Exam 6: Intercompany Debt, Consolidated Statement of Cash Flows, and Other Issues

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

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 $85,000,000. If 90% of this company's total equity was acquired by another, what portion of the value would be assigned to the non-controlling interest?

Which of the following is not a potential loss or return of a variable interest entity?

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: The consolidation entry at date of acquisition will include (referring to Smith):

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2011: Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2011, 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 2011, 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. Prepare all consolidation entries for 2011.

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?

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011 are as follows: Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)?

On January 1, 2011, 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?

All of the following are examples of variable interests except

If a subsidiary reacquires its outstanding shares from outside ownership for more than book value, which of the following statements is true?

Thomas Inc. had the following stockholders' equity accounts as of January 1, 2011: Kuried Co. acquired all of the voting common stock of Thomas on January 1, 2011, 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 2011, 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 was Kuried's balance in the Investment in Thomas Inc. account as of December 31, 2011?

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.

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.

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

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 acquisition price. On January 1, 2010, Sanatee sold $1,400,000 in ten-year bonds to the public at 108. The bonds pay a 10% interest rate every December 31. Fargus acquired 40% of these bonds on January 1, 2012, for 95% of the face value. Both companies utilized the straight-line method of amortization. What consolidation entry would be recorded in connection with these intra-entity bonds on December 31, 2013?

On January 1, 2011, Riney Co. owned 80% 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 $552,000, and the non-controlling interest was $138,000. On January 1, 2011, 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 Non-controlling Interest in Garvin Co. after the sale of the 10,000 shares of common stock?

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: If Smith's net income is $100,000 in the year following the acquisition,

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.

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011, 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?

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)) Non-controlling 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 in consolidated statement of cash flows?