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

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011 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. -After acquiring the additional shares,what adjustment is needed for Webb's investment in Jones account?

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

On January 1, 2011, 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, 7\% fully participating, \ 100 par value, 10,000 shares outstanding 1,000,000 Retained Earnings 2,000,000 Total stockholders' equity \ 4,000,000 -Assuming Involved's accounts are correctly valued within the company's financial statements,what amount of goodwill should be recognized for the Investment in Involved?

Jet Corp.acquired all of the outstanding shares of Nittle Inc.on January 1,2009,for $644,000 in cash.Of this price,$42,000 was attributed to equipment with a ten-year remaining useful life.Goodwill of $56,000 had also been identified.Jet applied the partial equity method so that income would be accrued each period based solely on the earnings reported by the subsidiary. On January 1,2012,Jet reported $280,000 in bonds outstanding with a book value of $263,200.Nittle purchased half of these bonds on the open market for $135,800. During 2012,Jet began to sell merchandise to Nittle.During that year,inventory costing $112,000 was transferred at a price of $140,000.All but $14,000 (at Jet's selling price)of these goods were resold to outside parties by year's end.Nittle still owed $50,400 for inventory shipped from Jet during December. The following financial figures were for the two companies for the year ended December 31,2012. $\begin{array}{lll}&\text {Jet Corp.}&\text {Nittle Inc.}\\ \text { Revenues } & \$(894,600) & \$(652,400) \\\text { Cost of goods sold } & 483,000 & 277,200 \\\text { Expenses } & 187,600 & 225,400 \\\text { Interest expense-bonds } & 33,600 & 0 \\\text { Interest income-bond investment } & 0 & (15,400) \\\text { Equity in income of Nittle Inc. } & \underline{(165,200)} & \underline{0} \\\text { Net income } & \underline{\$(355,600)} & \underline{\$(165,200)}\\\\\text { Retained earnings, January } 1,2012 & \$(483,000) & \$(505,400) \\\text { Net income (above) } & (355,600) & (165,200) \\\text { Dividends paid } & \underline{217,000} & \underline{85,400} \\\text { Retained earnings, December } 31,2012 & \underline{\$(621.600)} & \underline{\$(585.200)}\\\\\text { Cash and receivables } & \$ 186,200 & \$ 109,200 \\\text { Inventory } & 239,400 & 121,800 \\\text { Investment in Nittle Inc. } & 851,200 & 0 \\\text { Investment in Jet Corp. bonds } & 0 & 137,200 \\\text { Land, buildings, and equipment (net) } & \underline{348,600} & \underline{757,400} \\\text { Total assets } & \$ 1.625 .400 & \$ 1.125 .600\\\\\text { Accounts payable } & \$(315,000) & \$(232,400) \\\text { Bonds payable } & (280,000) & (140,000) \\\text { Discount on bonds payable } & 11,200 & 0 \\\text { Common stock } & (420,000) & (168,000) \\\text { Retained earnings, December 31,2012 (above) } & \underline{(621,600)} & \underline{(585,200)} \\\text { Total liabilities and stockholders equity } & \$(1,625,400) & \$(1.125,600)\end{array}$ Required: Prepare a consolidation worksheet for the year ended December 31,2012.

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?

Pursley,Inc.owns 70 percent of Harry,Inc.The consolidated income statement for a year reports $50,000 Noncontrolling Interest in Harry,Inc.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? Financing Activities Operating Activities A) Increased by \ 24,000 Increased by \ 15,000 B) Decreased by \ 15,000 Unaffected C) Unaffected Decreased by \ 15,000 D) Decreased by \ 24,000 Unaffected E) Unaffected Increased by \ 24,000

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

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 is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)?

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 issued 10,000 additional shares of common stock for $21 per share.Popper did not acquire any of this newly issued stock.How would this transaction affect the additional paid-in capital of the parent company?

On January 1, 2009, 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) \ 500,000 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,

Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company.On January 2,2009,Georgia sold 7 percent bonds payable with a $5,000,000 face value maturing January 2,2029 at a premium of $500,000.On January 1,2011,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 2012 beginning Retained Earnings as a result of this bond acquisition?

Cadion Co.owned a controlling interest in Knieval Inc.Cadion reported sales of $420,000 during 2011 while Knieval reported $280,000.Inventory costing $28,000 was transferred from Knieval to Cadion (upstream)during the year for $56,000.Of this amount,twenty-five percent was still in ending inventory at year's end.Total receivables on the consolidated balance sheet were $112,000 at the first of the year and $154,000 at year-end.No intra-entity debt existed at the beginning or ending of the year.Using the direct approach,what is the consolidated amount of cash collected by the business combination from its customers?

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

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants?

Parent Corporation loaned money to its subsidiary with a five-year note at the market interest rate.How would the note be accounted for in the consolidation process?

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 31,2012?

Johnson,Inc.owns control over Kaspar,Inc.Johnson reports sales of $400,000 during 2011 while Kaspar reports $250,000.Kaspar transferred inventory during 2011 to Johnson at a price of $50,000.On December 31,2011,30 percent of the transferred goods are still in Johnson's inventory.Consolidated accounts receivable on January 1,2011 was $120,000,and on December 31,2011 is $130,000.Johnson uses the direct approach in preparing the statement of cash flows.How much is cash collected from customers in the consolidated statement of cash flows?

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 -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?

Which of the following statements is true for a consolidated statement of cash flows?