Chapt 18 Cfas

Front 1

Associate

Back 1

is simply defined as an entity over which the investor has a significant influence.

Front 2

Significant Influence

Back 2

is the power to participate in the financial and operating policy decisions of the associate but not control or joint control over those policies.

Front 3

true

Back 3

t/f

the assessment of significant influence is a matter of judgment

Front 4

equity method of accounting

Back 4

the investment in associate is measured using the?

is based on the economic relationship between the investor and the investee.

Front 5

investor and investee

Back 5

are viewed as a single economic unit, and are one and the same.

Front 6

cash dividend

Back 6

under the equity method, _______ is not a income but a reduction of investment.

Front 7

excess of cost over carrying amount

Back 7

an accounting problem that arises if the investor pays more or less for an investment than the carrying amount of underlying net assets.

Front 8

goodwill

Back 8

if the assets of the investee are fairly valued, the excess of cost over carrying amount of the underlying net assets is attributable to?

Front 9

a. associate

Back 9

MC:

It is an entity over which the investor has significant influence.

a. associate

b. investee

c. venture capital organization

d. mutual fund

Front 10

c. the power to participate in the financial and operating policy decisions of an entity.

Back 10

MC:

Which statement best describes significant influence?

a. the holding of a significant proportion of the share capital in another entity.

b. the contractually agreed sharing of control over an economic entity.

c. the power to participate in the financial and operating policy decisions of an entity.

d. the mutual sharing in the risks and benefits of a combined entity.

Front 11

d. all of these statements are true about significant influence.

Back 11

MC:

Which statement is true concerning significant influence?

a. if an investor holds, directly or indirectly, less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated.

b. if an investor holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed that the investor does have significant influence, unless it can be clearly demonstrated that this is not the case.

c. a substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence.

d. all of these statements are true about significant influence.

Front 12

b. included in the carrying amount of the investment and not amortized.

Back 12

MC:

Goodwill arising from an investment in associate is?

a. included in the carrying amount of the investment and amortized over the useful life.

b. included in the carrying amount of the investment and not amortized.

c. charged to retained earnings

d. charged to expense immediately.

Front 13

b. the investor should use the equity method unless circumstances indicate that it is unable to exercise significant influence over the investee.

Back 13

MC:

When an entity holds between 20% and 50% of the voting power of an investee, which statement is true?

a. the investor must use the equity method

b. the investor should use the equity method unless circumstances indicate that it is unable to exercise significant influence over the investee.

c. the investor must use the fair value method unless it can be clearly demonstrated that the investor has significant influence over the investee.

d. the investor must use the fair value method.

Front 14

d. dividends received from the investee are accounted for as dividend income.

Back 14

MC:

Which statement is incorrect concerning the equity method?

a. the investment is initially recorded at cost.

b. the investment in associate is increased or decreased by the investor's share of the profit or loss of the investee after the date of acquisition.

c. the investor's share of the profit or loss of the investee is recognized in the investor's profit or loss.

d. dividends received from the investee are accounted for as dividend income.

Front 15

d. after adjusting for the preference dividends, whether or not the dividends have been declared

Back 15

MC:

If an associate has outstanding cumulative preference shares, the investor computes share of profit or loss

a. after adjusting for preference dividends which were actually paid during the year.

b. without regard for preference dividends

c. after adjusting for the preference dividends only when declared.

d. after adjusting for the preference dividends, whether or not the dividends have been declared

Front 16

a. the investor ceases to have significant influence over the associate.

Back 16

MC:

An investor shall discontinue the equity method when:

a. the investor ceases to have significant influence over the associate.

b. the associate operates under severe long-term restrictions.

c. the investor ceases to have control over the associate.

d. the business activities of the investor and associate are dissimilar.

Front 17

b. is regarded as its fair value on initial recognition as a financial asset.

Back 17

MC:

When an investment ceases to be an associate, the fair value of the investment at the date when it ceases to be an associate

a. is regarded as its cost on initial recognition as a financial asset.

b. is regarded as its fair value on initial recognition as a financial asset.

c. is regarded as fair value on initial recognition as a financial liability.

d. is regarded as its amortized cost on initial recognition as an investment.

Front 18

c. the investor is in the process of filing financial statements with SEC for the purpose of issuing debt and equity instruments in a public market.

Back 18

MC:

The equity method is not applicable under all of the following circumstances, except

a. the investor is a wholly-owned subsidiary

b. the investor's debt and equity instruments are not traded.

c. the investor is in the process of filing financial statements with SEC for the purpose of issuing debt and equity instruments in a public market.

d. the ultimate parent of the investor produces consolidated financial statements.

Front 19

d. be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee.

Back 19

MC:

After the date of acquisition, the investment account using the equity method would:

a. not be affected by its share of the earnings or losses of the investee.

b. not be affected by its share of the earnings of the investee, but be decreased by its share of losses of the investee.

c. be increased by its share of the earnings of the investee, but not be affected by its share of the losses of the investee.

d. be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee.

Front 20

d. earnings are reported by the investee.

Back 20

MC:

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

a. investor sells the equipment

b. investee declares a dividend

c. investee pays dividend

d. earnings are reported by the investee.

Front 21

c. a deduction from the investment account

Back 21

MC:

When an investor uses the equity method to account for investment in ordinary shares, cash dividends received by the investor from the investee are recorded as

a. dividend income

b. a deduction from the investment income

c. a deduction from the investment account

d. a deduction from shareholders' equity

Front 22

a. a proportionate interest in the net income of the investee.

Back 22

MC:

When an investor uses the equity method to account for investment in ordinary shares, the investment account will be increased when the investor recognizes

a. a proportionate interest in the net income of the investee.

b. a cash dividen received from the investee

c. periodic amortization of the goodwill

d. a share dividend received from the investee.

Front 23

investment income

Back 23

the investor's share of the profit or loss of the investee is recognized as?

Front 24

noncurrent asset

Back 24

the investment in associate accounted for using the equity method shall be reported as?