceeds the total consideration transferred plus NCI

Answer

The total consideration paid exceeds the fair value of net identifiable assets acquired

Answer

The purchase price equals the book value of the net assets of the acquiree

Answer

The acquirer assumes liabilities that exceed the fair value of all assets acquired