Deck 6: Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Question 1

Which one of the following characteristics of preferred stock would make the stock a dilutive security for purposes of calculating earnings per share?

A) The preferred stock is callable.
B) The preferred stock is convertible.
C) The preferred stock is cumulative.
D) The preferred stock is noncumulative.
E) The preferred stock is participating.

Answer 1

B

Question 2

What amount should be attributed to the Noncontrolling Interest in Garvin Co.following the sale of the 10,000 shares of common stock?

A) $288,000.
B) $101,000.
C) $280,000.
D) $230,000.
E) $168,000.

Answer 2

C

Question 3

What would Knight Co.report as consolidated basic earnings per share (rounded)?

A) $6.37
B) $6.40
C) $7.00
D) $5.68
E) $6.00

Answer 3

A

Question 4

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

A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.

Question 5

Vontkins Inc.owned all of Quasimota Co.The subsidiary had bonds payable outstanding on January 1, 2017, with a book value of $265,000.The parent acquired the bonds on that date for $288,000.Subsequently, Vontkins reported interest income of $25,000 in 2017 while Quasimota reported interest expense of $29,000.Consolidated financial statements were prepared for 2018.What adjustment would be required for the retained earnings balance as of January 1, 2018?

A) Reduction of $27,000.
B) Reduction of $4,000.
C) Reduction of $19,000.
D) Reduction of $30,000.
E) Reduction of $20,000.

Question 6

On January 1, 2018, 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 2018?

A) The difference is added to the carrying value of the debt.
B) The difference is deducted from the carrying value of the debt.
C) The difference is treated as a loss from the extinguishment of the debt.
D) The difference is treated as a gain from the extinguishment of the debt.
E) The difference does not influence the consolidated financial statements.

Question 7

What is the balance in Riney's "Investment in Garvin Co.Account" following the sale of the 10,000 shares of common stock?

A) $552,000.
B) $560,000.
C) $460,000.
D) $404,000.
E) $672,000.

Question 8

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

A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.

Question 9

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

A) They must be added in calculating cash flows from investing activities.
B) They must be deducted in calculating cash flows from investing activities.
C) They must be added in calculating cash flows from operating activities.
D) Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required.
E) They must be deducted in calculating cash flows from operating activities.

Question 10

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

A) Parent's earnings per share plus subsidiary's earnings per share.
B) Parent's net income divided by parent's number of shares outstanding.
C) Consolidated net income divided by parent's number of shares outstanding.
D) Average of parent's earnings per share and subsidiary's earnings per share.
E) Consolidated income divided by total number of shares outstanding for the parent and subsidiary.

Question 11

On January 1, 2019, 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?

A) Increase it by $28,700.
B) Increase it by $16,800.
C) $0.
D) Increase it by $280,000.
E) Increase it by $593,600.

Question 12

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.Assuming ninety percent (90%) of the company's total equity is acquired, what amount must be attributed to the noncontrolling interest?

A) $8,500,000.
B) $7,000,000.
C) $6,200,000.
D) $2,400,000.
E) $6,929,400.

Question 13

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, 2018, Odom issued 3,000 new shares to the public for $70 per share.How does this transaction affect the Investment in Odom Inc.account?

A) It should be decreased by $210,000.
B) It should be increased by $210,000.
C) It should be increased by $168,000.
D) It should be decreased by $1,200.
E) It is not affected since the shares were sold to outside parties.

Question 14

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.Assuming there are no excess amortizations or intra-entity transactions, and Brett reports net income of $780,000, what is the noncontrolling interest in the subsidiary's income?

A) $234,000.
B) $273,000.
C) $302,000.
D) $312,000.
E) $284,000.

Question 15

Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows?

A) They do not appear in the consolidated statement of cash flows.
B) Supplemental schedule of noncash investing and financing activities.
C) Cash flows from operating activities.
D) Cash flows from investing activities.
E) Cash flows from financing activities.

Question 16

Campbell Inc.owned all of Gordon Corp.For 2018, Campbell reported net income (without consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000.There are no excess amortizations associated with this consolidation.The subsidiary had bonds payable outstanding on January 1, 2018, with a book value of $297,000.The parent acquired the bonds on that date for $281,000.During 2018, Campbell reported interest income of $31,000 while Gordon reported interest expense of $29,000.What is consolidated net income for 2018?

A) $406,000.
B) $374,000.
C) $378,000.
D) $410,000.
E) $394,000.

Question 17

What would Knight Co.report as consolidated diluted earnings per share (rounded)?

