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Fayerman: Advanced Accounting, Ce Chapter 1: Accounting for Investments Testbank 1 Testbank Chapter 1 – Accounting for Investments
True or False
1) If a company makes a non-strategic investment it is considered a financial asset.
Answer: True
Difficulty: Easy
Learning Objective: Identify and account for non-strategic investments in equity.
Section Reference: Non-Strategic Investments in Equity
Feedback: Review section “Criteria”
2) When a company has control over another company, a parent-subsidiary relationship is said to exist.
Answer: True
Difficulty: Easy
Learning Objective: Identify and account for parent-subsidiary relationships.
Section Reference: Strategic Investments - Parent-Subsidiary Relationships
Feedback: Review section “Identifying Parent-Subsidiary Relationships”
3) An associate is an entity, including an unincorporated company such as a partnership, over which the investor has significant influence and that is also a subsidiary or a joint venture.
Answer: False
Difficulty: Medium
Learning Objective: Identify and account for associates.
Section Reference: Strategic Investments - Associates
Feedback: Review section “Identifying Associates”
4) Under the equity method, the investment account is updated for the investor’s share of profit and distributions.
Answer: True
Advanced Accounting Updated Canadian 1st Edition Fayerman Test Bank Visit TestBankDeal.com to get complete for all chapters
Fayerman: Advanced Accounting, Ce Chapter 1: Accounting for Investments Testbank 2
Difficulty: Medium
Learning Objective: Identify and account for associates.
Section Reference: Strategic Investments - Associates
Feedback: Review section “Equity Method of Accounting”
5) A company is a party to a joint venture when it does not have the rights to the assets or the obligations for the liabilities.
Answer: True
Difficulty: Easy
Learning Objective: Identify and account for joint arrangements.
Section Reference: Strategic Investments – Joint Arrangements
Feedback: Review section “Identifying Joint Arrangements”
6) If Darlington Inc. owns 30% of a jointly controlled operation, it would reflect 100% of each asset, liability, income or expense that is part of the joint operation on its own financial statements.
Answer: False
Difficulty: Moderate
Learning Objective: Identify and account for joint arrangements.
Section Reference: Strategic Investments – Joint Arrangements
Feedback: Review section “Accounting and Reporting for Joint Arrangements”
7) When the non-strategic equity investment is initially recorded, it must be measured at its fair value.
Answer: True
Difficulty: Easy
Learning Objective: Identify and account for non-strategic investments in equity.
Section Reference: Non-Strategic Investments in Equity
Feedback: Review section “Recording Non-Strategic Investments in Equity”
8) Companies invest in non-strategic investments to obtain a higher return than holding cash in a bank account.
Answer: True
Difficulty: Easy
Fayerman: Advanced Accounting, Ce Chapter 1: Accounting for Investments Testbank 3 Learning Objective: Identify and account for non-strategic investments in equity.
Section Reference: Non-Strategic Investments in Equity
Feedback: Review section “Identifying Non-Strategic Investments in Equity”
9) The ability of a company to control another cannot be affected by relationships with other parties.
Answer: False
Difficulty: Medium
Learning Objective: Identify and account for parent-subsidiary relationships.
Section Reference: Strategic Investments - Parent-Subsidiary Relationships
Feedback: Review section “Identifying Parent-Subsidiary Relationships”
10) When reflecting an investment using the cost method, the investment is initially recorded at cost and the balance is not adjusted in subsequent periods unless there is an impairment.
Answer: True
Difficulty: Medium
Learning Objective: Identify and account for associates.
Section Reference: Strategic Investments - Associates
Feedback: Review section “Equity Method of Accounting”
11) Generally speaking, all parent companies are responsible for the preparation of consolidated financial statements.
Answer: True
Difficulty: Medium
Learning Objective: Identify and account for parent-subsidiary relationships.
Section Reference: Strategic Investments - Parent-Subsidiary Relationships
Feedback: Review section “Presentation of Consolidated Financial Statements for Controlled Entities”
12) The investor does not need to hold shares in an associate, but where more than 20% of the voting power is held, significant influence is presumed to exist.
Answer: True
Difficulty: Medium
Fayerman: Advanced Accounting, Ce Chapter 1: Accounting for Investments Testbank 4
Learning Objective: Identify and account for associates.
Section Reference: Strategic Investments - Associates
Feedback: Review section “Identifying Associates”
13) The parties to a joint venture will initially record their share of the investment at the fair value of their contribution made. In subsequent periods, the cost method will be used for reporting purposes.
Answer: False
Difficulty: Medium
Learning Objective: Identify and account for joint arrangements.
Section Reference: Strategic investments – Joint Arrangements
Feedback: Review section “Accounting and Reporting for Joint Arrangements”
14) There is a general assumption that an ownership interest of less than 20% is a financial asset and not a strategic investment.
Answer: True
Difficulty: Easy
Learning Objective: Identify and account for non-strategic investments in equity.
Section Reference: Non-Strategic Investments in Equity
Feedback: Review section “Identifying Non-Strategic Investments in Equity”
15) There is a presumption that control exists where the company owns more than 50% of the voting shares of the investee.
Answer: True
Difficulty: Moderate
Learning Objective: Identify and account for parent-subsidiary relationships.
Section Reference: Strategic Investments - Parent-Subsidiary Relationships
Feedback: Review section “Identifying Parent-Subsidiary Relationships”
Multiple Choice
16) Non-strategic investments can be classified as fair value through profit or loss (FVTPL) or as fair value through other comprehensive income (OCI)- through an irrevocable election. Which of the following statements is true?
a) Under both FVTPL and OCI, changes in the fair value of the investment are reported
as other comprehensive income on the statement of comprehensive income.
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