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

Kearns Inc. owned all of Burke Corp. For 2021, Kearns reported net income (without consideration of its investment in Burke)of $350,000 while the subsidiary reported $127,000. There are no excess amortizations associated with this consolidation. The subsidiary had bonds payable outstanding on January 1, 2021, with a book value of $303,000. The parent acquired the bonds on that date for $285,000. During 2021, Kearns reported interest income of $32,000 while Burke reported interest expense of $29,000. What is consolidated net income for 2021?

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?

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 new percent ownership Ryan owns in Chase?

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

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 operating activities was:

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, 2023?

If a subsidiary re-acquires its outstanding shares from outside ownership for more than the noncontrolling interest valuation basis at the date of buying such treasury stock, which of the following statements is true?

If a subsidiary issues a stock dividend, which of the following statements is true?

Which of the following statements is true for a consolidated statement of cash flows?

Where do dividends paid by a subsidiary to the parent company appear in a 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 the public for $22 per share. None of this stock is purchased by Panton.Describe how this transaction would affect Panton's books.

Danbers Co. owned 75% of the common stock of Renz Corp. How does the issuance of a 5% stock dividend by Renz affect Danbers and the consolidation process?

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

On January 1, 2021, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30% of Involved's preferred stock, and $1,850,000 for 80% of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: Assuming Involved's accounts are correctly valued within the company's financial statements, what amount of goodwill should be recognized for the Investment in Involved?

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?

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: If Smith's net income is $100,000 in the year following the acquisition,

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.

Ryan Company purchased 80% of Chase Company for $240,000 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 reacquired 8,000 shares of its common stock from outsiders at $10 per share.When Ryan's new percent ownership is rounded to a whole number, what adjustment is needed for Ryan's investment in Chase account?

What are the primary sources of information that are used for preparation of 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?