Exam 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flo

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 \6 90,000 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 Noncontrolling Interest in Garvin Co. after the sale of the 10,000 shares of common stock?

If Smith's net income is $100,000 in the year following the acquisition,

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?

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

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?

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?

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. 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.

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

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2011: Answer: Preferred stock — $\$ 90$ par value, nonvoting and nonparticipating; 9\% cumulative dividend \ 2,700,000 Common stock - \ 25 par value 5,600,000 Retained earnings 14,000,000 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. -What was Kuried's balance in the Investment in Thomas Inc. account as of December 31, 2011?

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 40,000 Book value of investment in Chase \ 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)?

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?

Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows?

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

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?

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?

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

A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the noncontrolling interest in the subsidiary's net income assigned?

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 40,000 Book value of investment in Chase \ 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?

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?

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 $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true?