Question 1

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 2

Which of the following statements regarding consolidation of a VIE with its primary beneficiary is true?
A) The consolidation of a VIE with its primary beneficiary requires the business enterprise to follow a separate process than the one required for consolidations based on voting interests.
B) All intra-entity transactions between the primary beneficiary and the VIE are included in the consolidation.
C) Only intra-entity transactions between the primary beneficiary and the VIE resulting from intra-entity transfers are eliminated in the consolidation.
D) VIEs with controlling interests must include one hundred percent of the primary beneficiary's net income in a consolidation.
E) The allocation of the VIE's net income is based on an analysis of the underlying contractual arrangements between the primary beneficiary and other holders of variable interests.

Accepted Answer

The answer of Which of the following statements regarding consolidation...

Question 3

On January 1, 2018, 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, 2018, Bast Co.had a...

Question 4

On January 1, 2018, 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, 2018, Parent Corporation acquired...

Question 5

In preparing the consolidation worksheet as of December 31, 2018 for AHI and RMC, which of the following worksheet entry descriptions reflects what AHI should do to consolidate the financial statements?
A) Consolidation Entry A is recorded to allocate the excess fair value to the noncontrolling interest and record a credit to the Asset in connection with a fair valuation on the date AHI obtains control of RMC as follows: Noncontrolling interest $96,000
Asset $96,000
B) Consolidation Entry P is recorded to eliminate the long-term receivable and debt representing AHI's initial investment in RMC as follows: Loan receivable from RMC $3,000,000
Long-term debt $3,000,000
C) Consolidation Entry S is recorded to eliminate the interest payment on the loan from RMC to AHI as follows: Interest expense $180,000
Interest income $180,000
D) Consolidation Entry E is recorded to amortize the excess fair value allocation to the Asset over its remaining useful life as follows: Other operating expenses $32,000
Asset $32,000
E) Consolidation Entry P is recorded to eliminate the beginning stockholders' equity of the VIE and recognize the 100% equity ownership of the noncontrolling interest as follows: Retained earnings - RMC 1/1/18 $ 6,000
Common stock - RMC $34,000
Retained Earnings-AHI $40,000

Accepted Answer

The answer of In preparing the consolidation worksheet as of...

Question 6

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 7

When a company has preferred stock in its capital structure, what amount should be used to calculate noncontrolling 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...

Question 8

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 9

What are the primary sources of information that are used for preparation of a consolidated statement of cash flows?

Accepted Answer

The answer of What are the primary sources of information...

Question 10

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 common...

Question 11

Johnson, Inc.owns control over Kaspar, Inc.Johnson reports sales of $400,000 during 2018 while Kaspar reports $250,000.Kaspar transferred inventory during 2018 to Johnson at a price of $50,000.On December 31, 2018, 30% of the transferred goods are still held in Johnson's inventory.Consolidated accounts receivable on January 1, 2018 was $120,000, and on December 31, 2018 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

Consolidated sales = $400,000 + $250,000 = $650,000Less: Beginning accounts receivable = $120,000Add: Ending accounts receivable = $130,000Cash collected from customers = $650,000 - $120,000 + $130,000 = $660,000Less: Inventory transferred from Kaspar = $50,000Inventory still held by Johnson = $50,000 * 30% = $15,000Cash collected from customers in the consolidated statement of cash flows = $660,000 - $15,000 = $645,000

Question 12

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 13

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 14

How does the existence of a noncontrolling interest affect the preparation of a consolidated statement of cash flows?

Accepted Answer

The answer of How does the existence of a noncontrolling...

Question 15

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 16

During 2018, Parent Corporation purchased at carrying 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 2018, Parent Corporation purchased at carrying...

Question 17

Which of the following variable interests entitles a holder to residual profits, losses, and dividends?
A) Participation rights
B) Lease residual value guarantees
C) Common stock
D) Asset purchase options
E) Subordinated debt instruments

Accepted Answer

Common stock entitles the holder to residual profits, losses, and dividends.

Question 18

With respect to the acquisition-date consolidation worksheet, which of the following is accurate?
A) The value of the noncontrolling interest is $40,000.
B) The total of all adjustments and eliminations equal $3,136,000.
C) The consolidated total long-term debt equals $3,688,000.
D) The total consolidated assets equal $9,794,000.
E) The total liabilities and equity on a consolidated basis equals $5,614,000.

Accepted Answer

The answer of With respect to the acquisition-date consolidation worksheet,...

Question 19

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 because the goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. In this case, the purchase price is $2,500,000 and the fair value of the net assets acquired is $1,687,500. Therefore, the goodwill is $2,500,000 - $1,687,500 = $812,500.

Question 20

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...

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

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?

Which of the following statements regarding consolidation of a VIE with its primary beneficiary is true?

In preparing the consolidation worksheet as of December 31, 2018 for AHI and RMC, which of the following worksheet entry descriptions reflects what AHI should do to consolidate the financial statements?

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

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

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?

What are the primary sources of information that are used for preparation of a consolidated statement of cash flows?

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 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?

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

How does the existence of a noncontrolling interest affect the preparation of a 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?

During 2018, Parent Corporation purchased at carrying value some of the outstanding bonds of its subsidiary.How would this acquisition have been reflected in the consolidated statement of cash flows?

Which of the following variable interests entitles a holder to residual profits, losses, and dividends?

With respect to the acquisition-date consolidation worksheet, which of the following is accurate?

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?

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?