Exam 3: Partially Owned Created Subsidiaries & Variable Interest Entities

When a parent and a domestic subsidiary file separate income tax returns, the provision of the U.S. tax code that allows dividend income from the subsidiary to not be taxed at the parent level is the ___________________________________.

_____ The parent-level tax on a subsidiary's earnings is essentially an issue for

Both the parent company concept and the economic unit concept are full consolidation approaches.

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

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.

The three allowable methods of valuing an investment in an unconsolidated subsidiary are the _________________________ method, the _________________________ method, and the __________________________ method.

In preparing a consolidated income tax return, all intercompany transactions are eliminated.

The concept of legal control encompasses the concept of effective control.

_____ Which of the following statements is false concerning the economic unit concept?

_____ What would be the effect on parent-company-only financial statements-not the consolidated statements-if an unconsolidated subsidiary is accounted for under the cost method?

The rationale of the economic unit concept is that the reporting entity does change as a result of the consolidation process.

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

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 subsidiary's common stock has a readily determinable fair value.

_____ Paxel owns 80% of Saxel's outstanding common stock. For 2006, Saxel reported $60,000 of net income and declared dividends of $10,000. What amount appears in Paxel's 2006 income statement if Paxel accounts for its investment using the equity method?

The company that must consolidate a variable interest entity is called the __________________________________ .

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 5)

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 2: For items 12-15, calculate the amount that would appear in the 2006 consolidated statements -_____(item 12)

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 11)

_____ Paxel owns 80% of Saxel's outstanding common stock. For 2006, Saxel reported $60,000 of net income and declared dividends of $10,000. What is the carrying value of Paxel's investment using the equity method at 12/31/06 if the investment's carrying value on 1/1/06 was $200,000?

_____ Which of the following valuation techniques could not be used to value an investment in an unconsolidated 100%-owned subsidiary?