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Exam 6: Variable Interest Entities, intercompany Debt, consolidated Statement of Cash Flows, and Other Issues

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Question 31

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REFERENCE: Ref.06_08 Ryan Company owns 80% of Chase Company.The original balances presented for Ryan and Chase as of January 1,2009,are as follows: 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?

A) $70,000 increase.
B) $70,000 decrease.
C) $15,000 increase.
D) $15,000 decrease.
E) No adjustment is necessary.

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Question 32

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Jet Corp.acquired all of the outstanding shares of Nittle Inc.on January 1,2007,for $644,000 in cash.Of this price,$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 1,2010,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 2010,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 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 31,2010. Required: Prepare a consolidation worksheet for the year ended December 31,2010.

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CONSOLIDATION WORKSH...

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Question 33

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

Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer?

Carlson,Inc.owns 80 percent of Madrid,Inc.Carlson reports net income for 2009 (without consideration of its investment in Madrid,Inc. ) of $1,500,000.For the same year,Madrid reports net income of $705,000.Carlson had bonds payable outstanding on January 1,2009 with a carrying value of $1,200,000.Madrid acquired the bonds on January 3,2009 for $1,090,000.During 2009,Carlson reported interest expense on the bonds in the amount of $96,000,while Madrid reported interest income of $94,000 for the same bonds.What is Carlson's share of consolidated net income?

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?

REFERENCE: Ref.06_02 Stoop Co.owned 80% of the common stock of Knight Co.Knight 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.Stoop did not own any of Knight's preferred stock.Knight also had 600 bonds outstanding,each of which is convertible into ten shares of common stock.Knight's annual after-tax interest expense for the bonds was $22,000.Stoop did not own any of Knight's bonds.Knight reported income of $300,000 for 2009. -Vontkins Inc.owned all of Quasimota Co.The subsidiary had bonds payable outstanding on January 1,2009,with a book value of $265,000.The parent acquired the bonds on that date for $288,000.Subsequently,Vontkins reported interest income of $25,000 in 2009 while Quasimota reported interest expense of $29,000.Consolidated financial statements were prepared for 2010.What adjustment would have been required for the retained earnings balance as of January 1,2010?

Prepare all consolidation entries for 2009.

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?

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

Safire Corp.recently acquired $500,000 of the bonds of Regency Co. ,one of its subsidiaries,paying more than the carrying value of the bonds.According to the most practical view of this intercompany transaction,to whom would the loss be attributed?

REFERENCE: Ref.06_04 On January 1,2009,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.Any excess acquisition-date fair value over book value is considered goodwill.The capital structure of Smith immediately prior to the acquisition is: -The consolidation entry at date of acquisition will include (referring to Smith) :

What documents or other sources of information would be used to prepare a consolidated statement of cash flows?

REFERENCE: Ref.06_03 These questions are based on the following information and should be viewed as independent situations. Popper Co.purchased 80% of the common stock of Cocker Co.on January 1,2004,when Cocker had the following stockholders' equity accounts. To acquire this interest in Cocker,Popper paid a total of $682,000 with any excess cost being allocated to goodwill,which has been measured for impairment annually and has not been determined to be impaired as of January 1,2009. On January 1,2009,Cocker reported a net book value of $1,113,000 before the following transactions were conducted.Popper uses the equity method to account for its investment in Cocker,thereby reflecting the change in book value of Cocker. -On January 1,2009,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?

REFERENCE: Ref.06_13 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 purchase price. On January 1,2006,Sanatee sold $1,400,000 in ten-year bonds to the public at 108.The bonds pay a cash interest rate of 10% payable every December 31.Fargus acquired 40% of these bonds on January 1,2008,for 95% of the face value.Both companies utilized the straight-line method of amortization. -What consolidation entry would have been recorded in connection with these intercompany bonds on December 31,2010?

REFERENCE: Ref.06_13 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 purchase price. On January 1,2006,Sanatee sold $1,400,000 in ten-year bonds to the public at 108.The bonds pay a cash interest rate of 10% payable every December 31.Fargus acquired 40% of these bonds on January 1,2008,for 95% of the face value.Both companies utilized the straight-line method of amortization. -What balances would need to be considered in order to prepare the consolidation entry in connection with these intercompany bonds at December 31,2008,the end of the first year of the intercompany investment? Prepare schedules to show numerical answers for balances that would be needed for the entry.

REFERENCE: Ref.06_01 On January 1,2009,Riney Co.owned 85% of the common stock of Garvin Co.On that date,Garvin's stockholders' equity accounts had the following balances: The balance in Riney's Investment in Garvin Co.account was $569,500,and the noncontrolling interest was $100,500.On January 1,2009,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? (Do not round calculation of new interest. )

During 2009,Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary.How would this acquisition have been reflected in the consolidated statement of cash flows?

REFERENCE: Ref.06_04 On January 1,2009,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.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,

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?