Exam 3: Partially Owned Created Subsidiaries & Variable Interest Entities

A concept of viewing the noncontrolling interest that assumes that a new reporting entity results from the consolidation process is the _________________________ concept.

_____ Regarding the preparation of a consolidated tax return, which of the following statements is false?

An SPE can be a VIE.

If Entity A will absorb a majority of a VIE's expected losses and Entity B will receive a majority of that VIE's expected residual returns, both entities must consolidate the VIE.

_____Which of the following statements is false concerning the parent company concept?

The rationale underlying the parent company concept is that the reporting entity does not change as a result of the consolidation process.

_____ For reporting earnings of subsidiaries by parent companies, the Internal Revenue Code specifies, for most situations, the use of the

When a partially owned created subsidiary reports profits, the amount reported for consolidated net income would be the highest under which of the following methods?

The "dividend received deduction" is 100% if the subsidiary is 100% owned.

_____ The dividend received deduction applies to

Under the economic unit concept, the interest of the noncontrolling shareholders is considered to be an equity interest of the consolidated reporting entity.

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 10)

A manner of consolidation in which the noncontrolling interest is not presented in the consolidated statements is called _________________________________.

_____ Sixx is an 80%-owned domestic subsidiary of Pixx. For 2006, Sixx had $250,000 of pretax income and $150,000 of net income. On 12/31/06, Sixx paid a $100,000 dividend. The remaining $50,000 of net income is expected to be invested indefinitely. The tax rate is 40%. For 2006, Pixx should record income taxes relating to Sixx of:

Under the economic unit concept, the NCI in the subsidiary's net assets is presented as part of consolidated stockholders' equity.

_____ For financial reporting purposes, parent companies must provide income taxes on their share of their domestic subsidiaries' current earnings

A loan guarantee to a VIE's lenders could be a potential variable interest.

_____ Prell's 100%-owned domestic subsidiary has filed for bankruptcy protection. How should Prell value its investment in its unconsolidated statements if Prell cannot exercise significant influence?

A provision of the U.S. tax code that allows dividend income from a domestic subsidiary to not be taxed at the parent level is the election to file a(n) _____________________________________________.

FIN 46 allows an exception to consolidation for _____________________________ .