Question 1

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

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Question 2

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?

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Question 3

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

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Question 4

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

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Question 5

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?

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Question 6

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?

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Question 7

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?

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Question 8

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:  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

Common Stock Non-Controlling Interest at Acquisition = $1,850,000/.80 = $2,312,500 × .20 = $462,500Preferred Stock Non-Controlling Interest at Acquisition = $750,000/.30 = $2,500,000 × .70 = $1,750,000(CS Parent $1,850,000) + (CS NCI $462,500) + (PS Parent $750,000) + (PS NCI $1,750,000) = $4,812,500 FV of Sub at AcquisitionFV $4,812,500 - BV $4,000,000 = $812,500 Goodwill

Question 9

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?

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Question 10

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?

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Question 11

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?

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Question 12

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:  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

Common Stock Non-Controlling Interest at Acquisition = $1,850,000/.80 = $2,312,500Preferred Stock Non-Controlling Interest at Acquisition = $750,000/.30 = $2,500,000$2,312,500 + $2,500,000 = $4,812,500 FV of Sub at Acquisition$1,850,000 + $462,500 + $750,000 + $1,750,000 = $4,812,500

Question 13

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 14

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?

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Question 15

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 16

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?

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Question 17

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

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Question 18

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

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Question 19

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

Franklin acquired 20% of the bonds, which is $1,000,000 face value. The premium on the bonds was $500,000, so the total carrying value of the bonds was $5,500,000. Franklin paid 97.66% of the face value, which is $976,600. The difference between the carrying value of the bonds acquired ($1,100,000) and the purchase price ($976,600) is $123,400. The amortization of the premium over the two years (2013 and 2014) using the straight-line method is $16,300 per year, totaling $32,600. Therefore, the adjustment to Franklin's 2014 beginning Retained Earnings is $123,400 - $32,600 = $107,100.

Question 20

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?

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

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

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in 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?

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

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?

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 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?

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?

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?

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?

How does the existence of a non-controlling 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?