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

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2021: Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2021, for $20,656,000. The preferred stock remained in the hands of outside parties and had a fair value of $3,060,000. A database valued at $656,000 was recognized and amortized over five years. During 2021, Thomas reported earning $630,000 in net income and paid $504,000 in total cash dividends. Kuried used the equity method to account for this investment.What was the noncontrolling interest's share of consolidated net income for the year 2021?

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.Prepare Panton's journal entry to recognize the impact of this transaction.

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?

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.How is the amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used?

The balance sheets of Butler, Inc. and its 70%-owned subsidiary, Cassie Corp., which Butler has owned for several years are presented below: Additional information for 2021:Butler & Cassie's consolidated net income was $100,000.Cassie paid $10,000 in dividends.There were no purchases or disposals of plant & equipment or copyright this year.Net cash flow from financing activities was:

Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below: Additional information for 2021:The combination occurred using the equity method. Consolidated net income was $50,000. The noncontrolling interest share of consolidated net income of Arthur was $3,200.Arthur paid $4,000 in dividends.There were no purchases or disposals of plant & equipment or copyright this year.Net cash flow from financing activities was:

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2021: Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2021, for $20,656,000. The preferred stock remained in the hands of outside parties and had a fair value of $3,060,000. A database valued at $656,000 was recognized and amortized over five years. During 2021, Thomas reported earning $630,000 in net income and paid $504,000 in total cash dividends. Kuried used the equity method to account for this investment.What was Kuried's balance in the Investment in Thomas Inc. account as of December 31, 2021?

Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intra-entity transaction, to whom should the loss be attributed?

Which of the following variable interests entitles a holder to residual profits, losses, and dividends?

Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition price. On January 1, 2020, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds on January 1, 2022, for 95% of the face value. Both companies utilized the straight-line method of amortization.What consolidation entry would be recorded in connection with these intra-entity bonds on December 31, 2024?

Akers Co. owned 8,000 shares (80%) of the outstanding 8%, $100 par, preferred stock and 70% of the outstanding common stock of Brickman Co. Assuming there are no excess amortizations or intra-entity transactions, and Brickman reports net income of $810,000, what is the noncontrolling interest in the subsidiary's income?

Mohan owned all of Beatty Inc. Although the Investment in Beatty Inc. account had a balance of $862,000, the subsidiary's 12,000 shares had an underlying book value of only $55 per share. On January 1, 2021, Beatty issued 4,000 new shares to the public for $75 per share. How does this transaction affect the Investment in Beatty Inc. account?

Parent Corporation recently acquired some of its subsidiary's outstanding bonds at an amount which required the recognition of a loss. In what ways could the loss be allocated? Which allocation would you recommend? Why?

Parent Corporation acquired some of its subsidiary's bonds on the open bond market, paying a price $40,000 higher than the bonds' carrying value. How should the difference between the purchase price and the carrying value be accounted for?

The balance sheets of Butler, Inc. and its 70%-owned subsidiary, Cassie Corp., which Butler has owned for several years are presented below: Additional information for 2021:Butler & Cassie's consolidated net income was $100,000.Cassie paid $10,000 in dividends.There were no purchases or disposals of plant & equipment or copyright this year.Net cash flow from operating activities was:

Webb Company purchased 90% of Jones Company for $990,000 when the book value of Jones was $1,000,000. There was no premium paid by Webb. Jones currently has 100,000 shares outstanding and a book value of $1,200,000.Assume Jones issues 20,000 new shares of its common stock to outside parties for $15 per share.What is the adjusted book value of Jones after the stock issuance?

Davis Company has had bonds payable of $15,000 outstanding for several years. On January 1, 2021, when there was an unamortized discount of $2,500 and a remaining life of 5 years, its 80% owned subsidiary, Jacobson Company, purchased the bonds in the open market for $18,000. 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.

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2021: Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2021, for $20,656,000. The preferred stock remained in the hands of outside parties and had a fair value of $3,060,000. A database valued at $656,000 was recognized and amortized over five years. During 2021, Thomas reported earning $630,000 in net income and paid $504,000 in total cash dividends. Kuried used the equity method to account for this investment.What is the amount of goodwill resulting from this acquisition?

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 receivable appear in a consolidated statement of cash flows?

Davis Company has had bonds payable of $12,000 outstanding for several years. On January 1, 2021, when there was an unamortized discount of $1,000 and a remaining life of 5 years, its 90% owned subsidiary, Jacobson Company, purchased the bonds in the open market for $13,000. The bonds pay 6% 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.