For Each of the Following Situations, Select the Best Answer

question 52

Essay

For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date:
(A) Initial value method.
(B) Partial equity method.
(C) Equity method.
(D) Initial value method and partial equity method but not equity method.
(E) Partial equity method and equity method but not initial value method.
(F) Initial value method, partial equity method, and equity method.
_____1.Method(s) available to the parent for internal record-keeping.
_____2.Easiest internal record-keeping method to apply.
_____3.Income of the subsidiary is recorded by the parent when earned.
_____4.Designed to create a parallel between the parent's investment accounts and changes in
the underlying equity of the acquired company.
_____5.For years subsequent to acquisition, requires the *C entry.
_____6.Uses the cash basis for income recognition.
_____7.Investment account remains at initially recorded amount.
_____8.Dividends received by the parent from the subsidiary reduce the parent's investment
account.
_____9.Often referred to in accounting as a single-line consolidation.
_____10.Increases the investment account for subsidiary earnings, but does not decrease the
subsidiary account for equity adjustments such as amortizations.

Distinguish between the internal growth rate and the sustainable growth rate and their underlying assumptions.

Identify and evaluate a firm's options in response to a negative EFN (External Financing Needed).

Understand and define key financial ratios such as retention ratio (plowback ratio) and dividend payout ratio, and their significance in financial management.

Comprehend the importance of capacity utilization in compiling pro forma statements.

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Definitions:

Bank Statement

A record of an account sent to the account holder, usually on a monthly basis, showing the beginning balance, all deposits made, all checks drawn, all bank service charges and interest earned, and the closing balance.

Check Register

A record, often part of a checkbook, that allows individuals to track checks written, deposits made, and current balances.

ATM

An Automated Teller Machine, a banking terminal that allows customers to perform financial transactions, such as cash withdrawals and deposits, without the need for a human cashier.

Debit

To deduct, to charge; a charge added to existing balance.