Question 1

The two manners in which a business may expand or diversify are _________________________________ expansion and _________________________________ expansion.

Accepted Answer

internal, external

Question 2

Before expanding, management must decide whether it wants to organize the new operation as a(n) ______________________________ or a(n) _______________________________________

Accepted Answer

subsidiary, branch

Question 3

The relationship between a newly created legal entity and the entity that created and owns 100% of the outstanding common stock of the newly created legal entity is called a(n) ________________________________________ relationship.

Accepted Answer

parent-subsidiary

Question 4

The relationship between (a) the headquarters of an entity that has established an outlying location as an extension of the existing legal entity and (b) that outlying location is called a(n) ______________________________________ relationship.

Accepted Answer

The answer of The relationship between (a) the headquarters of...

Question 5

The process of combining the financial statements of a parent and a subsidiary is called _______________________________________.

Accepted Answer

The answer of The process of combining the financial statements...

Question 6

Consolidated financial statements are ______________________________________ statements.

Accepted Answer

The answer of Consolidated financial statements are ______________________________________ statements....

Question 7

Consolidated financial statements constitute the ______________________________ financial statements of companies having one or more subsidiaries, that is, the statements to be furnished to a parent's stockholders in such situations.

Accepted Answer

The answer of Consolidated financial statements constitute the ______________________________ financial...

Question 8

The two manners of reporting a subsidiary's financial statement amounts in the consolidated statements are the ________________________________________ format and the ________________________________________ format.

Accepted Answer

The answer of The two manners of reporting a subsidiary's...

Question 9

Consolidated statements are prepared using a(n) _____________________________.

Accepted Answer

The answer of Consolidated statements are prepared using a(n) _____________________________....

Question 10

A general ledger is not used or maintained for the _____________________________.

Accepted Answer

The answer of A general ledger is not used or...

Question 11

The entries made in consolidation are commonly called ________________________ entries.

Accepted Answer

The answer of The entries made in consolidation are commonly...

Question 12

At the date of creation, the parent's Investment in Subsidiary account balance has a(n) ________________________ relationship to the total balance of the subsidiary's equity accounts.

Accepted Answer

The answer of At the date of creation, the parent's...

Question 13

In parent-subsidiary relationships, accounts having a debit balance on one set of books and a credit balance on the other set of books are commonly referred to as the __________________________________ accounts.

Accepted Answer

The answer of In parent-subsidiary relationships, accounts having a debit...

Question 14

Conceptually, consolidation is essentially a(n) _________________________________ process.

Accepted Answer

The answer of Conceptually, consolidation is essentially a(n) _________________________________ process....

Question 15

A parent cannot consolidate a subsidiary when the parent does not have ____________________________.

Accepted Answer

The answer of A parent cannot consolidate a subsidiary when...

Question 16

A parent cannot consolidate an acquired subsidiary if ownership is expected to be ____________________________________ at the acquisition date.

Accepted Answer

The answer of A parent cannot consolidate an acquired subsidiary...

Question 17

The result of FAS 94 (issued in 1988) was to eliminate the _____________________________________________ exception allowed under ARB No. 51.

Accepted Answer

The answer of The result of FAS 94 (issued in...

Question 18

In consolidation, all ___________________________________ account balances are eliminated.

Accepted Answer

The answer of In consolidation, all ___________________________________ account balances are...

Question 19

Internal expansion can result in using either the subsidiary form of organization or the branch/division form of organization.

Accepted Answer

Internal expansion allows a company to grow its operations either by creating subsidiaries, which are separate legal entities, or by establishing branches/divisions, which are not separate legal entities but operate under the parent company's legal umbrella.

Question 20

To limit an existing operation's potential loss exposure, the operation would usually use the subsidiary form of organization when expanding rather than the branch form of organization.

Accepted Answer

Using a subsidiary form of organization allows a parent company to limit its liability exposure because the subsidiary is a separate legal entity, whereas a branch is not legally separate from the parent company, making the parent fully liable for the branch's actions and debts.

Quiz 1: Wholly Owned Subsidiaries: at Date of Creation

The two manners in which a business may expand or diversify are _ expansion and _ expansion.

Before expanding, management must decide whether it wants to organize the new operation as a(n) or a(n) _________