Question 1

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 2

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 3

On January 1,2018,A.Hamilton,Inc.("AHI")provides a loan for $3,000,000 to Reynolds Manufacturing Corp.("RMC").The terms of the loan require payment of the loan no later than January 1,2023.RMC was in terrible financial condition and would cease operations absent securing a loan.Prior to requesting a loan from AHI,RMC exhausted all other possible avenues for funding.The terms of the loan agreement include provisions that require RMC to provide AHI with the following from January 1,2018 through January 1,2023: (i)6 percent annual interest on the principal amount of the loan,which reflects a market rate of interest; (ii)100 percent participation rights to RMC's profits less $17,000 in a guaranteed annual dividend to RMC's common shareholders;and (iii)complete decision-making authority over RMC's operations and financing decisions..
At the end of the term of the loan,AHI is given the right to acquire RMC or,in its discretion,extend the term of the original loan an additional 5 years.At the date the loan was extended to RMC,RMC's common stock had an estimated fair value of $136,000 and a book value of $40,000.The $96,000 difference was attributed to an asset with a 3-year useful life remaining ("Asset").At January 1,2018,the balance sheets for AHI and RMC are as follows: 
-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 On January 1,2018,A.Hamilton,Inc.("AHI")provides a loan for $3,000,000...

Question 4

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

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

Question 5

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 6

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 7

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 8

REFERENCE: 06-12
On January 1,2018,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 answer of REFERENCE: 06-12
On January 1,2018,Harrison Corporation spent $2,600,000...

Question 9

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 10

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 is the variable interest that entitles a holder to residual profits, losses, and dividends.

Question 11

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 12

On January 1,2018,A.Hamilton,Inc.("AHI")provides a loan for $3,000,000 to Reynolds Manufacturing Corp.("RMC").The terms of the loan require payment of the loan no later than January 1,2023.RMC was in terrible financial condition and would cease operations absent securing a loan.Prior to requesting a loan from AHI,RMC exhausted all other possible avenues for funding.The terms of the loan agreement include provisions that require RMC to provide AHI with the following from January 1,2018 through January 1,2023: (i)6 percent annual interest on the principal amount of the loan,which reflects a market rate of interest; (ii)100 percent participation rights to RMC's profits less $17,000 in a guaranteed annual dividend to RMC's common shareholders;and (iii)complete decision-making authority over RMC's operations and financing decisions..
At the end of the term of the loan,AHI is given the right to acquire RMC or,in its discretion,extend the term of the original loan an additional 5 years.At the date the loan was extended to RMC,RMC's common stock had an estimated fair value of $136,000 and a book value of $40,000.The $96,000 difference was attributed to an asset with a 3-year useful life remaining ("Asset").At January 1,2018,the balance sheets for AHI and RMC are as follows: 
-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: 
$\begin{array}{l}
\text { Noncontrolling interest }&\$ 96,000 \
\text { Asset }&&\$ 96,000
\end{array}$
B)Consolidation Entry P is recorded to eliminate the long-term receivable and debt representing AHI's initial investment in RMC as follows: Loan $\begin{array}{llr}
  \text { Loan receivable from RMC } &\$ 3,000,000\
 \text { Long-term debt } &&\$ 3,000,000\
\end{array}$

C)Consolidation Entry S is recorded to eliminate the interest payment on the loan from RMC to AHI as follows:
$$\begin{array} { c c c } 
\text { Interest expense } & \$ 180,000 \
\text { Interest income } & & \$ 180,000
\end{array}$$
D)Consolidation Entry E is recorded to amortize the excess fair value allocation to the Asset over its remaining useful life as follows:
$\begin{array}{l}
\text { Other operating expenses } &\$ 32,000 \
\text { Asset }&&\$ 32,000
\end{array}$ 
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: 
$\begin{array}{ll}
\text { Retained earnings - RMC 1/1/18 } & \$ 6,000 \
\text { Common stock - RMC } & \$ 34,000 \
\quad \text { Retained Earnings-AHI } &&\$40,000
\end{array}$

Accepted Answer

The answer of On January 1,2018,A.Hamilton,Inc.("AHI")provides a loan for $3,000,000...

Question 13

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 14

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 value...

Question 15

On January 1,2018,Bast Co.had a net book value of $2,100,000 as follows:
 $\begin{array}{|l|r|}
\hline \begin{array}{l}
\text { Preferred stock, } \
\text { cumulative, nonparticipating, nonvoting }
\end{array} & \$ 140,000 \
\hline \text { Common stock, 22,400 shares } \$ 50 \text { par value } & 1,120,000 \
\hline \text { Retained earnings } & \underline{840,000} \
\hline \text { Total shareholders' equity } & \$ 2,100,000 \
\hline
\end{array}$

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 net book...

Question 16

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 17

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 18

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 a controlling...

Question 19

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 20

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...

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

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?

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?

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

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

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

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 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?

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?

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?

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

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