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

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

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 operating activities was:

Stevens Company has had bonds payable of $10,000 outstanding for several years.On January 1,2011,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 2011.

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 amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used?

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. -When Ryan's new percent ownership is rounded to a whole number,what adjustment is needed for Ryan's investment in Chase account?

A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock.The preferred stock is noncumulative.The current year's dividend was paid.How is the noncontrolling interest in the subsidiary's net income assigned?

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 $35 per share.Popper acquired 8,000 of these shares.How would this transaction affect the additional paid-in capital of the parent company?

Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE)with its own financial statements?

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2011. -Stoop's diluted earnings per share (rounded)is calculated to be

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 goodwill recognized in consolidation.

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $22,000. Knight did not own any of Stoop's bonds. Stoop reported income of $300,000 for 2011. -What was the amount of Stoop's earnings that should be included in calculating consolidated diluted earnings per share?

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 Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. -What is the adjusted book value of Jones after the sale of the shares?

How do subsidiary stock warrants outstanding affect consolidated earnings per share?

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 balances would need to be considered in order to prepare the consolidation entry in connection with these intra-entity bonds at December 31,2012,the end of the first year of the intra-entity investment? Prepare schedules to show numerical answers for balances that would be needed for the entry.

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 -What is the total acquisition-date fair value of Involved?