Question 1

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

Accepted Answer

A)  Parent's dividends and subsidiary's dividends are deducted as a financing activity. 
B)  Only parent's dividends are deducted as a financing activity. 
C)  Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity. 
D)  All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as a financing activity. 
E)  Neither parent's nor subsidiary's dividends are deducted as a financing activity.

Question 2

MacDonald, Inc. owns 80% of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows?

Accepted Answer

A)  Include 80% as a decrease in the investing section. 
B)  Include 100% as a decrease in the investing section. 
C)  Include 80% as a decrease in the operating section. 
D)  Include 100% as an increase in the operating section. 
E)  Not reported in the consolidated statement of cash flows.

Question 3

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?

Accepted Answer

The answer of When a company has preferred stock in...

Question 4

A variable interest entity can take all of the following forms except a(n):

Accepted Answer

A)  Trust. 
B)  Partnership. 
C)  Joint venture. 
D)  Corporation. 
E)  Estate.

Question 5

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2021:  Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2021, 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 2021, 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 controlling interest share of Thomas' net income for the year ended December 31, 2021?

Accepted Answer

The answer of Thomas Inc. had the following stockholders' equity...

Question 6

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

Accepted Answer

A)  The preferred stock is callable. 
B)  The preferred stock is convertible. 
C)  The preferred stock is cumulative. 
D)  The preferred stock is noncumulative. 
E)  The preferred stock is participating.

Question 7

On January 1, 2021, 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. There was no premium in the value of consideration transferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:  If Smith's net income is $100,000 in the year following the acquisition,

Accepted Answer

A)  The portion allocated to the common stock (residual amount) is $92,800. 
B)  $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at noncontrolling interest in consolidated income. 
C)  The noncontrolling interest in consolidated net income is $27,200. 
D)  The preferred stock dividend will be ignored in noncontrolling interest in consolidated net income because Nichols owns the noncontrolling interest of preferred stock. 
E)  The noncontrolling interest in consolidated net income is $30,800.

Question 8

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 (to an outside party) 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 amortization was $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?

Accepted Answer

A)  $20,000 added to net income as an operating activity. 
B)  $20,000 deducted from net income as an operating activity. 
C)  $15,000 deducted from net income as an operating activity. 
D)  $5,000 added to net income as an operating activity. 
E)  $5,000 deducted from net income as an operating activity.

Question 9

Skipen Corp. had the following stockholders' equity accounts:  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 carrying amounts except for land, which is undervalued by $130,000.Required:What amount was attributed to goodwill on the date of acquisition?

Accepted Answer

The answer of Skipen Corp. had the following stockholders' equity...

Question 10

Jacoby Co. owned a controlling interest in Trimble Inc. Jacoby reported sales of $510,000 during 2021 while Trimble reported $300,000. Inventory costing $27,000 was transferred from Trimble to Jacoby (upstream) during the year for $54,000. Of this amount, 30% was still in ending inventory at year's end. Total receivables on the consolidated balance sheet were $115,000 at the first of the year and $158,000 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 from its customers?

Accepted Answer

A)  $688,500. 
B)  $713,000. 
C)  $799,000. 
D)  $810,000. 
E)  $907,000.

Question 11

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements?

Accepted Answer

A)  The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE. 
B)  The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership. 
C)  The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE. 
D)  The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance. 
E)  The business enterprise establishing a VIE is a primary beneficiary for the VIE.

Question 12

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

Accepted Answer

The answer of Parent Corporation acquired some of its subsidiary's...

Question 13

On January 1, 2021, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30% of Involved's preferred stock, and $1,850,000 for 80% of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows:  What is the total acquisition-date fair value of Involved?

Accepted Answer

A)  $2,600,000 
B)  $4,812,500 
C)  $3,062,500 
D)  $2,312,500 
E)  $3,250,000

Question 14

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?

Accepted Answer

A)  The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock and their relative par values. 
B)  There is no allocation to the noncontrolling interest because there are no dividends in arrears. 
C)  The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends. 
D)  The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends. 
E)  The noncontrolling interest in consolidated net income is assigned as 30% of the subsidiary's income after subtracting 60 percent of preferred stock dividends.

Question 15

A company had common stock with a total par value of $26,000,000 and fair value of $70,000,000; and 8% preferred stock with a total par value of $9,000,000 and a fair value of $12,000,000. The book value of the company was $90,000,000. Assuming 85% of the company's total equity is acquired, what amount must be attributed to the noncontrolling interest?

Accepted Answer

A)  $8,700,000. 
B)  $10,500,000. 
C)  $12,300,000. 
D)  $13,500,000. 
E)  $17,400,000.

Question 16

Waite, Inc. owns 85% of Knight Corp. The consolidated income statement for a year reports $60,000 Noncontrolling Interest in Knight Corp.'s Net Income. Knight paid dividends in the amount of $90,000 for the year. What are the effects of these transactions in the consolidated statement of cash flows for the year?

Accepted Answer

A)  Increase in the financing section of $76,500, and decrease in the operating section of $13,500. 
B)  Increase in the operating section of $76,500, and decrease in the financing section of $13,500. 
C)  Increase in the operating section of $76,500. 
D)  Decrease in the financing section of $13,500. 
E)  No effects.

Question 17

On January 1, 2021, Harrison Corporation spent $2,600,000 to acquire control over Involved, Inc. This price was based on paying $750,000 for 30% of Involved's preferred stock, and $1,850,000 for 80% of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows:  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?

Accepted Answer

A)  $(100,000.) 
B)  $0. 
C)  $200,000. 
D)  $812,500. 
E)  $2,112,500.

Question 18

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

Accepted Answer

The answer of How are intra-entity inventory transfers treated on...

Question 19

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?

Accepted Answer

A)  The investment in subsidiary will decrease. 
B)  Additional paid-in capital will decrease. 
C)  Retained earnings will increase. 
D)  The investment in subsidiary will increase. 
E)  No adjustment will be necessary.

Question 20

A parent company owns a 70% interest in a subsidiary whose stock has a valuation basis of $27 per share. On the last day of the year, the subsidiary issues new shares for $27 per share, and the parent buys its 70% interest in the new shares. Which of the following statements is true?

Accepted Answer

A)  Since the sale was made at the end of the year, the parent's investment account is not affected. 
B)  Since the shares were sold for the same per share amount as the adjusted subsidiary value per share, the parent's investment account must be increased. 
C)  Since the shares were sold for the same per share amount as the adjusted subsidiary value per share, the parent's investment account must be decreased. 
D)  Since the shares were sold for the same per share amount as the adjusted subsidiary value per share, and the parent bought 70% of the shares, the parent's investment account is not affected except for the total acquisition amount for the new shares. 
E)  None of these answer choices are correct.

Exam 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues