Question: By which method, cost or equity, does

> Researchers have developed statistical models based on financial ratios that predict whether a company will go bankrupt over the next 12 months. In a test of one such model, the model correctly predicted the bankruptcy of 85% of firms that did in fact fa

> The owner of an appliance store is interested in the relationship between the price at which an item is sold (regular or sale price) and the customer’s decision on whether to purchase an extended warranty. After analyzing her records, s

> Determine whether each of the following is a valid probability distribution. a. x 0 1 2 3 P(x) .1 .3 .4 .1 b. x 5 −6 10 0 P(x) .01 .01 .01 .97 c. x 14 12 −7 13 P(x) .25 .46 .04 .24

> In the game of blackjack as played in casinos in Las Vegas, Atlantic City, and Niagara Falls, as well as in many other cities, the dealer has the advantage. Most players do not play very well. As a result, the probability that the average player wins a h

> The probability of winning a game of craps (a dicethrowing game played in casinos) is 244/495. a. What is the probability of winning 5 or more times in 10 games? b. What is the probability of winning in 50 or more times in 100 games?

> According to a recent Gallop poll only 29% of American adults said they were satisfied with the way things are going in the United States. Suppose you randomly select 10 American adults and ask each whether they are satisfied with the way things are goin

> In a recent survey the Pew Research Center asked graduates of private universities whether they were satisfied with their current job and 72% said they were. Suppose you take a sample of four private university graduates and ask each whether they are sat

> A statistics practitioner working for major league baseball determined the probability that the hitter will be out on ground balls is .75. In a game where there are 20 ground balls, find the probability that all of them were outs.

> Dermatologists strongly recommend that people who are exposed to sunlight should either be covered up or put on sunscreen. Suppose that at a Florida condominium pool only a quarter of residents sit around the pool in the sun with no sunscreen. a. What is

> According to a Pew Research Center survey 30% of graduates who had student loans are delinquent (90 or more days behind in their payments. Suppose that a survey of 10 such graduates is taken. a. What is the probability that 3 are delinquent? b. What is t

> According to a Gallup poll 27% of American adults have confidence in banks. Suppose that you interview 5 Americans adults at random. a. What is the probability that 2 or fewer have confidence in banks? b. What is the probability that no one had confidenc

> A student majoring in accounting is trying to decide on the number of firms to which he should apply. Given his work experience and grades, he can expect to receive a job offer from 70% of the firms to which he applies. The student decides to apply to on

> The effect of an antidepressant drug varies from person to person. Suppose that the drug is effective on 80% of women and 65% of men. It is known that 66% of the people who take the drug are women. What is the probability that the drug is effective?

> A certain type of tomato seed germinates 90% of the time. A backyard farmer planted 25 seeds. a. What is the probability that exactly 20 germinate? b. What is the probability that 20 or more germinate? c. What is the probability that 24 or fewer germinat

> A construction company has bid on two contracts. The probability of winning contract A is .3. If the company wins contract A, then the probability of winning contract B is .4. If the company loses contract A, then the probability of winning contract B de

> A sign on the gas pumps of a chain of gasoline stations encourages customers to have their oil checked with the claim that one out of four cars needs to have oil added. If this is true, what is the probability of the following events? a. One out of the n

> Pew Research Center conducted a survey of countries around the world and asked respondents whether they were having a typical day, a good day, or a bad day. The results and the number of respondents in Europe, Asia, and the United States are listed next.

