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

Jet Corp. acquired all of the outstanding shares of Nittle Inc. on January 1, 2009, for $644,000 in cash. Of this price, $42,000 was attributed to equipment with a ten-year remaining useful life. Goodwill of $56,000 had also been identified. Jet applied the partial equity method so that income would be accrued each period based solely on the earnings reported by the subsidiary. On January 1, 2012, Jet reported $280,000 in bonds outstanding with a book value of $263,200. Nittle purchased half of these bonds on the open market for $135,800. During 2012, Jet began to sell merchandise to Nittle. During that year, inventory costing $112,000 was transferred at a price of $140,000. All but $14,000 (at Jet's selling price) of these goods were resold to outside parties by year's end. Nittle still owed $50,400 for inventory shipped from Jet during December. The following financial figures were for the two companies for the year ended December 31, 2012. Required: Prepare a consolidation worksheet for the year ended December 31, 2012.

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. Prepare Panton's journal entry to recognize the impact of this transaction.

A subsidiary issues new shares of common stock. If the parent acquires all of these shares at an amount greater than book value, which of the following statements is true?

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. Prepare Panton's journal entry to recognize the impact of this transaction.

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 is the controlling interest share of Thomas' net income for the year ended December 31, 2011?

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009, when Cocker had the following stockholders' equity accounts. To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2012. On January 1, 2012, 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, 2012, 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?

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

Davidson, Inc. owns 70 percent of the outstanding voting stock of Ernest Company. On January 2, 2009, Davidson sold 8 percent bonds payable with a $5,000,000 face value maturing January 2, 2029 at a premium of $400,000. On January 1, 2011, Ernest acquired 30 percent of these same bonds on the open market at 97.6. Both companies use the straight-line method of amortization. What adjustment should be made to Davidson's 2012 beginning Retained Earnings as a result of this bond acquisition?

If a subsidiary issues a stock dividend, which of the following statements is true?

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

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 is the amount of goodwill resulting from this acquisition?

How do intra-entity sales of inventory affect the preparation of a consolidated statement of cash flows?

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 $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true?

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

Anderson, Inc. has owned 70% of its subsidiary, Arthur Corp., for several years. The consolidated balance sheets of Anderson, Inc. and Arthur Corp. are presented below: Additional information for 2011: Net cash flow from financing activities was:

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009, when Cocker had the following stockholders' equity accounts. To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2012. On January 1, 2012, 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, 2012, Cocker issued 10,000 additional shares of common stock for $35 per share. Popper acquired 8,000 of these shares. How would this transaction affect the additional paid-in capital of the parent company?

On January 1, 2011, 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 is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements?

Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows?

Campbell Inc. owned all of Gordon Corp. For 2011, Campbell reported net income (without consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000. The subsidiary had bonds payable outstanding on January 1, 2011, with a book value of $297,000. The parent acquired the bonds on that date for $281,000. During 2011, Campbell reported interest income of $31,000 while Gordon reported interest expense of $29,000. What is consolidated net income for 2011?