Question

QUESTION 5

1. Sales between affiliated companies will be recorded

		in a normal manner on the books of the separate companies
		only on the books of the parent company
		only on the books of the subsidiary company
		will not be recorded by either affiliated company

5 points   

QUESTION 6

1. When affiliated companies sell on credit the trade balances, intercompany receivables and payables

		appear only on the books of the parent in consolidated statements
		appear only on the books of the subsidiary in consolidated statements
		appear on the books of both the parent and subsidiary in consolidated statements
		do not appear on consolidated statements

5 points   

QUESTION 7

1. 
   
   

The equity method of accounting for investments would be applied in which situation:

		when 20-50% of preferred stock is owned
		when a threshold of 15-20% ownership of common stock is met
		when consolidation is impracticable
		when less than 20% of common stock is owned, if the investor can exercise significant influence over investee operations

5 points   

QUESTION 8

1. 
   

U.S. company that has purchased inventory from a German vendor would be exposed to a net exchange gain on the unpaid balance if the

		amount to be paid was denominated in dollars
		dollar weakened relative to the Euro and the Euro was the denominated currency
		dollar strengthened relative to the Euro and the Euro was the denominated     currency
		company purchased a forward contract to buy Euros

Answer 1

The following are the answers to the above mentioned questions.

Question 5) In a normal manner on the books of the separate companies.

Explanation:- These cannot be included in the consolidated statements because they are transfers of goods between the consolidated parties and not with an outside party.

Question 6) Do not appear on consolidated statements.

Explanation:- Intercompany sales will be made on sales; intercompany trade receivables will appear in the separate accounts of the affiliated companies; intercompany receivables and payables represent internal agreement to transfer funds; this internal should not appear on consolidated statements and must be eliminated; only debt transactions with entities outside the consolidated group should appear on the consolidated balance sheet.

Question 7) When 20-50% of preferred stock is owned.

Explanation:- Equity accounting is usually applied where an investor entity holds 20-50% of voting stock of the associate company.

Question 8) Dollar strengthened relative to the Euro and the Euro was the denominated currency.