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

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:

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?

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?

Davidson, Inc. owns 70 percent of the outstanding voting stock of Ernest Company. On January 2, 2009, Davidson sold 8 percent bonds payable with a $5,000,000 face value maturing January 2, 2029 at a premium of $400,000. On January 1, 2011, Ernest acquired 30 percent of these same bonds on the open market at 97.6. Both companies use the straight-line method of amortization. What adjustment should be made to Davidson's 2012 beginning Retained Earnings as a result of this bond acquisition?

All of the following are examples of variable interests except

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

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 issues 30,000 additional shares common stock solely to Ryan for $12 per share. -After acquiring the additional shares, what adjustment is needed for Ryan's investment in Chase account?

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?

The balance sheets of Butler, Inc. and its 70 percent-owned subsidiary, Cassie Corp., are presented below: 2011 2010 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 32,000 36,000 \ 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 336,000 292.000 \ 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:

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 new percent ownership of Webb in Jones after the stock issuance?

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 the noncontrolling interest's share of consolidated net income for the year 2011?

Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share. On January 1, 2011, Odom issued 3,000 new shares to the public for $70 per share. How does this transaction affect the Investment in Odom Inc. account?

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. -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?

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?

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?

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?

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 Copvright 16,000 18,000 \3 55,000 \3 57,000 Accounts payable \ 60,000 \ 51,000 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 \3 55,000 \3 57,000 Additional information for 2011: - 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 operating activities was:

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?

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 is the amount of goodwill resulting from this acquisition?

A parent company owns a 70 percent 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 for $27 per share, and the parent buys its 70 percent interest in the new shares. Which of the following statements is true?