Question 1

Which of the following is not a potential loss or return of a variable interest entity?

Accepted Answer

A) Entitles holder to residual profits. 
B) Entitles holder to benefit from increases in asset fair value. 
C) Entitles holder to receive shares of common stock. 
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss. 
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss. 
A) Entitles holder to residual profits. 
B) Entitles holder to benefit from increases in asset fair value. 
C) Entitles holder to receive shares of common stock. 
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss. 
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.

Question 2

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE)should consolidate such VIE with its own financial statements?

Accepted Answer

A) The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE. 
B) The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership. 
C) The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE. 
D) The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance. 
E) The business enterprise establishing a VIE is a primary beneficiary for the VIE. 
A) The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE. 
B) The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership. 
C) The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE. 
D) The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance. 
E) The business enterprise establishing a VIE is a primary beneficiary for the VIE.

Question 3

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 loss on sale of land reported on the consolidated statement of cash flows?

Accepted Answer

A) $20,000 added to net income as an operating activity. 
B) $20,000 deducted from net income as an operating activity. 
C) $15,000 deducted from net income as an operating activity. 
D) $5,000 added to net income as an operating activity. 
E) $5,000 deducted from net income as an operating activity. 
A) $20,000 added to net income as an operating activity. 
B) $20,000 deducted from net income as an operating activity. 
C) $15,000 deducted from net income as an operating activity. 
D) $5,000 added to net income as an operating activity. 
E) $5,000 deducted from net income as an operating activity.

Question 4

Jet Corp. acquired all of the outstanding shares of Nittle Inc. on January 1, 2019, for $644,000 in cash. Of this consideration transferred, $42,000 was attributed to equipment with a ten-year remaining useful life. Goodwill of $56,000 had also been identified. Jet applied the partial equity method so that income would be accrued each period based solely on the earnings reported by the subsidiary.On January 1, 2022, Jet reported $280,000 in bonds outstanding with a book value of $263,200. Nittle purchased half of these bonds on the open market for $135,800.During 2022, Jet began to sell merchandise to Nittle. During that year, inventory costing $112,000 was transferred at a price of $140,000. All but $14,000 (at Jet's selling price)of these goods were resold to outside parties by year's end. Nittle still owed $50,400 for inventory shipped from Jet during December.The following financial figures were for the two companies for the year ended December 31, 2022.
   Required:Prepare a consolidation worksheet for the year ended December 31, 2022.

Accepted Answer

The answer of Jet Corp. acquired all of the outstanding...

Question 5

Skipen Corp. had the following stockholders' equity accounts:
   The preferred stock was participating and is therefore considered to be equity. Vestin Corp. acquired 90% of this common stock for $2,250,000 and 70% of the preferred stock for $1,120,000. All of the subsidiary's assets and liabilities were determined to have fair values equal to their carrying amounts except for land, which is undervalued by $130,000.Required:What amount was attributed to goodwill on the date of acquisition?

Accepted Answer

The answer of Skipen Corp. had the following stockholders' equity...

Question 6

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants?

Accepted Answer

A) Parent's earnings per share plus subsidiary's earnings per share. 
B) Parent's net income divided by parent's number of shares outstanding. 
C) Consolidated net income divided by parent's number of shares outstanding. 
D) Average of parent's earnings per share and subsidiary's earnings per share. 
E) Consolidated income divided by total number of shares outstanding for the parent and subsidiary. 
A) Parent's earnings per share plus subsidiary's earnings per share. 
B) Parent's net income divided by parent's number of shares outstanding. 
C) Consolidated net income divided by parent's number of shares outstanding. 
D) Average of parent's earnings per share and subsidiary's earnings per share. 
E) Consolidated income divided by total number of shares outstanding for the parent and subsidiary.

Question 7

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:   The consolidation entry at date of acquisition will include (referring to Smith):

Accepted Answer

A) Debit Common stock $500,000 and debit Preferred stock $120,000. 
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000. 
C) Debit Common stock $500,000 and debit Preferred stock $300,000. 
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. 
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000. 
A) Debit Common stock $500,000 and debit Preferred stock $120,000. 
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000. 
C) Debit Common stock $500,000 and debit Preferred stock $300,000. 
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. 
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

Question 8

Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent purchase the bonds, rather than the subsidiary buying its own bonds?

Accepted Answer

The purchase might have been made by Par

Question 9

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?

Accepted Answer

A) $190,000. 
B) $220,000. 
C) $310,000. 
D) $330,000. 
E) $550,000. 
A) $190,000. 
B) $220,000. 
C) $310,000. 
D) $330,000. 
E) $550,000.

Question 10

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 is the new percent ownership of Webb in Jones after the stock issuance?

Accepted Answer

A) 75%. 
B) 90%. 
C) 80%. 
D) 64%. 
E) 60%. 
A) 75%. 
B) 90%. 
C) 80%. 
D) 64%. 
E) 60%.

Question 11

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:   Compute the goodwill recognized in consolidation.

Accepted Answer

A) $800,000. 
B) $310,000. 
C) $124,000. 
D) $0. 
E) $(196,000). 
A) $800,000. 
B) $310,000. 
C) $124,000. 
D) $0. 
E) $(196,000).

Question 12

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.

Accepted Answer

The answer of Panton, Inc. acquired 18,000 shares of Glotfelty...

Question 13

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?

Accepted Answer

The answer of Thomas Inc. had the following stockholders' equity...

