REFERENCE: Ref.10_05 a Subsidiary of Porter Inc. ,A U.S.company,was Located in a in a Foreign

question 39

Multiple Choice

REFERENCE: Ref.10_05
A subsidiary of Porter Inc. ,a U.S.company,was located in a foreign country.The functional currency of this subsidiary was the stickle (§) .The subsidiary acquired inventory on credit on November 1,2008,for §120,000 that was sold on January 17,2009 for §156,000.The subsidiary paid for the inventory on January 31,2009.Currency exchange rates between the dollar and the stickle were as follows:

-When preparing a consolidating statement of cash flows,which of the following statements is false?

• A)Subsidiary dividends are deducted as a financing activity.
• B)Noncontrolling interest in subsidiary dividends are deducted as a financing activity.
• C)Parent dividends are deducted as a financing activity.
• D)Amortization of cost over book value of the investment in subsidiary is added to net income as an operating activity using the indirect method.
• E)Intercompany gains do not appear on the consolidated statement of cash flows.

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Definitions:

Exchange Rates

The worth of one currency when converted to another, establishing how much one currency can be exchanged for another.

Operating Expense

Recurring expenses incurred during normal business operations, such as rent, utilities, and salaries.

Parent Corporation

A larger corporation that owns more than half the stock of another firm, allowing it to control the subsidiary's management and operations.

Foreign Subsidiary

A company owned or controlled by another company (the parent) but located and operating in a country different from the parent company.