Question 1

During 2011, 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 2011, Parent Corporation purchased at book...

Question 2

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 3

On January 1, 2011, 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, 2011, Bast Co. had...

Question 4

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...

Question 5

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 6

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, 2010, 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, 2012, 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, 2012?

Accepted Answer

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

Question 7

On January 1, 2011, 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

The purchase price of $2,600,000 was allocated as follows:
Preferred stock: $750,000 / 30% = $2,500,000 (total value of preferred stock)
Common stock: $1,850,000 / 80% = $2,312,500 (total value of common stock)
Total equity value = $2,500,000 + $2,312,500 = $4,812,500
Purchase price in excess of equity value = $2,600,000 - $4,812,500 = $(2,212,500)
Since the fair value of Involved's identifiable net assets was $1,400,000, the remaining $(2,212,500 - $1,400,000) = $812,500 should be allocated to goodwill. Therefore, the answer is D.

Question 8

On January 1, 2011, 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, 2011, Parent Corporation acquired...

Question 9

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 10

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 11

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 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, 2010, 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, 2012, 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, 2012, 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

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 15

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 16

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 17

Johnson, Inc. owns control over Kaspar, Inc. Johnson reports sales of $400,000 during 2011 while Kaspar reports $250,000. Kaspar transferred inventory during 2011 to Johnson at a price of $50,000. On December 31, 2011, 30 percent of the transferred goods are still in Johnson's inventory. Consolidated accounts receivable on January 1, 2011 was $120,000, and on December 31, 2011 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 = $650,000. Accounts receivable increased by $10,000 during the year. Thus, cash collected from customers is $650,000 - $10,000 = $640,000. However, we need to eliminate the intercompany sale of $50,000, of which 30% or $15,000 is still in Johnson's inventory. Thus, cash collected from customers in the consolidated statement of cash flows is $640,000 - $15,000 = $625,000.

Question 18

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 19

On January 1, 2011, 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

The answer of On January 1, 2011, Harrison Corporation spent...

Question 20

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, 2010, 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, 2012, 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, 2013?

Accepted Answer

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

Quiz 6: Intercompany Debt, Consolidated Statement of Cash Flows, and Other Issues

During 2011, 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?

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?

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?

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?

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?

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

What documents or other sources of information would be used to prepare 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 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?