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NEW QUESTION: 1
Jason Bennett is an analyst for Valley Airlines (Valley), a U.S. firm. Valley owns a stake in Southwest Air Cargo (Southwest), also a U.S. firm. The two firms have had a long-standing relationship. The relationship has become even closer because several of Valley's top executives hold seats on Southwest's Board of Directors.
Valley acquired a 45% ownership stake in Southwest on December 31, 2007. Acquisition of the ownership stake cost $9 million and was paid in cash. Valley's stake in Southwest is such that management can account for the investment using either the equity method or the acquisition method. While Valley's management desires to fairly represent the firm's operating results, they have assigned Bennett to assess the impact of each method on reported financial statements.
Immediately prior to the acquisition. Valley's current asset balance and total equity were $96 million and
$80 million, respectively. Southwest's current assets and total equity were $32 million and $16 million, respectively.
While analyzing the use of the equity method versus the acquisition method, Bennett calculates the return on assets (ROA) ratio. He arrives at two conclusions:
Statement 1: Compared to the acquisition method, the equity method results in a higher ROA because of the higher net income under the equity method.
Statement 2: Compared to the acquisition method, the equity method results in a higher ROA because of the smaller level of total assets under the equity method.
In order to get a better picture of Valley's operating condition, Bennett is also considering the use of proportionate consolidation to account for Southwest. He makes the following statements regarding the acquisition method and a proportionate consolidation:
Statement 3: Both methods are widely accepted under the provisions of U.S. GAAP and International Financial Reporting Standards (IFRS).
Statement 4: Both methods report the same level of assets on the parent's balance sheet.
Statement 5: Both methods report all of Southwest's liabilities on the parent's balance sheet.
In addition. Valley has always wanted to pursue its goal of vertical integration by expanding its scope of operations to include the manufacturing of airline parts for its own airplanes. Therefore, it established a subsidiary, Mountain Air Parts (Mountain), in Switzerland on January 1,2008. Switzerland was chosen as the location for economic and geographical diversification reasons. Mountain will operate as a self- contained, independent subsidiary. Local management in Switzerland will make the majority of operating, financing, and investing decisions.
The Swiss franc (CHF) is the official currency in Switzerland. On January 1, 2008, the USD/CHF exchange rate was 0.77. At December 31, 2008, the exchange rate had changed to 0.85 USD/CHF. The average exchange rate in 2008 was 0.80 USD/CHF. In its first year of operations. Mountain paid no dividends and no taxes. Mountain uses the FIFO assumption for its flow of inventory.

Are Bennett's Statements 1 and 2 regarding ROA correct?
Statement 1 ;Statement 2
A. No ;Yes
B. Yes ;No
C. Yes ;Yes
Answer: A
Explanation:
Explanation/Reference:
Explanation:
ROA is calculated as net income / total assets. Both methods result in the same net income, so Statement
1 is incorrect. However, the acquisition method leads to higher reported total assets. Hence, the ROA is greater under the equity method and lower under the acquisition method (Statement 2 is correct). (Study Session 5, LOS 21.b)

NEW QUESTION: 2
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A. Engage the human resources department.
B. Inform law enforcement.
C. Dump the contents of the laptop's memory.
D. Clone me hard drive for analysis.
E. Take hashes of data
Answer: C

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While the components of a product demonstration will vary depending upon the requirements of the prospective customer, a best practice for all successful product demonstrations is to:
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B. Cover as many features as possible in order to impress the prospect.
C. Start by describing all input data before showing the solution.
D. Focus on 2-5 key features and summarize their benefits.
Answer: D

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