Exam 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

If a subsidiary reacquires its outstanding shares from outside ownership for more than book value, which of the following statements is true?

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements?

On January 1, 2013, Parent Corporation acquired a controlling interest in the voting common stock of Foxboro Co. At the same time, Parent purchased sixty percent of Foxboro's outstanding preferred stock. In preparing consolidated financial statements, how should the acquisition of the preferred stock be accounted for?

Pursley, Inc. owns 70 percent of Harry Corp. The consolidated income statement for a year reports $50,000 Non-controlling Interest in Harry Corp.'s Income. Harry paid dividends in the amount of $80,000 for the year. What are the effects of these transactions in the consolidated statement of cash flows for the year? Financing Activities Operating Activities A) Increased by \ 24,000 Increased by \ 15,000 B) Decreased by \ 15,000 Unaffected C) Unaffected Decreased by \ 15,000 D) Decreased by \ 24,000 Unaffected E) Unaffected Increased by \ 24,000

Allen Co. held 80% of the common stock of Brewer Inc. and 40% of this subsidiary's convertible bonds. The following consolidated financial statements were for 2012 and 2013. Additional Information: 1. Bonds were issued during 2013 by the parent for cash. 2. Amortization of a database acquired in the original combination amounted to $7,000 per year. 3. A building with a cost of $84,000 but a $42,000 book value was sold by the parent for cash on May 11, 2013. 4. Equipment was purchased by the subsidiary on July 23, 2013, using cash. 5. Late in November 2013, the parent issued common stock for cash. 6. During 2013, the subsidiary paid dividends of $14,000. Required: Prepare a consolidated statement of cash flows for this business combination for the year ending December 31, 2013. Either the direct method or the indirect method may be used.

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2) Non-controlling interest in Stage's net income was $30,000. (3) Graham paid dividends of $15,000. (4) Stage paid dividends of $10,000. (5) Excess acquisition-date fair value over book value was expensed by $6,000. (6) Consolidated accounts receivable decreased by $8,000. (7) Consolidated accounts payable decreased by $7,000. How is the amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used?

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2013. What was the amount of Stoop's earnings that should be included in calculating consolidated diluted earnings per share?

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants?

Panton, Inc. acquired 18,000 shares of Glotfelty Corp. several years ago. At the present time, Glotfelty is reporting the following stockholders' equity: Common stock, \ 10 par value (20,000 shares outstanding) \ 200,000 Additional paid in capital 100,000 Retained earnings \ 600,000 Glotfelty issues 5,000 shares of previously unissued stock to the public for $27 per share. None of this stock is purchased by Panton. Prepare Panton's journal entry to recognize the impact of this transaction.

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2013. Stoop's diluted earnings per share (rounded) is calculated to be

On January 1, 2013, Bast Co. had a net book value of $2,100,000 as follows: Fisher Co. acquired all of the outstanding preferred shares for $148,000 and 60% of the common stock for $1,281,000. Fisher believed that one of Bast's buildings, with a twelve-year life, was undervalued on the company's financial records by $70,000. Required: What is the amount of goodwill to be recognized from this purchase?

Where do intra-entity sales of inventory appear in a consolidated statement of cash flows?

Keenan Company has had bonds payable of $20,000 outstanding for several years. On January 1, 2013, there was an unamortized premium of $2,000 with a remaining life of 10 years, Keenan's parent, Ross, Inc. purchased the bonds in the open market for $19,000. Keenan is a 90% owned subsidiary of Ross. The bonds pay 8% interest annually on December 31. The companies use the straight-line method to amortize interest revenue and expense. Compute the consolidated gain or loss on a consolidated income statement for 2013.

Fargus Corporation owned 51% of the voting common stock of Sanatee, Inc. The parent's interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition price. On January 1, 2012, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds on January 1, 2014, for 95% of the face value. Both companies utilized the straight-line method of amortization. What consolidation entry would be recorded in connection with these intra-entity bonds on December 31, 2014?

How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2) Non-controlling interest in Stage's net income was $30,000. (3) Graham paid dividends of $15,000. (4) Stage paid dividends of $10,000. (5) Excess acquisition-date fair value over book value was expensed by $6,000. (6) Consolidated accounts receivable decreased by $8,000. (7) Consolidated accounts payable decreased by $7,000. How will dividends be reported in consolidated statement of cash flows?

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2013, are as follows: Jones Company: Shares outstanding 100,000 Book value of Jones \ 1,200,000 Book value per share \ 12 Webb Company: Shares owned of Jones 90,000 Book value of investment \ 1,080,000 Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What adjustment is needed for Webb's investment in Jones account?

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000. (2) Non-controlling interest in Stage's net income was $30,000. (3) Graham paid dividends of $15,000. (4) Stage paid dividends of $10,000. (5) Excess acquisition-date fair value over book value was expensed by $6,000. (6) Consolidated accounts receivable decreased by $8,000. (7) Consolidated accounts payable decreased by $7,000. Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?

A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?