Question 14

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:

Accepted Answer

A) $(92,000). 
B) $(96,000). 
C) $(300,000). 
D) $(80,000). 
E) $(126,000). 
A) $(92,000). 
B) $(96,000). 
C) $(300,000). 
D) $(80,000). 
E) $(126,000).

Question 15

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.

Accepted Answer

A) $1,324,000 for Investment in Smith. 
B) $1,200,000 for Investment in Smith. 
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock. 
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock. 
E) $1,448,000 for Investment in Smith's Common Stock. 
A) $1,324,000 for Investment in Smith. 
B) $1,200,000 for Investment in Smith. 
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock. 
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock. 
E) $1,448,000 for Investment in Smith's Common Stock.

Question 16

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?

Accepted Answer

A) $590,000. 
B) $610,000. 
C) $625,000. 
D) $635,000. 
E) $650,000. 
A) $590,000. 
B) $610,000. 
C) $625,000. 
D) $635,000. 
E) $650,000.

Question 17

On January 1, 2021, Bast Co. had a net book value of $2,100,000 as follows:
   Fisher Co. acquired all of the outstanding preferred shares for $148,000 and 60% of the common stock for $1,281,000. Fisher believed that one of Bast's buildings, with a twelve-year life, was undervalued on the company's financial records by $70,000.Required:What is the amount of goodwill to be recognized from this purchase?

Accepted Answer

The answer of On January 1, 2021, Bast Co. had...

Question 18

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?

Accepted Answer

A) $1,500,000. 
B) $1,200,000. 
C) $1,350,000. 
D) $1,080,000. 
E) $1,335,000. 
A) $1,500,000. 
B) $1,200,000. 
C) $1,350,000. 
D) $1,080,000. 
E) $1,335,000.

Question 19

On January 1, 2021, A. Hamilton, Inc. ("AHI")provides a loan for $3,000,000 to Reynolds Manufacturing Corp. ("RMC"). The terms of the loan require payment of the loan no later than January 1, 2026. RMC was in terrible financial condition and would cease operations absent securing a loan. Prior to requesting a loan from AHI, RMC exhausted all other possible avenues for funding. The terms of the loan agreement include provisions that require RMC to provide AHI with the following from January 1, 2021 through January 1, 2026: (i)6% annual interest on the principal amount of the loan, which reflects a market rate of interest; (ii)100% participation rights to RMC's profits less $17,000 in a guaranteed annual dividend to RMC's common shareholders; and (iii)complete decision-making authority over RMC's operations and financing decisions.At the end of the term of the loan, AHI is given the right to acquire RMC or, in its discretion, extend the term of the original loan an additional 5 years. At the date the loan was extended to RMC, RMC's common stock had an estimated fair value of $136,000 and a book value of $40,000. The $96,000 difference was attributed to an asset with a 3-year useful life remaining ("Asset"). At January 1, 2021, the balance sheets for AHI and RMC are as follows:   In preparing the consolidation worksheet as of December 31, 2021 for AHI and RMC, which of the following worksheet entry descriptions reflects what AHI should do to consolidate the financial statements?

Accepted Answer

A) Consolidation Entry A is recorded to allocate the excess fair value to the noncontrolling interest and record a credit to the Asset in connection with a fair valuation on the date AHI obtains control of RMC as follows:   
B) Consolidation Entry P is recorded to eliminate the long-term receivable and debt representing AHI's initial investment in RMC as follows:   
C) Consolidation Entry S is recorded to eliminate the interest payment on the loan from RMC to AHI as follows:   
D) Consolidation Entry E is recorded to amortize the excess fair value allocation to the Asset over its remaining useful life as follows:   
E) Consolidation Entry P is recorded to eliminate the beginning stockholders' equity of the VIE and recognize the 100% equity ownership of the noncontrolling interest as follows:   
A) Consolidation Entry A is recorded to allocate the excess fair value to the noncontrolling interest and record a credit to the Asset in connection with a fair valuation on the date AHI obtains control of RMC as follows:   
B) Consolidation Entry P is recorded to eliminate the long-term receivable and debt representing AHI's initial investment in RMC as follows:   
C) Consolidation Entry S is recorded to eliminate the interest payment on the loan from RMC to AHI as follows:   
D) Consolidation Entry E is recorded to amortize the excess fair value allocation to the Asset over its remaining useful life as follows:   
E) Consolidation Entry P is recorded to eliminate the beginning stockholders' equity of the VIE and recognize the 100% equity ownership of the noncontrolling interest as follows:

Question 20

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $2 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $2,000. Knight did not own any of Stoop's bonds. There are no excess amortizations or intra-entity transactions associated with this consolidation. Stoop reported net income of $300,000 for 2021. Knight has 100,000 shares of common stock outstanding and reported net income of $400,000 for 2021.What would Knight Co. report as consolidated basic earnings per share (rounded)?

Accepted Answer

A) $6.37 
B) $6.40 
C) $7.00 
D) $5.68 
E) $6.00 
A) $6.37 
B) $6.40 
C) $7.00 
D) $5.68 
E) $6.00

Which of the following is not a potential loss or return of a variable interest entity?

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE)should consolidate such VIE with its own financial statements?

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants?

Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent purchase the bonds, rather than the subsidiary buying its own bonds?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidationssubsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments Part 1

Accounting for State and Local Governments Part 2

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

Which of the following is not a potential loss or return of a variable interest entity?

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE)should consolidate such VIE with its own financial statements?

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants?

Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent purchase the bonds, rather than the subsidiary buying its own bonds?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidationssubsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments Part 1

Accounting for State and Local Governments Part 2

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