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

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 amount of goodwill resulting from this acquisition?

Rojas Co.owned 7,000 shares (70%)of the outstanding 10%,$100 par preferred stock and 60% of the outstanding common stock of Brett Co.When Brett reported net income of $780,000,what was the noncontrolling interest in the subsidiary's income?

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: -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 ?

Which of the following statements is false concerning variable interest entities (VIEs)?

Danbers Co.owned seventy-five percent of the common stock of Renz Corp.How does the issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process?

If a subsidiary issues additional common shares at below book value to outsiders,which of the following statements is true?

If a parent acquires all of the additional common shares issued by its subsidiary at greater than book value,which of the following statements is true?

Where do dividends paid by a subsidiary to the parent company appear on a consolidated statement of cash flows?

How do intercompany sales of inventory 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. -How is the loss on sale of land reported on the consolidated statement of cash flows?

Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE)with its own financial statements?

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 payable appear on a consolidated statement of cash flows?

Parent Corporation acquired some of its subsidiary's bonds on the bond market,paying a price $40,000 higher than the bonds' carrying value.How should the difference between the purchase price and the carrying value be accounted for?

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 reacquired 8,000 of the outstanding shares of its own common stock for $34 per share.None of these shares belonged to Popper.How would this transaction have affected the additional paid-in capital of the parent company?

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. -Knight's diluted earnings per share (rounded)is calculated to be