A) $4.00.
B) $. 4.71
C) $8.71.
D) $5.89.
E) $6.37.

Question 18

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 acquired by transferring consideration equal to the book value of the underlying net assets.Tray used the initial value method to account for these shares. On January 1, 2018, Sparrish acquired in the open market $70,000 of Tray's 8% bonds.The bonds had originally been issued several years ago at a price that would yield a 10% effective interest rate.On the date of the bond 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?

A) $42,000.
B) $37,800.
C) $39,600.
D) $40,070.
E) $44,080.

Question 19

Regency Corp.recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying value of the bonds.According to the most practical view of this intra-entity transaction, to whom should the loss be attributed?

A) To Safire because the bonds were issued by Safire.
B) The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt.
C) The loss should be amortized over the life of the bonds and need not be attributed to either party.
D) The loss should be deferred until it can be determined to whom the attribution can be made.
E) To Regency because Regency is the controlling party in the business combination.

Question 20

Cadion Co.owned a controlling interest in Knieval Inc.Cadion reported sales of $420,000 during 2018 while Knieval reported $280,000.Inventory costing $28,000 was transferred from Knieval to Cadion (upstream) during the year for $56,000.Of this amount, twenty-five percent was still in ending inventory at year's end.Total receivables on the consolidated balance sheet were $112,000 at the first of the year and $154,000 at year-end.No intra-entity debt existed at the beginning or ending of the year.Using the direct approach, what is the consolidated amount of cash collected by the business from its customers?

A) $602,000.
B) $644,000.
C) $686,000.
D) $714,000.
E) $592,000.

Question 21

If new bonds are issued from a parent to its subsidiary, which of the following statements is false?

A) Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment.
B) There will be $0 net gain or loss on the bond transaction.
C) Interest expense needs to be eliminated on the consolidated income statement.
D) Interest revenue needs to be eliminated on the consolidated income statement.
E) A net gain or loss on the bond transaction will be reported.

Question 22

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

A) Parent's dividends would be subtracted as a financing activity.
B) Gain on sale of land would be deducted from net income.
C) Noncontrolling interest in net income of subsidiary would be added to net income.
D) Proceeds from the sale of long-term investments would be added to investing activities.
E) Loss on sale of equipment would be added to net income.

Question 23

Which of the following statements is false regarding the assignment of a gain or loss when an affiliate's debt instrument is acquired on the open market?

A) Subsidiary net income is not affected by a gain on the debt transaction.
B) Subsidiary net income is not affected by a loss on the debt transaction.
C) Parent Company net income is not affected by a gain on the debt transaction.
D) Parent Company net income is not affected by a loss on the debt transaction.
E) Consolidated net income is not affected by a gain or loss on the debt transaction.

Question 24

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?

A) The investment in subsidiary will decrease.
B) Additional paid-in capital will decrease.
C) Retained earnings will increase.
D) The investment in subsidiary will increase.
E) No adjustment will be necessary.

Question 25

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

A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in capital $200,000, and debit Retained earnings $500,000.

Question 26

If a subsidiary re-acquires its outstanding shares from outside ownership for more than the noncontrolling interest valuation basis at the date of buying such treasury stock, which of the following statements is true?

A) Additional paid-in capital on the parent company's books will decrease.
B) Investment in subsidiary will increase.
C) Treasury stock on the parent's books will increase.
D) Treasury stock on the parent's books will decrease.
E) No adjustment is necessary.

Question 27

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

A) The portion allocated to the common stock (residual amount) is $92,800.
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at noncontrolling interest in consolidated income.
C) The noncontrolling interest in consolidated net income is $27,200.
D) The preferred stock dividend will be ignored in noncontrolling interest in consolidated net income because Nichols owns the noncontrolling interest of preferred stock.
E) The noncontrolling interest in consolidated net income is $30,800.

Question 28

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

A) Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances.
B) Subsequent interest revenue/expense must be removed although these balances fail to agree in amount.
C) A gain or loss must be recognized by both parent and subsidiary companies.
D) Changes in the investment, debt, interest revenue, and interest expense accounts occur constantly because of the amortization process.
E) The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired, even though this balance does not appear on the financial records of either company.

Question 29

Keenan Company has had bonds payable of $20,000 outstanding for several years.On January 1, 2018, 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 2018.

A) $3,000 gain.
B) $3,000 loss.
C) $1,000 gain.
D) $1,000 loss.
E) $2,000 gain.

Question 30

On January 1, 2019, 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?

