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

Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share. On January 1, 2013, Odom issued 3,000 new shares to the public for $70 per share. How does this transaction affect the Investment in Odom Inc. account?

A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. The last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. Which of the following statements is true?

Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows?

All of the following are examples of variable interests except

A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the non-controlling interest in the subsidiary's net income assigned?

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2013: Preferred stock - \ 90 par value, nonvoting and nonparticipating; 9 \% cumulative dividend \2 ,700,000 Common stock - \2 5 par value 5,600,000 Retained earnings 14,000,000 Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2013, for $20,656,000. The preferred stock remained in the hands of outside parties and had a fair value of $3,060,000. A database valued at $656,000 was recognized and amortized over five years.

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

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 Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its 90% interest in Jones. What is the adjusted book value of Jones after the stock issuance?

Which of the following statements is false concerning variable interest entities (VIEs)?

Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company. On January 2, 2011, Georgia sold 7 percent bonds payable with a $5,000,000 face value maturing January 2, 2031 at a premium of $500,000. On January 1, 2013, Franklin acquired 20 percent of these same bonds on the open market at 97.66. Both companies use the straight-line method of amortization. What adjustment should be made to Franklin's 2014 beginning Retained Earnings as a result of this bond acquisition?

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 is the new percent ownership of Webb in Jones after the stock issuance?

A variable interest entity can take all of the following forms except a(n)

Parent Corporation had just purchased some of its subsidiary's outstanding bonds on the open market. What items related to these bonds will have to be accounted for in the consolidation process?

Parent Corporation acquired some of its subsidiary's bonds on the open bond market. The remaining life of the bonds was eight years, and Parent expected to hold the bonds for the full eight years. How would the acquisition of the bonds affect the consolidation process?

Parent Corporation acquired some of its subsidiary's bonds on the open bond market, paying a price $40,000 higher than the bonds' carrying value. How should the difference between the purchase price and the carrying value be accounted for?

Stevens Company has had bonds payable of $10,000 outstanding for several years. On January 1, 2013, when there was an unamortized discount of $2,000 and a remaining life of 5 years, its 80% owned subsidiary, Matthews Company, purchased the bonds in the open market for $11,000. The bonds pay 6% 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.

Danbers Co. owned seventy-five percent of the common stock of Renz Corp. How does the issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process?

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity?

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013, are as follows: Chase Company: Shares outstanding 50,000 Book value \ 400,000 Book value per share \ 8 Ryan Company: Shares owned of Chase 40,000 Book value of investment in Chase \ 320,000 Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. After acquiring the additional shares, what adjustment is needed for Ryan's investment in Chase account?

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2013, are as follows: Chase Company: Shares outstanding 50,000 Book value \ 400,000 Book value per share \ 8 Ryan Company: Shares owned of Chase 40,000 Book value of investment in Chase \ 320,000 Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. What is the adjusted book value of Chase Company after the issuance of the shares?