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

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

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?

All of the following are examples of variable interests except

During 2013, Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows?

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: If Smith's net income is $100,000 in the year following the acquisition,

If a subsidiary issues a stock dividend, which of the following statements is true?

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.

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: Compute the non-controlling interest in Smith at date of acquisition.

Which of the following is not a potential loss or return of a variable interest entity?

Rojas Co. owned 7,000 shares (70%) of the outstanding 10%, $100 par preferred stock and 60% of the outstanding common stock of Brett Co. When Brett reported net income of $780,000, what was the non-controlling interest in the subsidiary's income?

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 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?

Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent purchase the bonds, rather than the subsidiary buying its own bonds?

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?

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?

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 $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true?

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?

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

On January 1, 2013, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2013?

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?