Question 1

Rojas Co.owned 7,000 shares (70%) of the outstanding 10%, $100 par, preferred stock and 60% of the outstanding common stock of Brett Co.Assuming there are no excess amortizations or intra-entity transactions, and Brett reports net income of $780,000, what is the noncontrolling interest in the subsidiary's income?

Accepted Answer

A)  $234,000. 
B)  $273,000. 
C)  $302,000. 
D)  $312,000. 
E)  $284,000.

Question 2

On January 1, 2019, 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?

Accepted Answer

A)  Increase it by $28,700. 
B)  Increase it by $16,800. 
C)  $0. 
D)  Increase it by $280,000. 
E)  Increase it by $593,600.

Question 3

Prepare Panton's journal entry to recognize the impact of this transaction.

Accepted Answer

The answer of Prepare Panton's journal entry to recognize the...

Question 4

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?

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. 
B)  There is no allocation to the noncontrolling interest because the parent owns 100% of the common stock and net income belongs to the controlling interest. 
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 subsidiary's income before preferred stock dividends. 
E)  The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

Question 5

What would Knight Co.report as consolidated basic earnings per share (rounded)?

Accepted Answer

A)  $6.37 
B)  $6.40 
C)  $7.00 
D)  $5.68 
E)  $6.00

Question 6

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

Accepted Answer

A)  Debit Common stock $500,000 and debit Preferred stock $120,000. 
B)  Debit Common stock $400,000 and debit Additional paid-in capital $160,000. 
C)  Debit Common stock $500,000 and debit Preferred stock $300,000. 
D)  Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000. 
E)  Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

Question 7

Compute the goodwill recognized in consolidation.

Accepted Answer

A)  $ 800,000. 
B)  $ 310,000. 
C)  $ 124,000. 
D)  $ 0. 
E)  $(196,000.)

Question 8

Describe how this transaction would affect Panton's books.

Accepted Answer

The answer of Describe how this transaction would affect Panton's...

Question 9

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

Accepted Answer

A)  Cash flows from operating activities. 
B)  Cash flows from investing activities. 
C)  Cash flows from financing activities. 
D)  Supplemental schedule of noncash investing and financing activities. 
E)  They do not appear in the consolidated statement of cash flows.

Question 10

What is the adjusted book value of Jones after the stock issuance?

Accepted Answer

A)  $1,500,000. 
B)  $1,200,000. 
C)  $1,350,000. 
D)  $1,080,000. 
E)  $1,335,000.

Question 11

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

Accepted Answer

A)  $7,000 increase to net income as an operating activity. 
B)  $7,000 decrease to net income as an operating activity. 
C)  $5,600 increase to net income as an operating activity. 
D)  $5,600 decrease to net income as an operating activity. 
E)  $7,000 increase as a financing activity.

Question 12

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity?

Accepted Answer

A)  The power to direct the most significant economic performance activities. 
B)  The power through voting or similar rights to direct activities, which significantly impact economic performance. 
C)  The obligation to absorb potentially significant losses of the entity. 
D)  No ability to make decisions about the entity's activities. 
E)  The right to receive potentially significant benefits of the entity.

Question 13

Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows?

Accepted Answer

A)  They do not appear in the consolidated statement of cash flows. 
B)  Supplemental schedule of noncash investing and financing activities. 
C)  Cash flows from operating activities. 
D)  Cash flows from investing activities. 
E)  Cash flows from financing activities.

Question 14

Jet Corp.acquired all of the outstanding shares of Nittle Inc.on January 1, 2016, for $644,000 in cash.Of this consideration transferred, $42,000 was attributed to equipment with a ten-year remaining useful life.Goodwill of $56,000 had also been identified.Jet applied the partial equity method so that income would be accrued each period based solely on the earnings reported by the subsidiary.
On January 1, 2019, Jet reported $280,000 in bonds outstanding with a book value of $263,200.Nittle purchased half of these bonds on the open market for $135,800.
During 2019, Jet began to sell merchandise to Nittle.During that year, inventory costing $112,000 was transferred at a price of $140,000.All but $14,000 (at Jet's selling price) of these goods were resold to outside parties by year's end.Nittle still owed $50,400 for inventory shipped from Jet during December.
The following financial figures were for the two companies for the year ended December 31, 2019.
  Required:
Prepare a consolidation worksheet for the year ended December 31, 2019.

Accepted Answer

The answer of Jet Corp.acquired all of the outstanding shares...

Question 15

What is the adjusted book value of Jones after the sale of the shares?

Accepted Answer

A)  $ 200,000. 
B)  $1,400,000. 
C)  $1,280,000. 
D)  $1,050,000. 
E)  $1,440,000.

Question 16

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 the business enterprise that established it 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.

Accepted Answer

A)  2 and 4. 
B)  2, 3, and 4. 
C)  1, 2, and 4. 
D)  1, 2, and 3. 
E)  1, 2, 3, and 4.

Question 17

What was Kuried's balance in the Investment in Thomas Inc.account as of December 31, 2018?

Accepted Answer

The answer of What was Kuried's balance in the Investment...

Question 18

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 19

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, 2018, Odom issued 3,000 new shares to the public for $70 per share.How does this transaction affect the Investment in Odom Inc.account?

Accepted Answer

A)  It should be decreased by $210,000. 
B)  It should be increased by $210,000. 
C)  It should be increased by $168,000. 
D)  It should be decreased by $1,200. 
E)  It is not affected since the shares were sold to outside parties.

Question 20

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...

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