Question 1

On January 1, 2013, 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?

Accepted Answer

The answer of On January 1, 2013, Parent Corporation acquired...

Question 2

How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?

Accepted Answer

The answer of How does the existence of a non-controlling...

Question 3

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, 2012, 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, 2014, 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, 2014?

Accepted Answer

The answer of Fargus Corporation owned 51% of the voting...

Question 4

On January 1, 2013, Bast Co. had a net book value of $2,100,000 as follows:
  Fisher Co. acquired all of the outstanding preferred shares for $148,000 and 60% of the common stock for $1,281,000. Fisher believed that one of Bast's buildings, with a twelve-year life, was undervalued on the company's financial records by $70,000.
Required:
What is the amount of goodwill to be recognized from this purchase?

Accepted Answer

The answer of On January 1, 2013, Bast Co. had...

Question 5

Johnson, Inc. owns control over Kaspar Inc, Johnson reports sales of $400,000 during 2013 while Kaspar reports $250,000. Kaspar transferred inventory during 2013 to Johnson at a price of $50,000. On December 31, 2013, 30% of the transferred goods are still in Johnson's inventory. Consolidated accounts receivable on January 1, 2013 was $120,000, and on December 31, 2013 is $130,000. Johnson uses the direct approach in preparing the statement of cash flows. How much is cash collected from customers in the consolidated statement of cash flows?
A)$590,000.
B)$610,000.
C)$625,000.
D)$635,000.
E)$650,000.

Accepted Answer

Parent $400,000 + Sub $250,000 - Intra-Entity $50,000 - A/R Change $10,000 ($120,000 - $130,000) = $590,000

Question 6

Parent Corporation acquired some of its subsidiary's bonds on the open 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?

Accepted Answer

The answer of Parent Corporation acquired some of its subsidiary's...

Question 7

Parent Corporation recently acquired some of its subsidiary's outstanding bonds, at an amount which required the recognition of a loss. In what ways could the loss be allocated?
 Which allocation would you recommend?
 Why?

Accepted Answer

The answer of Parent Corporation recently acquired some of its...

Question 8

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

Accepted Answer

The answer of How are intra-entity inventory transfers treated on...

Question 9

During 2013, Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows?

Accepted Answer

The answer of During 2013, Parent Corporation purchased at book...

Question 10

Parent Corporation had just purchased some of its subsidiary's outstanding bonds on the open market. What items related to these bonds will have to be accounted for in the consolidation process?

Accepted Answer

The answer of Parent Corporation had just purchased some of...

Question 11

What documents or other sources of information would be used to prepare a consolidated statement of cash flows?

Accepted Answer

The answer of What documents or other sources of information...

Question 12

Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent purchase the bonds, rather than the subsidiary buying its own bonds?

Accepted Answer

The answer of Parent Corporation acquired some of its subsidiary's...

Question 13

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, 2012, 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, 2014, for 95% of the face value. Both companies utilized the straight-line method of amortization.
What balances would need to be considered in order to prepare the consolidation entry in connection with these intra-entity bonds at December 31, 2014, the end of the first year of the intra-entity investment?
 Prepare schedules to show numerical answers for balances that would be needed for the entry.

Accepted Answer

The answer of Fargus Corporation owned 51% of the voting...

Question 14

On January 1, 2013, 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: $\begin{array}{|l|r|}
\hline \text { Common stock, } \$ 10 \text { par value, } 100,000 \text { shares outstanding } & \$ 1,000,000 \
\hline \text { Preferred stock, } 7 \% \text { fully participating, } \$ 100 \text { par value, } & \
\hline 10,000 \text { shares outstanding } & 1,000,000 \
\hline \text { Retained Earnings } & 2,000,000 \
\hline \text { Total stockholders' equity } & \$ 4,000,000 \
\hline
\end{array}$ 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?
A)$(100,000.)
B)$0.
C)$200,000.
D)$812,500.
E)$2,112,500.

