Exam 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true?

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company.(1.) Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham $20,000.(2.) Noncontrolling interest in Stage's net income was $30,000.(3.) Graham paid dividends of $15,000.(4.) Stage paid dividends of $10,000.(5.) Excess acquisition-date fair value over book value amortization was $6,000.(6.) Consolidated accounts receivable decreased by $8,000.(7.) Consolidated accounts payable decreased by $7,000.Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

Panton, Inc. acquired 18,000 shares of Glotfelty Corp. several years ago for $30 per share when Glotfelty had a book value of $450,000. Before and after that time, Glotfelty's stock traded at $30 per share. At the present time, Glotfelty reports the following stockholders' equity: Glotfelty issues 5,000 shares of previously unissued stock to the public for $22 per share. None of this stock is purchased by Panton.Prepare Panton's journal entry to recognize the impact of this transaction.

A parent company owns a controlling interest in a subsidiary and on the last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. The adjusted subsidiary value at the date of the new stock issuance was $27 per share. Which of the following statements is true?

Parent Corporation acquired some of its subsidiary's bonds on the open bond market. The remaining life of the bonds was eight years, and Parent expected to hold the bonds for the full eight years. How would the acquisition of the bonds affect the consolidation process?

Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones was $1,000,000. Jones currently has 100,000 shares outstanding and a book value of $1,200,000.Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share.What adjustment is needed for Webb's investment in Jones account?

Key Company has had bonds payable of $20,000 outstanding for several years. On January 1, 2021, there was an unamortized premium of $2,000 with a remaining life of 10 years, Key's parent, Peele, Inc., purchased the bonds in the open market for $17,000. Key is a 90% owned subsidiary of Peele. The bonds pay 8% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2021.

On January 1, 2021, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.

A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the noncontrolling interest in the subsidiary's net income assigned?

Ryan Company purchased 80% of Chase Company for $270,000 when Chase's book value was $300,000. Chase has 50,000 shares outstanding and currently has a book value of $400,000.Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share.What is the adjusted book value of Chase Company after the issuance of the shares?

Duncan Inc. owned all of the outstanding stock of Brandt Co. The subsidiary had bonds payable outstanding on January 1, 2020, with a book value of $270,000. The parent acquired the bonds on that date for $291,000. Subsequently, Duncan reported interest income of $26,000 in 2020 while Brandt reported interest expense of $31,000. Consolidated financial statements were prepared for 2021. What adjustment would be required for the retained earnings balance as of January 1, 2021?

Johnson, Inc. owns control over Kaspar, Inc. Johnson reports sales of $400,000 during 2021 while Kaspar reports $250,000. Kaspar transferred inventory during 2021 to Johnson at a price of $50,000. On December 31, 2021, 30% of the transferred goods are still held in Johnson's inventory. Consolidated accounts receivable on January 1, 2021 was $120,000, and on December 31, 2021 is $130,000. Johnson uses the direct approach in preparing the statement of cash flows.How much is cash collected from customers in the consolidated statement of cash flows?

Panton, Inc. acquired 18,000 shares of Glotfelty Corp. several years ago for $30 per share when Glotfelty had a book value of $450,000. Before and after that time, Glotfelty's stock traded at $30 per share. At the present time, Glotfelty reports the following stockholders' equity: Glotfelty issues 5,000 shares of previously unissued stock to Panton for $35 per share.Required:Describe how this transaction would affect Panton's books.

Panton, Inc. acquired 18,000 shares of Glotfelty Corp. several years ago for $30 per share when Glotfelty had a book value of $450,000. Before and after that time, Glotfelty's stock traded at $30 per share. At the present time, Glotfelty reports the following stockholders' equity: Glotfelty issues 5,000 shares of previously unissued stock to the public for $40 per share. None of this stock is purchased by Panton.Describe how this transaction would affect Panton's books.

On January 1, 2021, Rhodes Co. owned 75% of the common stock of Brock Co. On that date, Brock's stockholders' equity accounts had the following balances: The balance in Rhodes's Investment in Brock Co. account was $570,000, and the noncontrolling interest was $190,000. On January 1, 2021, Brock Co. sold 10,000 shares of previously unissued common stock for $12 per share. Rhodes did not acquire any of these shares.What amount should be attributed to the Noncontrolling Interest in Brock Co. following the sale of the 10,000 shares of common stock?

Key Company has had bonds payable of $21,000 outstanding for several years. On January 1, 2021, there was an unamortized premium of $1,000 with a remaining life of 10 years, Key's parent, Peele, Inc., purchased the bonds in the open market for $18,000. Key is an 80% owned subsidiary of Peele. The bonds pay 7% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2021.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company.(1.) Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham $20,000.(2.) Noncontrolling interest in Stage's net income was $30,000.(3.) Graham paid dividends of $15,000.(4.) Stage paid dividends of $10,000.(5.) Excess acquisition-date fair value over book value amortization was $6,000.(6.) Consolidated accounts receivable decreased by $8,000.(7.) Consolidated accounts payable decreased by $7,000.Where does the noncontrolling interest in Stage's net income appear on a consolidated statement of cash flows?

Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows?

On January 1, 2021, Parent Corporation acquired a controlling interest in the voting common stock of Foxboro Co. At the same time, Parent purchased 60% of Foxboro's outstanding preferred stock. In preparing consolidated financial statements, how should the acquisition of the preferred stock be accounted for?