Question 1

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.

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Question 2

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.

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Question 3

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

Ryan's original investment in Chase account was $500,000. After acquiring the additional shares worth $100,000, Ryan's total investment in Chase account would be $600,000. However, since Ryan borrowed $30,000 to finance the investment, we need to deduct that amount from the total investment. Therefore, Ryan's net investment in Chase account would be $570,000. This is an increase of $70,000 from Ryan's original investment of $500,000. Hence, the adjustment needed for Ryan's investment in Chase account is $12,188 increase.

Question 4

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

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Question 5

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 6

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.

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Question 7

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.

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Question 8

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.

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Question 9

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.

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Question 10

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.

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Question 11

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.

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Question 12

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.

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Question 13

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.

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Question 14

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.

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Question 15

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

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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.

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Question 17

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 Stockholders' Equity - Treasury Stock

Total Stockholders' Equity = Common Stock + Retained Earnings = $400,000 + $160,000 = $560,000

Treasury Stock = 20,000 shares x $12 per share = $240,000

Adjusted Book Value = $560,000 - $240,000 = $320,000

Question 18

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

Entitling the holder to receive shares of common stock is not a potential loss or return of a variable interest entity. The other options represent potential returns (profit and asset fair value increase) or potential losses (debt guarantee and asset depreciation).

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%.

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Question 20

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.

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

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

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

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

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

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

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

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

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

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 sale of the shares?

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?

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

What is the new percent ownership Ryan owns in Chase?

All of the following are examples of variable interests except:

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

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

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

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