A) $0.
B) Decrease it by $23,240.
C) Decrease it by $68,250.
D) Decrease it by $45,060.
E) Decrease it by $64,720.

Question 31

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

A) Parent company earnings per share equals consolidated earnings per share when the equity method is used.
B) Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used.
C) Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value.
D) Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value.
E) Preferred dividends are not deducted from net income for consolidated earnings per share.

Question 32

Compute the goodwill recognized in consolidation.

A) $ 800,000.
B) $ 310,000.
C) $ 124,000.
D) $ 0.
E) $(196,000.)

Question 33

With respect to Nichols' investment in Smith, determine the amount to be recorded and identify which account should be adjusted to reflect such amount.

A) $1,324,000 for Investment in Smith.
B) $1,200,000 for Investment in Smith.
C) $1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
D) $1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.
E) $1,448,000 for Investment in Smith's Common Stock.

Question 34

A subsidiary issues new shares of common stock at an amount below book value.Outsiders buy all of these shares.Which of the following statements is true?

A) The parent's additional paid-in capital will be increased.
B) The parent's investment in subsidiary will be increased.
C) The parent's retained earnings will be increased.
D) The parent's additional paid-in capital will be decreased.
E) The parent's retained earnings will be decreased.

Question 35

Which of the following statements is true for a consolidated statement of cash flows?

A) Parent's dividends and subsidiary's dividends are deducted as a financing activity.
B) Only parent's dividends are deducted as a financing activity.
C) Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity.
D) All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as a financing activity.
E) Neither parent's nor subsidiary's dividends are deducted as a financing activity.

Question 36

On January 1, 2019, 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?

A) $0.
B) Decrease it by $32,900.
C) Decrease it by $45,700.
D) Decrease it by $23,100.
E) Decrease it by $50,500.

Question 37

Compute the noncontrolling interest in Smith at date of acquisition.

A) $486,000.
B) $480,000.
C) $300,000.
D) $150,000.
E) $120,000.

Question 38

Stevens Company has had bonds payable of $10,000 outstanding for several years.On January 1, 2018, when there was an unamortized discount of $2,000 and a remaining life of 5 years, its 80% owned subsidiary, Matthews Company, purchased the bonds in the open market for $11,000.The bonds pay 6% 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 2018.

A) $1,000 gain.
B) $1,000 loss.
C) $2,000 loss.
D) $3,000 loss.
E) $3,000 gain.

Question 39

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

A) Recognition of any gain or loss is deferred until the debt is extinguished for purposes of reporting such debt on consolidated financial statements.
B) Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
C) Interest revenue generated from the debt of an affiliate is recognized on a consolidated income statement.
D) Interest expense recognized from carrying debt instruments is recognized on a consolidated income statement.
E) Consolidated retained earnings is adjusted to take into account the difference between the purchase price and carrying value of the debt.

Question 40

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

A) Investment in subsidiary on the parent's books will increase.
B) Investment in subsidiary on the parent's books will decrease.
C) Additional paid-in capital on the parent's books will increase.
D) Additional paid-in capital on the parent's books will decrease.
E) No adjustment is necessary.

Question 41

What is the adjusted book value of Jones after the sale of the shares?

A) $ 200,000.
B) $1,400,000.
C) $1,280,000.
D) $1,050,000.
E) $1,440,000.

Question 42

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

A) Entitles holder to residual profits.
B) Entitles holder to benefit from increases in asset fair value.
C) Entitles holder to receive shares of common stock.
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss.
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.

Question 43

Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?

A) $7,000 increase to net income as an operating activity.
B) $7,000 decrease to net income as an operating activity.
C) $5,600 increase to net income as an operating activity.
D) $5,600 decrease to net income as an operating activity.
E) $7,000 increase as a financing activity.

Question 44

How will dividends be reported in consolidated statement of cash flows?

A) $15,000 decrease as a financing activity.
B) $25,000 decrease as a financing activity.
C) $10,000 decrease as a financing activity.
D) $23,000 decrease as a financing activity.
E) $17,000 decrease as a financing activity.

Question 45

How is the loss on sale of land reported on the consolidated statement of cash flows?

A) $20,000 added to net income as an operating activity.
B) $20,000 deducted from net income as an operating activity.
C) $15,000 deducted from net income as an operating activity.
D) $5,000 added to net income as an operating activity.
E) $5,000 deducted from net income as an operating activity.

Question 46

What is the new percent ownership Ryan owns in Chase?

