Chapter 09 – Additional

Financial Reporting Issues

Multiple Choice Questions
1.
What does it mean to say that the inflation rate last year was 5%?
a. All prices are 5% more at the end of the year than they were at the
beginning of the year.
b. The price of specific products increased 5% between the beginning
and the end of the year.
c. On average, a typical basket of goods costs 5% more at the end of
the year than it did at the beginning of the year.
d. The general purchasing power of the dollar has increased 5%
between the beginning of the year and the end of the year.
2.
Which method of dealing with inflation in financial reporting reflects
current replacement cost of specific assets?
a. current replacement cost method
b. general purchasing power method
c. temporal method
d. current rate method
3.
Prior to 2007, which method of accounting for inflation most closely
represented the supplemental reporting required in Mexico?
a. Current replacement cost
b. Current cost
c. General purchasing power
d. Historical cost
4.
Under IAS 27, how is “control” defined?
a. ownership of 50% of more of the voting shares of another entity
b. representation on another entity's board of directors
c. the power to govern financial and operating policies of an entity
d. ownership of 30% or more of the voting shares of another entity
5.
Mega Corporation acquired 65% of the voting shares of Forko Ltd for
€10 billion and used the purchase method of accounting for the
merger. Mega Corporation's interest in Forko Ltd had a restated value
of €950 million. How should Mega account for the difference?
a. as Gain from Acquisition on the current period income statement
b. as Goodwill on the consolidated balance sheet
c. as a Loss from Merger on the current period income statement
d. as Additional Paid-in Capital on the consolidated balance sheet
6.
How is negative goodwill accounted for under U.S. GAAP?
a. There is no rule for negative goodwill, because there is no such
thing.
b. It should be capitalized and amortized over a period of no more
than 40 years.
c. It should be treated as an extraordinary loss on the consolidated
income statement.
d. It should be treated as an extraordinary gain on the consolidated
income statement.
7.
Under U.S. GAAP and IASB standards, the threshold for determining
“significant influence” in an associate enterprise is:
a. 50% ownership of voting shares
b. 5% ownership of voting shares
c. 20% ownership of voting shares
d. 10% ownership of voting shares
8.
Under both IFRS 8 and U.S. GAAP which of the following entity-wide
disclosures is NOT required?
a. information about products and services
b. information about intersegmental transfer pricing
c. information about major customers
d. information about geographic areas
9.
Which of the following is NOT a characteristic which is indicative of
hyperinflation under IAS 29?
a. The cumulative inflation rate over a three-year period is 75% or
higher.
b. Interest rates are linked to a price index.
c. The price of credit sales includes a “buffer” to compensate for the
expected loss in purchasing power over the credit period.
d. The general population thinks about prices in terms of a stable
foreign currency, and prices may actually be quoted in that
currency.
10.
Under IFRS 8, which of the following criteria is NOT considered by all
segments that are considered reportable business segments?
a. The segment must have revenue that is one-tenth or more of
combined revenue.
b. The segment must have profit that is 10% or more of combined
profit of all segments with profit.
c. The segment must have revenue that is more than half from
external sources.
d. The segment must have assets that are 10% or more of combined
segment assets.