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

MacDonald, Inc. owns 80% of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows?

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.What should the adjusted book value of Chase be after the treasury shares were purchased?

How does the creation of a consolidated statement of cash flows differ from the creation of a consolidated income statement or consolidated balance sheet?

Which of the following statements regarding consolidation of a VIE with its primary beneficiary is true?

Dayton, Inc. owns 80% of Haber Corp. The consolidated income statement for a year reports $60,000 Noncontrolling Interest in Haber Corp.'s Net Income. Haber paid dividends in the amount of $75,000 for the year. What are the effects of these transactions in the consolidated statement of cash flows for the year?

Where do dividends paid to the noncontrolling interest of a subsidiary appear on a consolidated statement of cash flows?

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

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?

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.

During 2021, Parent Corporation purchased at carrying value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows?

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

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.What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)?

Which of the following statements are true concerning variable interest entities (VIEs)?(1.)The role of the VIE equity investors can be fairly minor.(2.)A VIE may be created specifically to benefit the business enterprise that established it with low-cost financing.(3.)VIE governing agreements often limit activities and decision-making.(4.)VIEs usually have a well-defined and limited business activity.

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 adjusted book value of Jones after the sale of the shares?

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.

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?

A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock is noncumulative. The current year's dividend was paid. How is the noncontrolling interest in the subsidiary's net income assigned?

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:

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.