> Refer to Exercise 6.86. The professor meets a student who has just graduated in less than five year. Determine the probability that he graduated with B.B.A. degree. Data from Exercise 6.86: A statistics professor was in the process of comparing the pass

> Refer to Exercise 6.85. An American under 40 tells you that he has student debt. What is the probability that he is managerial or professional? Data from Exercise 6.85: How many Americans under the age of 40 have student debts? A Pew Research Center atte

> Refer to Exercise 6.84. A respondent who disapproved of the way the EU handled the refugee issue was selected. Calculate the probability that the respondent is from Greece. Data from Exercise 6.84: Respondents in Greece, Hungary, and Poland were asked wh

> Given a binomial random variable with n = 6 and p = .2, use the formula to find the following probabilities. a. P(X = 2) b. P(X = 3) c. P(X = 5)

> Refer to Exercise 6.76. The researchers examined a child under 16 and discovered that he is myopic. What is the probability that he slept with the lights when he was under 2? Data from Exercise 6.76: Researchers at the University of Pennsylvania School O

> The Pap smear is the standard test for cervical cancer. The false-positive rate is .636; the false-negative rate is .180. Family history and age are factors that must be considered when assigning a probability of cervical cancer. Suppose that, after obta

> Given a binomial random variable with n = 10 and p = .3, use the formula to find the following probabilities. a. P(X = 3) b. P(X = 5) c. P(X = 8)

> The Rapid Test is used to determine whether someone has HIV (the virus that causes AIDS). The false-positive and false-negative rates are .027 and .080, respectively. A physician has just received the Rapid Test report that his patient tested positive. B

> Transplant operations have become routine. One common transplant operation is for kidneys. The most dangerous aspect of the procedure is the possibility that the body may reject the new organ. Several new drugs are available for such circumstances, and t

> Calculate the mean and standard deviation of the portfolio. The proportions invested in each stock are shown in parentheses. a. Intel (INTC): 25%, Oracle (ORCL): 25%, Sirius (SIRI): 25%, Starbucks (SBUX): 25% b. INTC: 10%, ORCL: 10%, SIRI: 10%, SBUX: 70%

> Calculate the mean and standard deviation of the portfolio. The proportions invested in each stock are shown in parentheses. a. Costco (COST): 25%, Dollar Tree (DLTR): 25%, Expedia (EXPE): 25%, ScanDisk (SNDK): 25% b. COST: 10%, DLTR: 20%, EXPE: 30%, SND

> Calculate the mean and standard deviation of the portfolio. The proportions invested in each stock are shown in parentheses. a. Amazon (AMZN): 25%, Apple (AAPL): 25%, Bed Bath and Beyond (BBBY): 25%, Dollar Tree (DLTR): 25% b. AMZN: 10%, AAPL: 40%, BBBY:

> Calculate the mean and standard deviation of the portfolio. The proportions invested in each stock are shown in parentheses. a. Adobe (ADBE): 25%, Cisco Systems (CSCO): 25%, Comcast (CMCSA): 25%, Garmin (GRMN): 25% b. ADBE: 40%, CSCO: 10%, CMCSA: 40%, GR

> Bad gums may mean a bad heart. Researchers discovered that 85% of people who have suffered a heart attack had periodontal disease, an inflammation of the gums. Only 29% of healthy people have this disease. Suppose that in a certain community heart attack

> Refer to Exercise 6.74. A randomly selected candidate who took a CFA exam tells you that he has passed the exam. What is the probability that he took the CFA I exam? Data from Exercise 6.74: The chartered financial analyst (CFA) is a designation earned a

> Calculate the mean and standard deviation of the portfolio. The proportions invested in each stock are shown in parentheses. a. Agnico Eagle (AEM): 25%, Canadian Imperial Bank of Commerce (CM): 25%, Canadian Tire (CTC.A): 25%, Royal Bank (RY): 25% b. AEM

> In Case 6.2, we presented the probabilities of scoring at least one run and asked you to determine whether the manager should signal for the batter to sacrifice bunt. The decision was made on the basis of comparing the probability of scoring at least one

> If an intercompany profit is recorded on the sale of an asset to an affiliate within the consolidated entity in Period 1, when should this profit be considered realized? Explain.

> "From a consolidated-entity point of view, intercompany revenue and expenses and intercompany borrowings do nothing more than transfer cash from one bank account to another." Explain.

