Exam 3: Partially Owned Created Subsidiaries & Variable Interest Entities

_____ For 2006, Pyna reported $500,000 of net income from its own separate operations. This amount excludes income relating to Syna, its 80%-owned created subsidiary, which reported $100,000 of net income and declared $55,000 of dividends in 2006. What is the consolidated net income under the parent company concept?

A parent may file a consolidated income tax return with only domestic subsidiaries.

For partially owned subsidiaries, part of the rationale of full consolidation is that the parent controls the subsidiary and therefore should include (a) all the assets and liabilities under its control and (b) all income statement activities resulting from its control.

Under current GAAP, only the parent company concept is allowed.

All VIEs must be SPEs as well.

_____ Under the Internal Revenue Code, dividend income received from a 100%-owned domestic subsidiary is effectively not taxed at the parent level

An entity that is created to serve a specific, predetermined, limited purpose by a sponsoring entity is usually referred to, in practice, as a ____________________________ .

_____ The amount to be reported for the NCI in the net assets of a created subsidiary would be the lowest amount under which of the following methods?

Under proportional consolidation, no amounts are presented in the consolidated statements for the noncontrolling interest.

_____ Which of the following methods reports the NCI in the subsidiary's net income as a deduction in arriving at consolidated net income in the consolidated income statement?

_____ Which of the following valuation techniques could not be used to value an investment in an unconsolidated 90%-owned subsidiary that has its unowned shares publicly traded?

_____ Parrco and Subbco file a consolidated tax return. Subbco issues separate financial statements. Subbco's income statement

matching based on the information given. The following (a) seven account balances and (b) statements of retained earnings were obtained from the separate company statements of Parr Inc. and its 80%-owned created sub-sidiary, Subb Inc. (Parr's only subsidiary), at the end of 2006: When Subb was created (in 2004, 20% of the common shares it issued were sold to private investors. Requirement 1: How is each of the first 11 preceding items reported in Parr's 2006 consolidated statements? Use the following list of possible answer codes in the answer columns: -_____(item 2)

The variable interest holder having the highest percentage interest of all of the variable interest holders must consolidate the VIE.

Effective control encompasses legal control.

If a subsidiary is not consolidated, the equity method can be used only if significant influence exists.

matching based on the information given. The following (a) seven account balances and (b) statements of retained earnings were obtained from the separate company statements of Parr Inc. and its 80%-owned created sub-sidiary, Subb Inc. (Parr's only subsidiary), at the end of 2006: When Subb was created (in 2004, 20% of the common shares it issued were sold to private investors. Requirement 1: How is each of the first 11 preceding items reported in Parr's 2006 consolidated statements? Use the following list of possible answer codes in the answer columns: -_____(item 8)

_____ The noncontrolling interest in a created subsidiary's net income is based on the subsidiary's reported net income under which of the following concepts?

An entity that is subject to consolidation pursuant to FASB FIN 46 is called a __________________________________ .

When a consolidated income tax return is filed and the subsidiary issues separate financial statements to its lenders, income taxes reported in the subsidiary's income statement can be based on an arbitrary allocation method.