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Summary Full Solutions to All Meetings Advanced Financial Accounting (EBC4074)
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EBC4074 Advanced Financial Accounting2021
All Meetings
1
,Table of Contents
Meeting 1: Introduction and accounting fundamentals ....................................................................... 3
Meeting 2: Financial statement analysis ............................................................................................. 12
Meeting 3: Asset valuation (1) ............................................................................................................. 19
Meeting 4: Asset valuation (2) ............................................................................................................. 30
Meeting 5: Taxation (1) ........................................................................................................................ 39
Meeting 6: Taxation (2) ........................................................................................................................ 46
Meeting 7: Business combinations ...................................................................................................... 53
Meeting 8: Consolidation Seminar: Wholly owned subsidiaries and intra-group transactions ........ 65
Meeting 9: Consolidation: Wholly owned subsidiaries and intra-group transactions ...................... 81
Meeting 10: Consolidation Seminar: Minority Interest ...................................................................... 88
Meeting 11: Consolidation: Minority Interest .................................................................................. 102
Meeting 12: Impairment of CGUs ...................................................................................................... 107
2
,Meeting 1: Introduction and accounting fundamentals
Assignment 1.1 – Warm-up
Answer the following multiple-choice questions
1. Morgan Company owes Regan Company $1,000. Morgan would reflect this on its
A) Statement of cash flows
B) Income statement
C) Balance sheet
D) Statement of stockholders’ equity
2. Which of the following liability accounts is usually not satisfied by payment of cash?
A) Accounts payable
B) Unearned revenues
C) Taxes payable
D) All of the above are satisfied by paying cash
Unearned revenue is money received by an individual or company for a service or product
that has yet to be provided or delivered. It is recorded on a company's balance sheet as a
liability because it represents a debt owed to the customer.
3. Assume a company’s January 1st 2014 financial position was: Assets $150,000 and
Liabilities $60,000. During January 2014, the company completed the following
transactions: (a) paid a note on payable $10,000 (no interest was paid); (b) collected an
accounts receivable $9,000; (c) paid an accounts payable $5,000; and (d) purchased a truck
$5,000 cash and a $20,000 note payable. The company’s January 31st 2014 financial
position is
Assets Liabilities Stockholders’ Equity
A) $150,000 $60,000 $90,000
B) $155,000 $65,000 $90,000
C) $160,000 $75,000 $85,000
D) $170,000 $100,000 $70,000
The payment of the note payable credits assets while it debits liabilities for $10,000.
Accounts receivable does in effect not alter assets. The payment of accounts payable credits
assets while it debits liabilities for $5,000. The purchase of the truck debits assets with
$20,000 (25,000 – 5,000), while it credits liabilities for $20,000.
4. Which of the following is an example of revenue or expense recognized in the current
period’s income statement?
A) Cash received from a client before the lawyer represents them in court
B) Inventory purchased by a retail store
C) Wage costs owed to employees who worked during the period
D) Cash collected from an accounts receivable
E) All are examples of revenues or expenses recognized in the current period
3
, 5. The assumption that a company will continue to operate for the foreseeable future is
called:
A) The accrual basis principle
B) The comparability principle
C) The going concern principle
D) The timeliness principle
The Conceptual Framework retains the going concern assumption. Financial statements are
prepared under the assumption that the entity will continue to operate for the foreseeable
future. Past experience indicates that the continuation of operations in the future is highly
probable for most entities. Thus, it is assumed that an entity will continue to operate at least
long enough to carry out its existing commitments. This assumption is called the going
concern principle.
6. ABC Company pays its employees twice a month, on the 7th and 21st. On June 21st, ABC
Company paid employee salaries of $4,000. This transaction will:
A) Increase equity by $4,000
B) Decrease the balance in Salaries and Wages Expense by $4,000
C) Decrease net income for the month by $4,000
D) Be recorded by a $4,000 debit to Salaries and Wages Payable and a $4,000 credit to
Salaries and Wages Expense
7. An accountant has debited an asset account for $1,000 and credited a liability account for
$500. Which of the following would be an incorrect way to complete this transaction?
A) Credit an asset account for $500
B) Credit another liability account for $500
C) Credit an equity account for $500
D) Debit an equity account for $500
8. The common characteristic possessed by all assets is:
A) Long life
B) Great monetary value
C) Tangible nature
D) Future economic benefit
An asset is defined as “a resource controlled by the entity as a result of past events and from
which future economic benefits are expected to flow to the entity”. So, the resource must
contain future economic benefits, that is, it must have the potential to contribute, directly or
indirectly, to the flow of cash and cash equivalents to the entity. An asset can cause future
economic benefits to flow to the entity in a number of ways:
- It can be exchanged for another asset
- It can be used to settle a liability
- It can be used singly or in combination with other assets to produce goods or services to
be sold by the entity
4
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