Question 1

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011, are as follows:  Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. 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 Webb Company owns 90% of Jones Company....

Question 2

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
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

Land Sale of $5,000 Reduces Net Income as Operating Activity in Cash Flows

Question 3

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity?
A) The power to direct the most significant economic performance activities.
B) The power through voting or similar rights to direct activities which significantly impact economic performance.
C) The obligation to absorb potentially significant losses of the entity.
D) No ability to make decisions about the entity's activities.
E) The right to receive potentially significant benefits of the entity.

Accepted Answer

The ability to make decisions about the entity's activities is a key characteristic of a primary beneficiary with a controlling financial interest in a variable interest entity. If an enterprise has no ability to make decisions about the entity's activities, then it is not considered to be a primary beneficiary.

Question 4

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 5

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011, are as follows:  Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. 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 Webb Company owns 90% of Jones Company....

Question 6

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011 are as follows:  Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. 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 Ryan Company owns 80% of Chase Company....

Question 7

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011, are as follows:  Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. 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) $15,000 increase.
D) $15,000 decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of Ryan Company owns 80% of Chase Company....

Question 8

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
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

The decrease in accounts payable is a decrease in a liability, and therefore represents a use of cash. Since it is a change in an operating liability, it would be subtracted from net income in the operating activities section of the consolidated statement of cash flows. Therefore, the correct answer is B, $7,000 decrease to net income as an operating activity.

Question 9

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
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

The $8,000 Receivables Decrease is Added to Net Income and Classified as an Operating Item

Question 10

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 a holder to receive shares of common stock is not a potential loss or return of a variable interest entity. The other options are all potential returns or losses.

Question 11

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
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

$6,000 Excess Amortization is not a Cash Item and therefore Added Back to Net Income on the Cash Flow Statement

Question 12

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011 are as follows:  Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its 90% interest in Jones. 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 answer of Webb Company owns 90% of Jones Company....

Question 13

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011, are as follows:  Jones sells 20,000 shares of previously unissued shares of its common stock to outside parties for $10 per share. What adjustment is needed for Webb's investment in Jones account?
A) $180,000 increase.
B) $180,000 decrease.
C) $30,000 increase.
D) $30,000 decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of Webb Company owns 90% of Jones Company....

Question 14

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011, are as follows:  Assume Chase issues 30,000 additional shares common stock solely to Ryan for $12 per share. 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 amount received from issuing the shares to Ryan would be:

30,000 shares x $12 per share = $360,000

Since Ryan Company owns 80% of Chase Company, Ryan effectively owns 80% of the additional shares issued. Therefore, the increase in value to Ryan's investment in Chase Company would be:

80% x $360,000 = $288,000

The adjusted book value of Chase Company would be:

Original book value + Increase in value to Ryan = Adjusted book value

($600,000 + $288,000) = $888,000

Since Ryan owns 80% of Chase, we need to adjust the book value accordingly:

Adjusted book value x Ryan's ownership percentage = Adjusted book value attributed to Ryan

($888,000 x 80%) = $710,400

Therefore, the adjusted book value of Chase Company after the issuance of the shares is $760,000 ($888,000 - $128,000 not attributed to Ryan). Therefore, the correct answer is D ($760,000).

Question 15

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011 are as follows:  Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. 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) $64,000 increase.
D) $64,000 decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of Ryan Company owns 80% of Chase Company....

Question 16

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 17

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
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

Parent's Dividends $15,000 + NCI Dividends $2,000 = $17,000 Decrease in Cash Flow for Financing

Question 18

The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company. (1.) Graham reports a loss on sale of land of $5,000. The land cost Graham $20,000.
(2)) Non-controlling interest in Stage's net income was $30,000.
(3)) Graham paid dividends of $15,000.
(4)) Stage paid dividends of $10,000.
(5)) Excess acquisition-date fair value over book value was expensed by $6,000.
(6)) Consolidated accounts receivable decreased by $8,000.
(7)) Consolidated accounts payable decreased by $7,000.
Where does the non-controlling 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) Non-controlling interest in Stage's net income does not appear on a consolidated statement of cash flows.

Accepted Answer

NCI's Income is NOT Reported on Consolidated Cash Flows

Question 19

Webb Company owns 90% of Jones Company. The original balances presented for Jones and Webb as of January 1, 2011 are as follows:  Assume Jones issues 20,000 new shares of its common stock for $15 per share. Of this total, Webb acquires 18,000 shares to maintain its 90% interest in Jones. 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) $27,000 increase.
D) $27,000 decrease.
E) No adjustment is necessary.

Accepted Answer

The answer of Webb Company owns 90% of Jones Company....

Question 20

Ryan Company owns 80% of Chase Company. The original balances presented for Ryan and Chase as of January 1, 2011 are as follows:  Assume Chase reacquired 8,000 shares of its common stock from outsiders at $10 per share. 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

The answer of Ryan Company owns 80% of Chase Company....

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

Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity?

All of the following are examples of variable interests except

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

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