Exam 6: Variable Interest Entities,intra-Entity Debt,consolidated Cash Flo

Vontkins Inc.owned all of Quasimota Co.The subsidiary had bonds payable outstanding on January 1,2010,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 2010 while Quasimota reported interest expense of $29,000.Consolidated financial statements were prepared for 2011.What adjustment would have been required for the retained earnings balance as of January 1,2011?

Which one of the following characteristics of preferred stock would make the stock a dilutive security for earnings per share?

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

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

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 1,2011,Odom issued 3,000 new shares to the public for $70 per share.How does this transaction affect the Investment in Odom Inc.account?

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, 2010, 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, 2012, 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 31,2013?

On January 1, 2011, 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 noncontrolling interest was $138,000. On January 1, 2011, 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 Investment in Garvin Co.after the sale of the 10,000 shares of common stock?

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011, are as follows:Chase Company: Shares outstanding 50,000 Book value \ 400,000 Book value per share \ 8 Ryan Company: Shares owned of Chase $\quad\quad\quad\quad\quad 40,000$ Book value of investment in Chase $\quad\$ 320,000$ 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?

On January 1, 2011, 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 noncontrolling interest was $138,000. On January 1, 2011, Garvin Co. sold 10,000 shares of previously unissued common stock for $15 per share. Riney did not acquire any of these shares. -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 noncontrolling interest in the subsidiary's income?

On January 1,2011,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?

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011, are as follows:Chase Company: Shares outstanding 50,000 Book value \ 400,000 Book value per share \ 8 Ryan Company: Shares owned of Chase $\quad\quad\quad\quad\quad 40,000$ Book value of investment in Chase $\quad\$ 320,000$ Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. -What should the adjusted book value of Chase be after the treasury shares were purchased?

Thomas Inc.had the following stockholders' equity accounts as of January 1,2011: Kuried Co.acquired all of the voting common stock of Thomas on January 1,2011,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 2011,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. $\text {Preferred stock - \$ 90 par value, nonvoting and nonparticipating;}$ 9 \%cumulative dividend \2 ,700,000 Common stock - \2 5 par value 5,600,000 Retained earnings 14,000,000 -Prepare all consolidation entries for 2011.

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 1,2011,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 noncontrolling interest's share of the subsidiary's net income?

During 2011,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?

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?

On January 1,2011,Bast Co.had a net book value of $2,100,000 as follows: Preferred stock, 2,000 shares \ 70 par value, cumulative, nonparticipating, nonvoting \ 140,000 Common stock, 22,400 shares \ 50 par value 1,120,000 Retained earnings Total shareholders' equity 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?

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?

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?

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: 2011 2010 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 Long-term Debt 0 35,000 Noncontrolling interest 27,000 25,000 Common stock, \ 1 par 100,000 100,000 Retained earnings 168,000 146,000 \ 357,000 $\text { Additional information for } 2011 \text { : }$ - The combination occurred using the acquisition method. Consolidated net income was \ 50,000 . The noncontrolling 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 operating activities was:

Davidson,Inc.owns 70 percent of the outstanding voting stock of Ernest Company.On January 2,2009,Davidson sold 8 percent bonds payable with a $5,000,000 face value maturing January 2,2029 at a premium of $400,000.On January 1,2011,Ernest acquired 30 percent of these same bonds on the open market at 97.6.Both companies use the straight-line method of amortization.What adjustment should be made to Davidson's 2012 beginning Retained Earnings as a result of this bond acquisition?