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Unformatted text preview: EFA4D06 CGA-Canada, 2006 Page 1 of 10 CGA-CANADA FINANCIAL ACCOUNTING 4 EXAMINATION December 2006 Marks Time: 4 Hours Notes: 1. All calculations must be shown in an orderly manner to obtain part marks. 2. Round all calculations to the nearest dollar. 3. Narratives for journal entries are not required unless specifically requested. 4. Assume a December 31 fiscal year end unless specifically stated otherwise. 5. Assume all amounts are material unless directed otherwise. 6. Assume all companies are public companies unless otherwise noted. 7. Assume no companies use differential reporting unless otherwise noted. 30 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 2 marks each a. Which of the following statements is true with respect to the amortization of the purchase price discrepancy (PPD)? 1) The PPD related to land will be expensed when the subsidiary sells the land to outsiders. 2) The amortization of the fair value increment related to equipment will decrease noncontrolling interest. 3) The amortization of the fair value increment related to inventory will be higher in the first year after acquisition if the subsidiary uses LIFO instead of FIFO and prices for inventory are increasing. 4) The amortization of the fair value increment related to bonds payable will decrease consolidated net income. b. AXT Co. is a furniture manufacturer. It has long-term investments in the common shares of 4 companies. Which of the following investments would not normally be consolidated? 1) A 45% interest in SS Co., a pulp mill. One other shareholder owns 20% of SS Co. The rest of the shares are widely held. 2) A 55% interest in TT Co., which is a joint venture with a logging company. 3) A 65% interest in VV Co., which is a biotechnology company involved in the development of a mechanical heart. 4) A 75% interest in XX Co., which is a furniture manufacturer in a South American country with very high inflation. Continued... EFA4D06 CGA-Canada, 2006 Page 2 of 10 c. Which of the following statements is false ? 1) A private company could use the Handbook section on differential reporting as a reason for not consolidating a subsidiary. 2) Under the equity method, the investment account is adjusted to fair value at each reporting date. 3) When a parent company acquires the shares of a subsidiary and pays less than the fair value of the identifiable net assets, it may be possible to record an extraordinary gain on the purchase....
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