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

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 new percent ownership of Webb in Jones after the stock issuance?

All of the following are potential losses or returns of a special purpose entity except

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?

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: -Compute the goodwill recognized in consolidation.

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 operating activities was:

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. -What was the amount of Knight's earnings that should be included in calculating consolidated diluted earnings per share?

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 adjustment is needed for Webb's investment in Jones account?

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: -Johnson,Inc.owns control over Kaspar,Inc.Johnson reports sales of $400,000 during 2009 while Kaspar reports $250,000.Kaspar transferred inventory during 2009 to Johnson at a price of $50,000.On December 31,2009,30 percent of the transferred goods are still in Johnson's inventory.Consolidated accounts receivable on January 1,2009 was $120,000,and on December 31,2009 is $130,000.Johnson uses the direct approach in preparing the statement of cash flows.How much is cash collected from customers on the consolidated statement of cash flows?

Parent Corporation acquired some of its subsidiary's bonds on the bond market.The remaining life of the bonds was eight years,and Parent expected to hold the bonds for the full eight years.How should the acquisition of the bonds have been viewed in the consolidation process?

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 is the controlling interest share of Thomas' net income for the year ended December 31,2009?

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 Investment in Garvin Co.after the sale of the 10,000 shares of common stock? (Do not round calculation of new interest. )

A special purpose entity can take all of the following forms except a

In reporting consolidated earnings per share when there is a wholly owned subsidiary,which of the following statements is true?

On January 1,2009,Riley Corp.acquired some of the outstanding bonds of one of its subsidiaries.The bonds had a carrying value of $421,620,and Riley paid $401,937 for them.How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2009?

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 Kuried's balance in the Investment in Thomas Inc.account as of December 31,2009?

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 31,2008?

Keenan Company has had bonds payable of $20,000 outstanding for several years.On January 1,2009,when there was an unamortized premium of $2,000 with a remaining life of 10 years,Keenan's parent,Ross,Inc. ,purchased the bonds in the open market for $19,000.Keenan is a 90% owned subsidiary of Ross.The bonds pay 8% 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.

How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants?

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 $33 per share.The parent still holds control over the subsidiary.Which of the following statements is true?

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?