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

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

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?

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?

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

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?

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

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,

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?

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?

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?

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?

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

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?

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?

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?

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?

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?

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

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?

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?