Accepted Answer

The correct answer is D: $812,500.Explanation:The goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The fair value of the net assets acquired is the sum of the fair value of the preferred stock and the fair value of the common stock. The fair value of the preferred stock is the par value of $1,000,000. The fair value of the common stock is the book value of $2,000,000 multiplied by the percentage of ownership acquired, which is 80%. Therefore, the fair value of the common stock is $1,600,000. The total fair value of the net assets acquired is $2,600,000. The goodwill is the purchase price of $2,600,000 minus the fair value of the net assets acquired of $2,600,000, which is $812,500.

Question 15

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?

Accepted Answer

The answer of Danbers Co. owned seventy-five percent of the...

Question 16

Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company. On January 2, 2011, Georgia sold 7 percent bonds payable with a $5,000,000 face value maturing January 2, 2031 at a premium of $500,000. On January 1, 2013, Franklin acquired 20 percent of these same bonds on the open market at 97.66. Both companies use the straight-line method of amortization. What adjustment should be made to Franklin's 2014 beginning Retained Earnings as a result of this bond acquisition?
A)$107,100.
B)$113,400.
C)$119,700.
D)$144,000.
E)$152,000.

Accepted Answer

The answer of Franklin Corporation owns 90 percent of the...

Question 17

Parent Corporation acquired some of its subsidiary's bonds on the open bond market. The remaining life of the bonds was eight years, and Parent expected to hold the bonds for the full eight years. How would the acquisition of the bonds affect the consolidation process?

Accepted Answer

The answer of Parent Corporation acquired some of its subsidiary's...

Question 18

On January 1, 2013, 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: $$\begin{array} { | l | r | } 
\hline \text { Common stock, } \$ 10 \text { par value, } 100,000 \text { shares outstanding } & \$ 1,000,000 \
\hline \text { Preferred stock, } \% \% \text { fully participating, } \$ 100 \text { par value, } & \
\hline 10,000 \text { shares outstanding } & 1,000,000 \
\hline \text { Retained Earnings } & 2,000,000 \
\hline \text { Total stockholders' equity } & \$ 4,000,000 \
\hline
\end{array}$$ 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

Accepted Answer

The total acquisition-date fair value of Involved is $4,812,500. This is calculated by adding the fair value of the preferred stock ($750,000) to the fair value of the common stock ($1,850,000) and then adding the fair value of the retained earnings ($2,212,500). The fair value of the retained earnings is calculated by multiplying the book value of the retained earnings ($2,000,000) by the percentage of ownership (80%).

Question 19

Parent Corporation loaned money to its subsidiary with a five-year note at the market interest rate. How would the note be accounted for in the consolidation process?

Accepted Answer

The answer of Parent Corporation loaned money to its subsidiary...

Question 20

When a company has preferred stock in its capital structure, what amount should be used to calculate non-controlling interest in the preferred stock of the subsidiary when the company is acquired as a subsidiary of another company?

Accepted Answer

The answer of When a company has preferred stock in...

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

How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows?

Parent Corporation acquired some of its subsidiary's bonds on the open 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?

Parent Corporation recently acquired some of its subsidiary's outstanding bonds, at an amount which required the recognition of a loss. In what ways could the loss be allocated? Which allocation would you recommend? Why?

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

During 2013, Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows?

Parent Corporation had just purchased some of its subsidiary's outstanding bonds on the open market. What items related to these bonds will have to be accounted for in the consolidation process?

What documents or other sources of information would be used to prepare a consolidated statement of cash flows?

Parent Corporation acquired some of its subsidiary's outstanding bonds. Why might Parent purchase the bonds, rather than the subsidiary buying its own bonds?

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?

Parent Corporation acquired some of its subsidiary's bonds on the open bond market. The remaining life of the bonds was eight years, and Parent expected to hold the bonds for the full eight years. How would the acquisition of the bonds affect the consolidation process?

Parent Corporation loaned money to its subsidiary with a five-year note at the market interest rate. How would the note be accounted for in the consolidation process?

When a company has preferred stock in its capital structure, what amount should be used to calculate non-controlling interest in the preferred stock of the subsidiary when the company is acquired as a subsidiary of another company?