> List the types of intercompany revenue and expenses that are eliminated in the preparation of a consolidated income statement, and indicate the effect that each elimination has on the amount of net income attributable to non-controlling interest.

> Describe the journal entry on the parent's books under the equity method to adjust for unrealized profits in ending inventory for upstream transactions.

> A subsidiary periodically revalues its land to fair value under the revaluation option for property, plant, and equipment. Explain the adjustments required to the consolidated financial statements if the subsidiary sells this land to the parent at an amo

> An intercompany gain on the sale of land is eliminated in the preparation of the consolidated statements in the year that the gain was recorded. Will this gain be eliminated in the preparation of subsequent consolidated statements? Explain.

> When there are unrealized profits in inventory at the end of Year 1, consolidated profit would normally be affected for Years 1 and 2. Explain.

> What difference does it make on the consolidated financial statements if there are unrealized profits in land resulting from a downstream transaction as compared with an upstream transaction?

> Describe the effects that the elimination of intercompany sales and intercompany profits in ending inventory will have on the various elements of the consolidated financial statements.

> In what way are an individual's pants with four pockets similar to a parent company with three subsidiaries? Explain, with reference to intercompany revenues and expenses.

> How should transfers of resources between funds be presented in fund financial statements? How should they be presented in a single set of non-fund financial statements?

> At the end of the year, the parent's investment account had an equity method balance of $120,000. At this time, its 75%-owned subsidiary had shareholders' equity totaling $125,000. How much was the unamortized acquisition differential at the end of the y

> "Under the equity method, the investment account is adjusted for the investor's share of post-acquisition earnings computed by the consolidation method." Explain this statement.

> "An acquisition differential allocated to revalue the land of a subsidiary on acquisition date will always appear on subsequent consolidated balance sheets." Do you agree? Explain.

> The retained earnings column in the consolidated statement of changes in equity shows dividends declared during the year. Do these dividends consist of the parent's, the subsidiary's, or both? Explain.

> A parent company's 75%-owned subsidiary declared and paid a dividend totaling $10,000. How would the parent company record this dividend under the equity method? Under the cost method?

> When the parent has used the equity method, its net income equals consolidated net income attributable to its shareholders, and its retained earnings equal consolidated retained earnings. However, the parent's financial statements are not the same as con

> Is the impairment test for intangibles other than goodwill the same as the one used for goodwill? Briefly explain.

> What are the initial entries on the working paper when the parent has used the cost method to account for its investment?

> A subsidiary was acquired in the middle of the fiscal year of the parent. Describe the preparation of the consolidated income statement for the year.

> The net assets section of an NFPO's statement of financial position should be divided into three main sections. List the sections, and explain the reasons for each.

> Why does adding the parent's share of the increase in retained earnings of the subsidiary and the parent's retained earnings under the cost method result in consolidated retained earnings? Assume that there is no acquisition differential.

> What accounts in the financial statements of the parent company have balances that differ depending on whether the cost or the equity method has been used?

> Explain how the matching principle is applied when amortizing the acquisition differential.

> On the consolidated balance sheet, what effect does the elimination of intercompany receivables and payables have on shareholders' equity and non-controlling interest?

> Briefly outline the process for determining if goodwill is impaired and how to allocate any impairment loss.

> What reporting options related to business combinations are available to private companies?

> Explain how changes in the fair value of contingent consideration should be reported, assuming that the contingent consideration will be paid in the form of cash.

> What is contingent consideration, and how is it measured at the date of acquisition?

> What accounts on the consolidated balance sheet differ in value between entity theory and parent company extension theory? Briefly explain why they differ.

> What is non-controlling interest, and where is it reported in the consolidated balance sheet under the parent company extension and entity theories?

> What guidelines does the Handbook provide for pledges received by an NFPO?

> Under the entity theory and when using the implied value approach, consolidated goodwill is determined by inference. Describe how this is achieved, and comment on its shortcomings.

