Exam 3: Partially Owned Created Subsidiaries & Variable Interest Entities

An advantage of filing a consolidated income tax return is that ________________ _____________________________ problems are avoided.

An advantage of filing a consolidated income tax return is that operating losses of one company can offset capital losses of another company.

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

_____ Under the FASB's 1999 exposure draft on consolidation policy, which of the following methods or concepts must be used in reporting consolidated amounts?

A concept of viewing the noncontrolling interest that assumes that a new reporting entity does not result from the consolidation process is the ______________________________________concept.

In consolidating a VIE, the VIEs assets and liabilities must be initially valued at their book values-not their fair values.

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 1)

_____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.

When a subsidiary distributes its earnings to its parent, the parent has ____________________________________________ for income tax reporting purposes.

The fair value method of valuing an investment in an unconsolidated partially owned subsidiary can be used only if the subsidiary's common stock has a _______________________________________ fair value.

Another term for the noncontrolling interest is the ____________________________.

A foreign subsidiary will not pay taxes to the U.S. government.

A call option held by Entity A on Entity B's assets could be a potential variable interest.

One of the advantages of filing a consolidated income tax return is that ___________________________________________ are not taxed.

Pindex owns 75% of the voting common stock of its domestic subsidiary, Spindex. During 2006, Spindex had net income of $800,000 and paid dividends of $200,000. The remaining $600,000 of net income is expected to be invested indefinitely. Pindex's income tax rate is 40%. At 12/31/06, how much should Pindex report as a deferred income tax liability relating to the Spindex's 2006 earnings? Show the calculation.

All VIEs, by definition, have a primary beneficiary.

An 80% owned subsidiary is not consolidated because control has been lost. The cost method cannot be used to account for the investment in the subsidiary if the parent has significant influence.

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

The intent of the U.S. Internal Revenue Code is to tax only once (in the United States) at the _______________________________ level the earnings of a subsidiary.

Complete the following consolidation worksheet assuming that Paxco uses the equity method. (Force out certain amounts in the Paxco and Saxco columns, as necessary.)