A) 80.0%.
B) 87.5%.
C) 90.0%.
D) 75.0%.
E) 82.5%.

Question 47

How is the amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used?

A) It is ignored.
B) $6,000 subtracted from net income.
C) $4,800 subtracted from net income.
D) $6,000 added to net income.
E) $4,800 added to net income.

Question 48

Using the indirect method, where does the decrease in accounts receivable appear in a consolidated statement of cash flows?

A) $8,000 increase to net income as an operating activity.
B) $8,000 decrease to net income as an operating activity.
C) $6,400 increase to net income as an operating activity.
D) $6,400 decrease to net income as an operating activity.
E) $8,000 increase as an investing activity.

Question 49

A variable interest entity can take all of the following forms except a(n):

A) Trust.
B) Partnership.
C) Joint venture.
D) Corporation.
E) Estate.

Question 50

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

A) $16,000 decrease.
B) $60,000 decrease.
C) $46,000 increase.
D) $46,000 decrease.
E) No adjustment is necessary.

Question 51

What is the adjusted book value of Jones after the stock issuance?

A) $1,500,000.
B) $1,200,000.
C) $1,350,000.
D) $1,080,000.
E) $1,335,000.

Question 52

After acquiring the additional shares, what adjustment is needed for Webb's investment in Jones account?

A) $270,000 increase.
B) $270,000 decrease.
C) $ 30,000 increase.
D) $ 30,000 decrease.
E) No adjustment is necessary.

Question 53

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

A) $180,000 increase.
B) $180,000 decrease.
C) $ 45,000 decrease.
D) $ 45,000 increase.
E) No adjustment is necessary.

Question 54

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

A) 75%.
B) 90%.
C) 80%.
D) 64%.
E) 60%.

Question 55

What is the adjusted book value of Chase Company after the issuance of the shares?

A) $608,000.
B) $720,000.
C) $680,000.
D) $760,000.
E) $400,000.

Question 56

All of the following are examples of variable interests except:

A) Guarantees of debt.
B) Stock options.
C) Lease residual value guarantees.
D) Participation rights.
E) Asset purchase options.

Question 57

Where does the noncontrolling interest in Stage's net income appear on a consolidated statement of cash flows?

A) $30,000 added to net income as an operating activity on the consolidated statement of cash flows.
B) $30,000 deducted from net income as an operating activity on the consolidated statement of cash flows.
C) $30,000 increase as an investing activity on the consolidated statement of cash flows.
D) $30,000 decrease as an investing activity on the consolidated statement of cash flows.
E) Noncontrolling interest in Stage's net income does not appear on a consolidated statement of cash flows.

Question 58

What should the adjusted book value of Chase be after the treasury shares were purchased?

A) $400,000.
B) $480,000.
C) $320,000.
D) $336,000.
E) $464,000.

Question 59

What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)?

A) 80%.
B) 95%.
C) 64%.
D) 76%.
E) 69%.

Question 60

After acquiring the additional shares, what adjustment is needed for Ryan's investment in Chase account?

A) $70,000 increase.
B) $70,000 decrease.
C) $12,188 decrease.
D) $12,188 increase.
E) No adjustment is necessary.

Question 61

Net cash flow from operating activities was:

A) $92,000.
B) $27,000.
C) $63,000.
D) $29,000.
E) $34,000.

Question 62

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

A) Sometimes VIEs do not have independent management.
B) Most VIEs are established for valid business purposes.
C) VIEs may be formed as a source of low-cost financing.
D) VIEs have little need for voting stock.
E) A VIE cannot take the legal form of a partnership or corporation.

Question 63

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 the business enterprise that established it 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.

A) 2 and 4.
B) 2, 3, and 4.
C) 1, 2, and 4.
D) 1, 2, and 3.
E) 1, 2, 3, and 4.

Question 64

Carlson, Inc.owns 80 percent of Madrid, Inc.Carlson reports net income for 2018 (without consideration of its investment in Madrid, Inc.) of $1,500,000.For the same year, Madrid reports net income of $705,000.Carlson had bonds payable outstanding on January 1, 2018 with a carrying value of $1,200,000.Madrid acquired the bonds on the open market on January 3, 2018 for $1,090,000.For the year 2018, Carlson reported interest expense on the bonds in the amount of $96,000, while Madrid reported interest income of $94,000 for the same bonds.Assuming there are no excess amortizations or other intra-entity transactions, what is Carlson's share of consolidated net income?

A) $2,064,000.
B) $2,066,000.
C) $2,176,000.
D) $2,207,000.
E) $2,317,000.

