Question 1

What is the adjusted book value of Jones after the sale of the shares?
A) $ 200,000.
B) $1,400,000.
C) $1,280,000.
D) $1,050,000.
E) $1,440,000.

Accepted Answer

The answer of What is the adjusted book value of...

Question 2

Which of the following is not a potential loss or return of a variable interest entity?
A) Entitles holder to residual profits.
B) Entitles holder to benefit from increases in asset fair value.
C) Entitles holder to receive shares of common stock.
D) If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss.
E) If leased asset declines below the residual value, honoring the guarantee will produce a loss.

Accepted Answer

The entitling of the holder to receive shares of common stock is not a potential loss or return of a variable interest entity. The other options all involve potential gains or losses associated with the VIE.

Question 3

Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?
A) $7,000 increase to net income as an operating activity.
B) $7,000 decrease to net income as an operating activity.
C) $5,600 increase to net income as an operating activity.
D) $5,600 decrease to net income as an operating activity.
E) $7,000 increase as a financing activity.

Accepted Answer

A decrease in accounts payable is subtracted from net income in the operating activities section of the cash flow statement using the indirect method.

Question 4

How will dividends be reported in consolidated statement of cash flows?
A) $15,000 decrease as a financing activity.
B) $25,000 decrease as a financing activity.
C) $10,000 decrease as a financing activity.
D) $23,000 decrease as a financing activity.
E) $17,000 decrease as a financing activity.

Accepted Answer

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Question 5

How is the loss on sale of land reported on the consolidated statement of cash flows?
A) $20,000 added to net income as an operating activity.
B) $20,000 deducted from net income as an operating activity.
C) $15,000 deducted from net income as an operating activity.
D) $5,000 added to net income as an operating activity.
E) $5,000 deducted from net income as an operating activity.

Accepted Answer

A loss on the sale of land is added back to net income in the operating activities section of the cash flow statement to adjust for the non-cash loss that reduced net income.

Question 6

What is the new percent ownership Ryan owns in Chase?
A) 80.0%.
B) 87.5%.
C) 90.0%.
D) 75.0%.
E) 82.5%.

Accepted Answer

Ryan's original ownership was 75%, and he purchased an additional 12.5% from Chase. Therefore, his new ownership is 75% + 12.5% = 87.5%.

Question 7

How is the amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used?
A) It is ignored.
B) $6,000 subtracted from net income.
C) $4,800 subtracted from net income.
D) $6,000 added to net income.
E) $4,800 added to net income.

Accepted Answer

The answer of How is the amount of excess acquisition-date...

Question 8

Using the indirect method, where does the decrease in accounts receivable appear in a consolidated statement of cash flows?
A) $8,000 increase to net income as an operating activity.
B) $8,000 decrease to net income as an operating activity.
C) $6,400 increase to net income as an operating activity.
D) $6,400 decrease to net income as an operating activity.
E) $8,000 increase as an investing activity.

Accepted Answer

A decrease in accounts receivable is added to net income in the operating activities section of the cash flow statement, as it represents cash collected that was previously recorded as revenue.

Question 9

A variable interest entity can take all of the following forms except a(n):
A) Trust.
B) Partnership.
C) Joint venture.
D) Corporation.
E) Estate.

Accepted Answer

The answer of A variable interest entity can take all...

Question 10

When Ryan's new percent ownership is rounded to a whole number, what adjustment is needed for Ryan's investment in Chase account?
A) $16,000 decrease.
B) $60,000 decrease.
C) $46,000 increase.
D) $46,000 decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of When Ryan's new percent ownership is rounded...

Question 11

What is the adjusted book value of Jones after the stock issuance?
A) $1,500,000.
B) $1,200,000.
C) $1,350,000.
D) $1,080,000.
E) $1,335,000.

Accepted Answer

The adjusted book value of Jones after the stock issuance is $1,500,000. This is because the stock issuance increased the total equity of Jones by $300,000, from $1,200,000 to $1,500,000.

Question 12

After acquiring the additional shares, what adjustment is needed for Webb's investment in Jones account?
A) $270,000 increase.
B) $270,000 decrease.
C) $ 30,000 increase.
D) $ 30,000 decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of After acquiring the additional shares, what adjustment...

Question 13

What adjustment is needed for Webb's investment in Jones account?
A) $180,000 increase.
B) $180,000 decrease.
C) $ 45,000 decrease.
D) $ 45,000 increase.
E) No adjustment is necessary.

