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

Stahl Corporation owns 80 percent of the outstanding stock of MacDonald,Inc.During the current year,MacDonald made $125,000 in sales to Stahl.How does this transfer affect the 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. -How will dividends be reported on consolidated statement of cash flows?

Parker owned all of Odom Inc.Although the Investment in Odom Inc.account had a balance of $834,000,the subsidiary's 12,000 shares had an underlying book value of only $56 per share.On January 1,2010,Odom issued 3,000 new shares to the public for $70 per share.How does this transaction affect the Investment in Odom Inc.account?

Goehring,Inc.owns 70 percent of Harry,Inc.The consolidated income statement for a year reports $40,000 Noncontrolling Interest in Harry,Inc.Income.Harry paid dividends in the amount of $100,000 for the year.What are the effects of these transactions on the consolidated statement of cash flows for the year?

REFERENCE: Ref.06_11 The balance sheets of Butler,Inc.and its 70 percent-owned subsidiary,Cassie Corp. ,are presented below: Additional information for 2009: -Net cash flow from financing activities was:

If newly issued debt is issued from a parent to its subsidiary,which of the following statements is false?

How do subsidiary stock warrants outstanding affect consolidated earnings per share?

Which of the following statements is true concerning variable interest entities (VIEs)? 1)The role of the VIE equity investors can be fairly minor. 2)A VIE may be created specifically to benefit its sponsoring firm with low-cost financing. 3)VIE governing agreements often limit activities and decision making. 4)VIEs usually have a well-defined and limited business activity.

Pursley,Inc.owns 70 percent of Harry,Inc.The consolidated income statement for a year reports $50,000 Noncontrolling Interest in Harry,Inc.Income.Harry paid dividends in the amount of $80,000 for the year.What are the effects of these transactions on the consolidated statement of cash flows for the year?

Wolff Corporation owns 70 percent of the outstanding stock of Donald,Inc.During the current year,Donald made $75,000 in sales to Wolff.How does this transfer affect the consolidated statement of cash flows?

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. -When Ryan's new percent ownership is rounded to a whole number,what adjustment is needed for Ryan's investment in Chase account?

REFERENCE: Ref.06_07 Webb Company owns 90% of Jones Company.The original balances presented for Jones and Webb as of January 1,2009 are as follows: Assume Jones issues 20,000 new shares of its common stock for $15 per share.Of this total,Webb acquires 18,000 shares to maintain its 90% interest in Jones. -After acquiring the additional shares,what adjustment is needed for Webb's investment in Jones account?

REFERENCE: Ref.06_16 Panton,Inc.acquired 18,000 shares of Glotfelty Corp.several years ago.At the present time,Glotfelty is reporting the following stockholders' equity: Glotfelty issues 5,000 shares of previously unissued stock to the public for $27 per share.None of this stock is purchased by Panton. -Describe how this transaction would affect Panton's books.

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. -Tray Co.reported current earnings of $560,000 while paying $56,000 in cash dividends.Sparrish Co.earned $140,000 in net income and distributed $14,000 in dividends.Tray held a 70% interest in Sparrish for several years,an investment that it originally purchased at a price equal to the book value of the underlying net assets.Tray used the initial value method to account for these shares. On January 1,2009,Sparrish acquired in the open market $70,000 of Tray's 8% bonds.The bonds had originally been issued several years ago at 92,reflecting a 10% effective interest rate.On the date of purchase,the book value of the bonds payable was $67,600.Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds. What is the noncontrolling interest's share of the subsidiary's net income?

The accounting problems encountered in consolidated intercompany debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

Skipen Corp.had the following stockholders' equity accounts: SHAPE \* MERGEFORMAT 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 book values except for land which is undervalued by $130,000. Required: What amount was attributed to goodwill on the date of acquisition?

Where do intercompany sales of inventory appear on a consolidated statement of cash flows?

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?

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. -A company had common stock with a total par value of $18,000,000 and fair value of $62,000,000;and 7% preferred stock with a total par value of $6,000,000 and a fair value of $8,000,000.The book value of the company was $185,000,000.If 90% of this company's equity was acquired by another,what portion of the value would be assigned to the noncontrolling interest?

REFERENCE: Ref.06_15 Panton,Inc.acquired 18,000 shares of Glotfelty Corp.several years ago.At the present time,Glotfelty is reporting the following stockholders' equity: Glotfelty issues 5,000 shares of previously unissued stock to the public for $40 per share.None of this stock is purchased by Panton. -Describe how this transaction would affect Panton's books.