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

Parent Corporation recently acquired some of its subsidiary's outstanding bonds,at an amount which required the recognition of a loss.In what ways could the loss be allocated? Which allocation would you recommend? Why?

Parent Corporation loaned money to its subsidiary on a five-year note at the market interest rate.How would the note be accounted for in the consolidation process?

REFERENCE: Ref.06_09 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 reacquired 8,000 shares of its common stock from outsiders at $10 per share. -What should the adjusted book value of Chase be after the treasury shares were purchased?

REFERENCE: Ref.06_10 Anderson,Inc.has owned 70% of its subsidiary,Arthur Corp. ,for several years.The balance sheets of Anderson,Inc.and Arthur Corp. ,are presented below: Additional information for 2009: -Net cash flow from financing activities was:

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: -Determine the amount and account to be recorded for Nichols' investment in Smith.

REFERENCE: Ref.06_14 Thomas Inc.had the following stockholders' equity accounts as of January 1,2009: Kuried Co.acquired all of the voting common stock of Thomas on January 1,2009,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 2009,Thomas reported earning $630,000 in net income and paid $504,000 in total cash dividends.Kuried decided used the equity method to account for this investment. -What was the noncontrolling interest's share of consolidated net income for this period?

On January 1,2009,Bast Co.had a net book value of $2,100,000 as follows: Fisher Co.acquired all of the outstanding preferred shares for $148,000 and 60% of the common stock for $1,281,000.Fisher believed that one of Bast's buildings,with a twelve-year life,was undervalued on the company's financial records by $70,000. Required: What is the amount of goodwill to be recognized from this purchase?

REFERENCE: Ref.06_12 On January 1,2009,Harrison Corporation spent $2,600,000 to acquire control over Involved,Inc.This price was based on paying $750,000 for 30 percent of Involved's preferred stock,and $1,850,000 for 80 percent 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?

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 $21 per share.Popper did not acquire any of this newly issued stock.How would this transaction affect the additional paid-in capital of the parent company?

REFERENCE: Ref.06_05 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 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 was expensed by $6,000. (6. )Consolidated accounts receivable decreased by $8,000. (7. )Consolidated accounts payable decreased by $7,000. -Where does the noncontrolling interest in Stage's net income appear on a consolidated statement of cash flows?

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

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

On January 1,2009,Parent Corporation acquired a controlling interest in the voting common stock of Foxboro Co.At the same time,Parent purchased sixty percent of Foxboro's outstanding preferred stock.In preparing consolidated financial statements,how should the acquisition of the preferred stock be accounted for?

REFERENCE: Ref.06_06 Webb Company owns 90% of Jones Company.The original balances presented for Jones and Webb as of January 1,2009,are as follows: Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. -What is the adjusted book value of Jones after the sale of the shares?

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. -What is the adjusted book value of Chase Company after the issuance of the shares?

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 31,2009?

Stevens Company has had bonds payable of $10,000 outstanding for several years.On January 1,2009,when there was an unamortized discount of $2,000 and a remaining life of 5 years.Its 80% owned subsidiary,Matthews Company,purchased the bonds in the open market for $11,000.The bonds pay 6% interest annually on December 31.The companies use the straight-line method to amortize interest revenue and expense.Compute the consolidated gain or loss on a consolidated income statement for 2009.

Davidson,Inc.owns 70 percent of the outstanding voting stock of Ernest Company.On January 2,2007,Davidson sold 8 percent bonds payable with a $5,000,000 face value maturing January 2,2027 at a premium of $400,000.On January 1,2009,Ernest acquired 30 percent of these same bonds at 97.6.Both companies use the straight-line method of amortization.What adjustment should be made to Davidson's 2010 beginning Retained Earnings as a result of this bond acquisition?

How does the existence of a noncontrolling interest affect the preparation of a consolidated statement of cash flows?

REFERENCE: Ref.06_05 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 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 was expensed by $6,000. (6. )Consolidated accounts receivable decreased by $8,000. (7. )Consolidated accounts payable decreased by $7,000. -Using the indirect method,where does the decrease in accounts receivable appear on a consolidated statement of cash flows?