Exam 5: Analyzing Investing Activities: Intercorporate Investments

A U.S. company has a subsidiary located in Great Britain. If the U.S. dollar is the functional currency and the British pound is appreciating relative to the dollar, what will happen to the following ratios after remeasurement? Inventory turnover Net profit margin A) Higher Lower B) Lower Lower C) Higher Higher D) Lower Higher

Held-to-maturity securities are always classified as noncurrent assets.

Which exchange rates are used for foreign subsidiaries with different functional currencies? Using the following abbreviations, identify which of the below are correct methods for converting inventory. Year-end rates: YE Average rates: AR Historical rates: HR Temporal Current rate A) YE AR B) HR YE C) YE HR D) HR HR

Held-to-maturity securities are equity securities that management intends and has the ability to hold to maturity.

When accounting for an investment under the equity method, what situations may reduce the carrying value of the investment? I. Investee experiences significant losses. II. Investee distributes dividends in excess of earnings. III. Investee sells additional shares for less than book value. IV. Investee engages in a stock split.

Xena Corporation has a foreign subsidiary, Zeta Corporation, located in Japan. At the end of fiscal 2006, Zeta has: Non-monetary assets 55 million Yen Monetary assets 20 million Yen Non-monetary liabilities 30 million Yen Monetary liabilities 25 million Yen -Assume Xena uses the current rate method for translating Zeta's financial statements from the yen into U.S. dollars. If the yen appreciates relative to the dollar, which of the following is true?

When an acquisition is made and accounted for using the purchase method, the post-acquisition common stock account:

When the income statement of a foreign subsidiary is translated into the reporting currency from the functional currency, the gross margin will remain the same in the translation process.

Xena Corporation has a foreign subsidiary, Zeta Corporation, located in Japan. At the end of fiscal 2006, Zeta has: Non-monetary assets 55 million Yen Monetary assets 20 million Yen Non-monetary liabilities 30 million Yen Monetary liabilities 25 million Yen -Assume Xena uses the temporal method for translating Zeta's financial statements from the yen into U.S. dollars. If the yen appreciates relative to the dollar, which of the following is true?

In-process R&D:

Investment securities should always be reported at lower of cost or market.

Which exchange rates are used for foreign subsidiaries with different functional currencies? Using the following abbreviations identify which of the below are correct methods for converting accounts receivable. Year-end rates: YE Average rates: AR Historical rates: HR Temporal Current rate A) B) C) D)

When an acquisition is made and accounted for using the purchase method, the post-acquisition retained earnings account:

Trading marketable securities:

Under SFAS 141, accounting for acquisitions can no longer result in an increase in the consolidated entity's stockholders' equity.

One of the problems with consolidated financial statements is that all intercompany transactions are not reported.

Parent Company Inc. successfully bids for Child Company Inc. in year X1. Parent Company Inc. has purchased all of Child's shares outstanding for $8,500. Following are excerpts from both companies' financial statements for year X1, prior to the acquisition. Parent Company Inc. Child Company Inc. Total assets \ 37,234 \ 5,379 Total liabilities \ 23,467 \ 3,764 Total shareholders' equity \ 13,767 \ 1,615 Total liabilities and shareholders' equity \ 37,234 \ 5,379 Also assume the following information: the acquisition was accounted for using the purchase method. $1,500 of the excess price relates to depreciable assets, and those assets have an additional useful life of 10 years at the time of the acquisition. Parent Company Inc. uses the straight line depreciation method and has a 34% tax rate. The combined net income for both companies for year X2 (excluding any expenses that need to be recorded as a result of the purchase method accounting for the merger) was $1,560. -What would be total assets in the consolidated financial statements for the date on which the merger became effective?

Single Station Inc. is acquired by Mega Communications on January 1, 2006 for $9,500. Prior to the acquisition, Single was projecting sales of $10,000 and total expenses of $8,000 in 2006 and forecasted that earnings will accumulate as cash. There are no operating synergies and no taxes. Jan. 1, 2006 Current assets \ 2,000 Machinery and equipment 3,000 Liabilities 2,500 Equity 2,500 The acquisition appraisal of Single's assets and liabilities indicates that fair market value (FMV) exceeds book value for the following assets only: • machinery and equipment-$4,000 with a life 4 year life • operating lease-$1,000 with 10 years remaining • broadcast licenses-$500 with a 5 year life a. Single is required to use push-down accounting. Prepare a pro forma balance sheet at January 1, 2006 for Single. b. Prepare a pro forma income statement for the year ending December 31, 2006 using Single's projection. c. Prepare a pro forma balance sheet at December 31, 2006. d. Assume the pro forma results in b) and c) are achieved. A second appraisal of Single's assets at December 31, 2006 indicates that the FMV for Single as a whole is $7,500 and that the broadcast licenses are now worth $400. The FMV of Single's other assets and liabilities are the same as book. Determine whether goodwill has been impaired and thus, determine the amount of the loss, if any.

Parent Company Inc. successfully bids for Child Company Inc. in year X1. Parent Company Inc. has purchased all of Child's shares outstanding for $8,500. Following are excerpts from both companies' financial statements for year X1, prior to the acquisition. Parent Company Inc. Child Company Inc. Total assets \ 37,234 \ 5,379 Total liabilities \ 23,467 \ 3,764 Total shareholders' equity \ 13,767 \ 1,615 Total liabilities and shareholders' equity \ 37,234 \ 5,379 Also assume the following information: the acquisition was accounted for using the purchase method. $1,500 of the excess price relates to depreciable assets, and those assets have an additional useful life of 10 years at the time of the acquisition. Parent Company Inc. uses the straight line depreciation method and has a 34% tax rate. The combined net income for both companies for year X2 (excluding any expenses that need to be recorded as a result of the purchase method accounting for the merger) was $1,560. -What would be total liabilities in the consolidated financial statements for the date on which the merger became effective?

Both consolidation and equity method accounting assume a dollar earned by a subsidiary is equivalent to a dollar earned for a parent, even if not received in cash. The limitations of this assumption of dollar-for-dollar equivalence include which of the following? I. Dividends restricted by law and loan covenants II. Risks due to political and economic factors III. Tax liabilities from remittance of earnings IV. Minority interests that limit parent's discretion