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

A) Consolidation Entry A is recorded to allocate the excess fair value to the noncontrolling interest and record a credit to the Asset in connection with a fair valuation on the date AHI obtains control of RMC as follows: Noncontrolling interest $96,000
Asset $96,000
B) Consolidation Entry P is recorded to eliminate the long-term receivable and debt representing AHI's initial investment in RMC as follows: Loan receivable from RMC $3,000,000
Long-term debt $3,000,000
C) Consolidation Entry S is recorded to eliminate the interest payment on the loan from RMC to AHI as follows: Interest expense $180,000
Interest income $180,000
D) Consolidation Entry E is recorded to amortize the excess fair value allocation to the Asset over its remaining useful life as follows: Other operating expenses $32,000
Asset $32,000
E) Consolidation Entry P is recorded to eliminate the beginning stockholders' equity of the VIE and recognize the 100% equity ownership of the noncontrolling interest as follows: Retained earnings - RMC 1/1/18 $ 6,000
Common stock - RMC $34,000
Retained Earnings-AHI $40,000

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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.

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A) The parent's additional paid-in capital will be increased.
B) The parent's investment in subsidiary will be increased.
C) The parent's retained earnings will be increased.
D) The parent's additional paid-in capital will be decreased.
E) The parent's retained earnings will be decreased.

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A) $8,000 increase to net income as an operating activity.
B) $8,000 decrease to net income as an operating activity.
C) $6,400 increase to net income as an operating activity.
D) $6,400 decrease to net income as an operating activity.
E) $8,000 increase as an investing activity.

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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 less than the adjusted subsidiary value per share, the parent's investment account must be increased.
C) Since the shares were sold for less than the adjusted subsidiary value per share, the parent's investment account must be decreased.
D) Since the shares were sold for less than the adjusted subsidiary value per share, but the parent did not buy any of the shares, the parent's investment account is not affected.
E) None of these answer choices are correct.

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Additional paid in c...

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The investment account and APIC will be ...

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A) $(129,000) .
B) $ (96,000) .
C) $(300,000) .
D) $ (80,000) .
E) $(126,000) .

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A) Entitles holder to residual profits.
B) Entitles holder to benefit from increases in asset fair value.
C) Entitles holder to receive shares of common stock.
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss.
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.

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A) $8,500,000.
B) $7,000,000.
C) $6,200,000.
D) $2,400,000.
E) $6,929,400.

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A) Parent's earnings per share plus subsidiary's earnings per share.
B) Parent's net income divided by parent's number of shares outstanding.
C) Consolidated net income divided by parent's number of shares outstanding.
D) Average of parent's earnings per share and subsidiary's earnings per share.
E) Consolidated income divided by total number of shares outstanding for the parent and subsidiary.

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A) $2,064,000.
B) $2,066,000.
C) $2,176,000.
D) $2,207,000.
E) $2,317,000.

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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 more than the adjusted subsidiary value per share, the parent's investment account must be increased.
C) Since the shares were sold for more than the adjusted subsidiary value per share, the parent's investment account must be decreased.
D) Since the shares were sold for more than the adjusted subsidiary value per share, but the parent did not buy any of the shares, the parent's investment account is not affected.
E) None of these answer choices are correct.

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A) $0.
B) Decrease it by $32,900.
C) Decrease it by $45,700.
D) Decrease it by $23,100.
E) Decrease it by $50,500.

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A) 75%.
B) 90%.
C) 80%.
D) 64%.
E) 60%.

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