Question 1

Restricted shares may have a cocktail provision. When might a coattail provision take effect?&#10;A)When a company increases its dividends&#10;B)When a buyer tries to acquire control of a company&#10;C)When a company reacquires some of its shares&#10;D)When a company issues preferred shares

Accepted Answer

A coattail provision, also known as a tag-along provision, allows minority shareholders to sell their shares to a buyer if a majority shareholder is also selling their shares. This provision takes effect when a buyer tries to acquire control of a company, as the minority shareholder may not want to be left holding their shares without the support of the majority shareholder. The other choices listed do not typically trigger a coattail provision.

Question 2

A parent company owns a subsidiary's preferred and common shares. How should the acquisition of the preferred shares be treated?&#10;A)In the same manner as common shares&#10;B)As a retirement of shares&#10;C)As an expense&#10;D)As a deduction from retained earnings

Accepted Answer

B

Question 3

Ngo Ltd.'s subsidiary has restricted shares. What must Ngo look at in determining non-controlling interest?&#10;A)Number of shares only&#10;B)Participation in earnings only&#10;C)Participation in dividends only&#10;D)Participation in earnings and dividends

Accepted Answer

In determining non-controlling interest for a subsidiary with restricted shares, Ngo must consider the participation in both earnings and dividends. Restricted shares have limitations on their transferability, which may impact the non-controlling interest's ability to participate in both earnings and dividends. Hence, option D is the correct answer.

Question 4

On January 1, 20X9, Far Limited purchased 70% of the common shares of Near Limited for $54,900,000. On the date of acquisition, Near's shareholders' equity was as follows:

\begin{array} { | l | r | } \hline \text { Common shares (1,000,000, no par value) } & \$ 5,000,000 \\\hline \begin{array} { l } \text { Preferred shares (200,000, no par value, } \$ 3 \text { dividend, } \\\text { callable at } \$ 65 ; \text { cumulative and non-voting) }\end{array} & 11,500,000 \\\hline \text { Retained earnings } & \$ 1,600,000 \\\hline \text { Total } & \$ 81,000,000 \\\hline\end{array}

The fair value of Near's assets on the date of acquisition equalled their carrying value, except for a trademark worth $500,000 that was not on Near's books. The trademark is estimated to have a useful life of 10 years. During the fiscal year ended December 31, 20X9, Near earned a net income of $1,700,000, and paid dividends of $800,000.
Required:
What is the non-controlling interest on the consolidated statements of financial position at December 31, 20X9?
The company uses the entity approach to calculate goodwill.

Accepted Answer

The answer of On January 1, 20X9, Far Limited purchased...

Question 5

Under IFRS, which of the following statements is true?&#10;A)Preferred shares must be classified as debt.&#10;B)Preferred shares must be classified as equity.&#10;C)Preferred shares can be classified as debt or equity depending on the rights attached to them.&#10;D)Preferred shares can be classified as debt or equity at the option of the issuing company.

Accepted Answer

Under IFRS, the classification of preferred shares as either debt or equity depends on the specific rights and obligations attached to them. If the preferred shares have characteristics similar to debt, such as a mandatory redemption requirement, they are classified as debt. If they resemble equity, such as having discretionary dividends, they are classified as equity.

Deck 6: Appendix A: Preferred and Restricted Shares of Investee Corporation