> How is the goodwill appearing on the statement of financial position of a subsidiary prior to a business combination treated in the subsequent preparation of consolidated statements? Explain.

> With respect to the valuation of non-controlling interest, what are the major differences among proprietary, parent company extension, and entity theories?

> In the preparation of a consolidated balance sheet, the differences between the fair value and the carrying amount of the subsidiary's net assets are used. Would these differences be used if the subsidiary applied push-down accounting? Explain.

> How would the consolidation of a parent-founded subsidiary differ from the consolidation of a purchased subsidiary?

> Don Ltd. purchased 80% of the outstanding shares of Gunn Ltd. Before the purchase, Gunn had a deferred charge of $10.5 million on its balance sheet. This item consisted of organization costs that were being amortized over a 20-year period. What amount sh

> In whose accounting records are the consolidation elimination entries recorded? Explain.

> How is the net income earned by a subsidiary in the year of acquisition incorporated in the consolidated income statement?

> Explain whether the historical cost principle is applied when accounting for negative goodwill.

> What is negative goodwill, and how is it accounted for?

> Outline the Handbook's requirements for NFPOs with regard to accounting for the capital assets of NFPOs.

> Is a negative acquisition differential the same as negative goodwill? Explain.

> What is an acquisition differential, and where does it appear on the consolidated balance sheet?

> What part do irrevocable agreements, convertible securities, and warrants play in determining whether control exists? Explain.

> What criteria must be met for a subsidiary to be consolidated? Explain.

> If one company issued shares as payment for the net assets of another company, it would probably insist that the other company be wound up after the sale. Explain why this condition would be part of the purchase agreement.

> Briefly describe the accounting involved with the new-entity method.

> Outline the accounting involved with the acquisition method for a 100%-owned subsidiary.

> Explain how an acquirer is determined in a business combination for a 100%-owned subsidiary.

> Can a statutory amalgamation be considered a form of business combination? Explain.

> What are protective rights, and how do they affect the decision of whether one entity has control over another entity?

> It is common for an NFPO to receive donated supplies, equipment, and services. Do current accounting standards require the recording of donations of this kind? Explain.

> What are separate financial statements, and when can they be presented to external users in accordance with IFRS?

> Does the historical cost principle or fair value reporting take precedence when preparing consolidated financial statements at the date of acquisition under the acquisition method? Explain.

> When must an intangible asset be shown separately from goodwill? What are the criteria for reporting these intangible assets separately from goodwill?

> How is goodwill determined at the date of acquisition? Describe the nature of goodwill.

> What are some reasons for the acquisition cost being in excess of the carrying amount of the acquiree's assets and liabilities? What does this say about the accuracy of the values used in the financial statements of the acquiree?

> What key element must be present in a business combination?

> Able Company holds a 40% interest in Baker Corp. During the year, Able sold a portion of this investment. How should this investment be reported after the sale?

> Ashton Inc. acquired a 40% interest in Villa Corp. for $200,000. In the first year after acquisition, Villa reported a loss of $700,000. Using the equity method, how should Ashton account for this loss assuming (a) Ashton has guaranteed the liabilities o

> Briefly outline how NFPOs differ from profit-oriented organizations.

> The following balance sheets have been prepared as at December 31, Year 6, for Kay Corp. and Adams Ventures: Additional Information • Kay acquired its 40% interest in Adams for $374,000 in Year 2, when Adams's retained earnings amount

> Fairchild Centre is an NFPO funded by government grants and private donations. It was established on January 1, Year 5, to provide counselling services and a drop-in center for single parents. On January 1, Year 5, the center leased an old warehouse in t

> Regina Communications Ltd. develops and manufactures equipment for technology and communications enterprises. Since its incorporation, it has grown steadily through internal expansion. In the middle of Year 14, Arthur Lajord, the sole owner of Regina, me