Accepted Answer

The answer of What adjustment is needed for Webb's investment...

Question 14

What is the new percent ownership of Webb in Jones after the stock issuance?
A) 75%.
B) 90%.
C) 80%.
D) 64%.
E) 60%.

Accepted Answer

The answer of What is the new percent ownership of...

Question 15

What is the adjusted book value of Chase Company after the issuance of the shares?
A) $608,000.
B) $720,000.
C) $680,000.
D) $760,000.
E) $400,000.

Accepted Answer

The adjusted book value of Chase Company can be calculated as follows: 
Total Assets = $900,000 
Liabilities = $240,000 
Shareholders' Equity = $660,000 ($420,000 + $120,000 + $120,000) 
Adding the proceeds from the shares issuance: $100,000 
New Shareholders' Equity = $760,000 
Therefore, the adjusted book value of Chase Company after the issuance of shares is $760,000. The correct answer is D.

Question 16

All of the following are examples of variable interests except:
A) Guarantees of debt.
B) Stock options.
C) Lease residual value guarantees.
D) Participation rights.
E) Asset purchase options.

Accepted Answer

The answer of All of the following are examples of...

Question 17

Where does the noncontrolling interest in Stage's net income appear on a consolidated statement of cash flows?
A) $30,000 added to net income as an operating activity on the consolidated statement of cash flows.
B) $30,000 deducted from net income as an operating activity on the consolidated statement of cash flows.
C) $30,000 increase as an investing activity on the consolidated statement of cash flows.
D) $30,000 decrease as an investing activity on the consolidated statement of cash flows.
E) Noncontrolling interest in Stage's net income does not appear on a consolidated statement of cash flows.

Accepted Answer

Noncontrolling interest in Stage's net income does not appear on a consolidated statement of cash flows.

Question 18

What should the adjusted book value of Chase be after the treasury shares were purchased?
A) $400,000.
B) $480,000.
C) $320,000.
D) $336,000.
E) $464,000.

Accepted Answer

Adjusted book value = Total assets - Total liabilities - Treasury shares. Therefore, adjusted book value of Chase = $400,000 - $80,000 - $0 = $320,000. The answer is C.

Question 19

What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)?
A) 80%.
B) 95%.
C) 64%.
D) 76%.
E) 69%.

Accepted Answer

The answer of What is Ryan's percent ownership in Chase...

Question 20

After acquiring the additional shares, what adjustment is needed for Ryan's investment in Chase account?
A) $70,000 increase.
B) $70,000 decrease.
C) $12,188 decrease.
D) $12,188 increase.
E) No adjustment is necessary.

Accepted Answer

To calculate the new value of Ryan's investment in Chase account, we need to subtract the amount paid for the additional shares from the previous investment value and then add the new investment value.

Previous investment value = 600,000 
Amount paid for additional shares = 238,500 
New investment value = 300,000

New investment value = 600,000 - 238,500 + 300,000 = 661,500

Therefore, Ryan's investment in Chase account needs to be adjusted by an increase of $12,188 (661,500 - 600,000).

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

What is the adjusted book value of Jones after the sale of the shares?

Which of the following is not a potential loss or return of a variable interest entity?

Using the indirect method, where does the decrease in accounts payable appear in a consolidated statement of cash flows?

How will dividends be reported in consolidated statement of cash flows?

How is the loss on sale of land reported on the consolidated statement of cash flows?

What is the new percent ownership Ryan owns in Chase?

How is the amount of excess acquisition-date fair value over book value recognized in a consolidated statement of cash flows assuming the indirect method is used?

Using the indirect method, where does the decrease in accounts receivable appear in a consolidated statement of cash flows?

A variable interest entity can take all of the following forms except a(n) :

When Ryan's new percent ownership is rounded to a whole number, what adjustment is needed for Ryan's investment in Chase account?

What is the adjusted book value of Jones after the stock issuance?

After acquiring the additional shares, what adjustment is needed for Webb's investment in Jones account?

What adjustment is needed for Webb's investment in Jones account?

What is the new percent ownership of Webb in Jones after the stock issuance?

What is the adjusted book value of Chase Company after the issuance of the shares?

All of the following are examples of variable interests except:

Where does the noncontrolling interest in Stage's net income appear on a consolidated statement of cash flows?

What should the adjusted book value of Chase be after the treasury shares were purchased?

What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded) ?

After acquiring the additional shares, what adjustment is needed for Ryan's investment in Chase account?