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

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 loss on sale of land reported on the consolidated statement of cash flows?

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

On January 1, 2013, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30 percent of Involved's preferred stock, and $1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows: Common stock, \ 10 par value, 100,000 shares outstanding \ 1,000,000 Preferred stock, \%\% fully participating, \ 100 par value, 10,000 shares outstanding 1,000,000 Retained Earnings 2,000,000 Total stockholders' equity \ 4,000,000 What is the total acquisition-date fair value of Involved?

How do subsidiary stock warrants outstanding affect consolidated earnings per share?

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. Where does the non-controlling interest in Stage's net income appear on a consolidated statement of cash flows?

A company had common stock with a total par value of $18,000,000 and fair value of $62,000,000; and 7% preferred stock with a total par value of $6,000,000 and a fair value of $8,000,000. The book value of the company was $85,000,000. If 90% of this company's total equity was acquired by another, what portion of the value would be assigned to the non-controlling interest?

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. During 2013, Thomas reported earning $630,000 in net income and paid $504,000 in total cash dividends. Kuried used the equity method to account for this investment. What is the controlling interest share of Thomas' net income for the year ended December 31, 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, 2016?

On January 1, 2013, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is: Common stock, \ 10 par value (50,000 shares outstanding ) \5 00,000 Preferred stock, 6\% cumulative, \ 100 par value, 3,000 shares outstanding 300,000 Additional paid in capital 200,000 Retained earnings 500,000 Total stockholders' equity \1 ,500,000 If Smith's net income is $100,000 in the year following the acquisition,

Campbell Inc. owned all of Gordon Corp. For 2013, Campbell reported net income (without consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000. The subsidiary had bonds payable outstanding on January 1, 2013, with a book value of $297,000. The parent acquired the bonds on that date for $281,000. During 2013, Campbell reported interest income of $31,000 while Gordon reported interest expense of $29,000. What is consolidated net income for 2013?

Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer?

A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true?

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 Glotfelty issues 5,000 shares of previously unissued stock to the public for $40 per share. None of this stock is purchased by Panton. Describe how this transaction would affect Panton's books.

In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true?

Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the current year, Donald made $75,000 in sales to Wolff. How does this transfer affect the consolidated statement of cash flows?

What documents or other sources of information would be used to prepare a consolidated statement of cash flows?

Tray Co. reported current earnings of $560,000 while paying $56,000 in cash dividends. Sparrish Co. earned $140,000 in net income and distributed $14,000 in dividends. Tray held a 70% interest in Sparrish for several years, an investment that it originally acquired by transferring consideration equal to the book value of the underlying net assets. Tray used the initial value method to account for these shares. On January 1, 2013, Sparrish acquired in the open market $70,000 of Tray's 8% bonds. The bonds had originally been issued several years ago at 92, reflecting a 10% effective interest rate. On the date of the bond purchase, the book value of the bonds payable was $67,600. Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds. What is the non-controlling interest's share of the subsidiary's net income?

On January 1, 2013, Riney Co. owned 80% of the common stock of Garvin Co. On that date, Garvin's stockholders' equity accounts had the following balances: Common stock ( \ 5 par value) \ 250,000 Additional paid-in capital 110,000 Retained earnings 330,000 Total stockholders' equity \ 690,000 The balance in Riney's Investment in Garvin Co. account was $552,000, and the non-controlling interest was $138,000. On January 1, 2013, Garvin Co. sold 10,000 shares of previously unissued common stock for $15 per share. Riney did not acquire any of these shares. What is the balance in Non-controlling Interest in Garvin Co. after the sale of the 10,000 shares of common stock?

Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below: 2013 2012 Cash \ 8,000 \ 26,000 Accounts Receivable (net) 75,000 54,000 Inventory 100,000 89,000 Plant \& Equipment (net) 156,000 170,000 Copyright 16,000 18,000 \ 355,000 \ 357,000 Accounts payable \ 60,000 \5 1,000 Long-term Debt 0 35,000 Non-controlling interest 27,000 25,000 Common stock, \1 par 100,000 100,000 Retained earnings \3 55,000 \3 57,000 Additional information for 2013: - The combination occurred using the acquisition method. Consolidated net income was $\$ 50,000$ . The non-controlling interest share of consolidated net income of Arthur was $\$ 3,200$ . - Arthur paid $\$ 4,000$ in dividends. - There were no disposals of plant \& equipment or copyright this year. Net cash flow from financing activities was:

Vontkins Inc. owned all of Quasimota Co. The subsidiary had bonds payable outstanding on January 1, 2012, with a book value of $265,000. The parent acquired the bonds on that date for $288,000. Subsequently, Vontkins reported interest income of $25,000 in 2012 while Quasimota reported interest expense of $29,000. Consolidated financial statements were prepared for 2013. What adjustment would have been required for the retained earnings balance as of January 1, 2013?