Exam 3: Partially Owned Created Subsidiaries & Variable Interest Entities

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 4)

_____ Which of the following methods reports the noncontrolling interest as a division or sharing of the consolidated net income?

All VIEs must be consolidated.

_____ Which of the following is false concerning the filing of a consolidated tax return?

Under the parent company concept, the NCI in the subsidiary's net income is presented as a deduction in arriving at consolidated net income.

_____ Which of the following methods does not report any amounts for the noncontrolling interest in the consolidated statements?

Under current GAAP, ________________________________________ consolidation is required.

_____ Prell's 100%-owned domestic subsidiary has filed for bankruptcy protection. How should Prell value its investment in its unconsolidated statements if Prell can exercise significant influence?

In consolidating a VIE, goodwill can never be reported.

_____ Pallco justifiably does not consolidate two of its 100%-owned subsidiaries (Sallco and Sellco). Sallco is (a) a foreign subsidiary and (b) prohibited by the foreign government from paying dividends. Sellco is (a) a domestic subsidiary acquired two months ago in the purchase of a conglomerate and (b) in process of being sold. What would be the most likely method of accounting for each of these unconsolidated subsidiaries?

The double corporate taxation possibility does not occur with a division or branch.

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 must be calculated as if the subsidiary had filed a separate income tax return.

The U.S. income tax system taxes worldwide income-not only income earned in the United States.

_____ Sixx is a 60%-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

A domestic company cannot file a consolidated income tax return with its ___________________________________________ subsidiaries.

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

Controlling an entity by means of a voting majority interest is referred to as having ________________________________________ control.

The consolidation procedures for a VIE are similar to those for consolidating a created subsidiary.

Both proportional consolidation and full consolidation are allowed under current GAAP.

An advantage of filing a consolidated income tax return is that losses on intercompany transactions are deferred.