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

Panton,Inc.acquired 18,000 shares of Glotfelty Corp.several years ago.At the present time,Glotfelty is reporting the following stockholders' equity: Glotfelty issues 5,000 shares of previously unissued stock to the public for $40 per share.None of this stock is purchased by Panton. Common stock, \ 10 par value ( 20,000 shares outstanding) \ 200,000 Additional paid in capital 100,000 Retained earnings -Prepare Panton's journal entry to recognize the impact of this transaction.

Parent Corporation recently acquired some of its subsidiary's outstanding bonds,at an amount which required the recognition of a loss.In what ways could the loss be allocated? Which allocation would you recommend? Why?

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.) Noncontrolling 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?

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

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

Campbell Inc.owned all of Gordon Corp.For 2011,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 1,2011,with a book value of $297,000.The parent acquired the bonds on that date for $281,000.During 2011,Campbell reported interest income of $31,000 while Gordon reported interest expense of $29,000.What is consolidated net income for 2011?

Carlson,Inc.owns 80 percent of Madrid,Inc.Carlson reports net income for 2011 (without consideration of its investment in Madrid,Inc. )of $1,500,000.For the same year,Madrid reports net income of $705,000.Carlson had bonds payable outstanding on January 1,2011 with a carrying value of $1,200,000.Madrid acquired the bonds on the open market on January 3,2011 for $1,090,000.For the year 2011,Carlson reported interest expense on the bonds in the amount of $96,000,while Madrid reported interest income of $94,000 for the same bonds.What is Carlson's share of consolidated net income?

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 $27 per share.None of this stock is purchased by Panton. -Prepare Panton's journal entry to recognize the impact of this transaction.

Regency Corp.recently acquired $500,000 of the bonds of Safire Co. ,one of its subsidiaries,paying more than the carrying value of the bonds.According to the most practical view of this intra-entity transaction,to whom would the loss be attributed?

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:

If newly issued debt is issued from a parent to its subsidiary,which of the following statements is false?

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?

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009, when Cocker had the following stockholders' equity accounts. Common stock -40,000 shares outstanding \ 140,000 Additional paid-in capital 105,000 Retained earnings 476,000 Total stockholders' equity \ 721,000 To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2012. On January 1, 2012, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker. -On January 1,2012,Cocker reacquired 8,000 of the outstanding shares of its own common stock for $34 per share.None of these shares belonged to Popper.How would this transaction have affected the additional paid-in capital of the parent company?

Keenan Company has had bonds payable of $20,000 outstanding for several years.On January 1,2011,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 2011.

The balance sheets of Butler, Inc. and its 70 percent-owned subsidiary, Cassie Corp., are presented below: Cash \ 16,000 \ 52,000 Accounts Receivable (net) 150,000 108,000 Inventory 220,000 178,000 Plant \& Equipment (net) 315,000 340,000 Copyright \ 733,000 \ 714,000 Accounts payable \ 120,000 \ 102,000 Long-term Debt 0 70,000 Noncontrolling interest 77,000 50,000 Common stock, \1 par 200,000 200,000 Retained earnings \ 733,000 \ 714,000 Additional information for 2011: - Butler \& Cassie's consolidated net income was $\$ 100,000$ . - Cassie paid $\$ 10,000$ in dividends. - There were no disposals of plant & equipment or copyright this year. -Net cash flow from financing activities was:

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

On January 1,2011,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 2011?

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 -What was Kuried's balance in the Investment in Thomas Inc.account as of December 31,2011?

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 2010 and 2011. Additional Information: Bonds were issued during 2011 by the parent for cash. Amortization of a database acquired in the original combination amounted to $7,000 per year. A building with a cost of $84,000 but a $42,000 book value was sold by the parent for cash on May 11,2011. $\begin{array}{lcc}&\underline{2010}&\underline{2011}\\ \text { Revenues } & \$ 1,064,000 & \$ 1,232,000 \\ \text { Cost of goods sold } & 714,000) & ( 756,000) \\ \text { Depreciation and amortization } & 126,000) & ( 140,000) \\ \text { Gain on sale of building } & -0- & 28,000 \\\text { Interest expense } & (42.000) & ( 42,000) \\\text { Noncontrolling interest } & \$ 12.600 & \$ 15.400 \\\text { Net income to controlling interest } & \$ 169,400 & \$ 306,600 \\\\ \text { Retained earnings, January } 1 & \$ 420,000 & \$ 519,400 \\ \text { Net income (from above) } & 169,400 & 306,600 \\ \text { Dividends paid } & ( 70,000) &(140,000) \\\text { Retained earnings, December } 31 & \$ 519,400 &\$ 686,000 \\\\ \text { Cash } & \$ 112,000 & \$ 196,000 \\ \text { Accounts receivable } & 210,000 & 196,000 \\ \text { Inventory } & 280,000 &476,000 \\ \text { Buildings and equipment (net) } & 896,000 & 966,000 \\\text { Database } & 210,000 & 203,000 \\\text { Total assets } & \$ 1,708,000 & \$ 2,037,000 \\\\\text { Accounts payable } &\$ (196,000) & \$(140,000) \\\text { Bonds payable } & (560,000) & (720,000) \\\text { Noncontrolling interest in Brewer Inc. } & (44.800) & 57,400) \\ \text { Common stock } & (140,000) & (168,00 \\ \text { Additional paid-in capital } & (247,800) & (265,6 \\\text { Retained earnings, December } 31 \text { (from above) } & (519,400) & (686,00 \\ \text { Total liabilities and stockholders' equity } & \$(1,708,000) & \$(2,037,00 \\\end{array}$ Equipment was purchased by the subsidiary on July 23,2011,using cash. Late in November 2011,the parent issued common stock for cash. During 2011,the subsidiary paid dividends of $14,000. Required: Prepare a consolidated statement of cash flows for this business combination for the year ending December 31,2011.Either the direct method or the indirect method may be used.

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?