Question 65

Net cash flow from financing activities was:

A) $(129,000).
B) $ (96,000).
C) $(300,000).
D) $ (80,000).
E) $(126,000).

Question 66

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?

A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock.
B) There is no allocation to the noncontrolling interest because the parent owns 100% of the common stock and net income belongs to the controlling interest.
C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends.
D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income before preferred stock dividends.
E) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.

Question 67

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity?

A) The power to direct the most significant economic performance activities.
B) The power through voting or similar rights to direct activities, which significantly impact economic performance.
C) The obligation to absorb potentially significant losses of the entity.
D) No ability to make decisions about the entity's activities.
E) The right to receive potentially significant benefits of the entity.

Question 68

Net cash flow from financing activities was:

A) $(28,000).
B) $(35,000).
C) $(13,000).
D) $(63,000).
E) $(61,000).

Question 69

What is the total acquisition-date fair value of Involved?

A) $2,600,000
B) $4,812,500
C) $3,062,500
D) $2,312,500
E) $3,250,000

Question 70

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

A) Increase in the financing section of $70,000, and decrease in the operating section of $30,000.
B) Increase in the operating section of $70,000, and decrease in the financing section of $30,000.
C) Increase in the operating section of $70,000.
D) Decrease in the financing section of $30,000.
E) No effects.

Question 71

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

A) Include 80 percent as a decrease in the investing section.
B) Include 100 percent as a decrease in the investing section.
C) Include 80 percent as a decrease in the operating section.
D) Include 100 percent as an increase in the operating section.
E) Not reported in the consolidated statement of cash flows.

Question 72

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

A) They will be included in both basic and diluted earnings per share if they are dilutive.
B) They will only be included in diluted earnings per share if they are dilutive.
C) They will only be included in basic earnings per share if they are dilutive.
D) Only the warrants owned by the parent company affect consolidated earnings per share.
E) Because the warrants are for subsidiary shares, there will be no effect on consolidated earnings per share.

Question 73

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?

A) Included as a decrease in the investing section.
B) Included as an increase in the operating section.
C) Included as a decrease in the operating section.
D) Included as an increase in the investing section.
E) Not reported in the consolidated statement of cash flows.

Question 74

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

Question 75

Net cash flow from operating activities was:

A) $43,000.
B) $44,800.
C) $46,200.
D) $50,000.
E) $25,000.

Question 76

A parent company owns a controlling interest in a subsidiary whose stock has a valuation basis of $27 per share.On 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?

A) Since the sale was made at the end of the year, the parent's investment account is not affected.
B) Since the shares were sold for less than the adjusted subsidiary value per share, the parent's investment account must be increased.
C) Since the shares were sold for less than the adjusted subsidiary value per share, the parent's investment account must be decreased.
D) Since the shares were sold for less than the adjusted subsidiary value per share, but the parent did not buy any of the shares, the parent's investment account is not affected.
E) None of these answer choices are correct.

Question 77

A parent company owns a controlling interest in a subsidiary and on 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.The adjusted subsidiary value at the date of the new stock issuance was $27 per share.Which of the following statements is true?

A) Since the sale was made at the end of the year, the parent's investment account is not affected.
B) Since the shares were sold for more than the adjusted subsidiary value per share, the parent's investment account must be increased.
C) Since the shares were sold for more than the adjusted subsidiary value per share, the parent's investment account must be decreased.
D) Since the shares were sold for more than the adjusted subsidiary value per share, but the parent did not buy any of the shares, the parent's investment account is not affected.
E) None of these answer choices are correct.

Question 78

A parent company owns a 70 percent interest in a subsidiary whose stock has a valuation basis of $27 per share.On the last day of the year, the subsidiary issues new shares for $27 per share, and the parent buys its 70 percent interest in the new shares.Which of the following statements is true?

A) Since the sale was made at the end of the year, the parent's investment account is not affected.
B) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, the parent's investment account must be increased.
C) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, the parent's investment account must be decreased.
D) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the total acquisition amount for the new shares.
E) None of these answer choices are correct.

Question 79

Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements?

A) The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE.
B) The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership.
C) The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE.
D) The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance.
E) The business enterprise establishing a VIE is a primary beneficiary for the VIE.

Question 80

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?

A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock and their relative par values.
B) There is no allocation to the noncontrolling interest because there are no dividends in arrears.
C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends.
D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends.
E) The noncontrolling interest in consolidated net income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends.