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

Skipen Corp.had the following stockholders' equity accounts: Preferred stock ( 8\% cumulative dividend) \ 700,000 Common stock 1,050,000 Additional paid-in capital 420,000 Retained earnings 1,330,000 Total \ The preferred stock was participating and is therefore considered to be equity.Vestin Corp.acquired 90% of this common stock for $2,250,000 and 70% of the preferred stock for $1,120,000.All of the subsidiary's assets and liabilities were determined to have fair values equal to their book values except for land which is undervalued by $130,000. Required: What amount was attributed to goodwill on the date of acquisition?

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?

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 -Compute the noncontrolling interest in Smith at date of acquisition.

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?

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 -The consolidation entry at date of acquisition will include (referring to Smith):

How do intra-entity sales of inventory affect the preparation of a consolidated statement of cash flows?

Which of the following statements is true concerning variable interest entities (VIEs)? 1)The role of the VIE equity investors can be fairly minor. 2)A VIE may be created specifically to benefit its sponsoring firm with low-cost financing. 3)VIE governing agreements often limit activities and decision making. 4)VIEs usually have a well-defined and limited business activity.

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

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. -Using the indirect method,where does the decrease in accounts receivable appear in 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?

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. -Using the indirect method,where does the decrease in accounts payable appear in a consolidated statement of cash flows?

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

When a company has preferred stock in its capital structure,what amount should be used to calculate noncontrolling interest in the preferred stock of the subsidiary when the company is acquired as a subsidiary of another company?

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 Panton for $35 per share. Required: Describe how this transaction would affect Panton's books.

All of the following are examples of variable interests except

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 31,2014?

How does the existence of a noncontrolling interest affect the preparation of a consolidated statement of cash flows?

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 is the controlling interest share of Thomas' net income for the year ended December 31,2011?

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

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 financing activities was: