Question 1

Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer?
A)Subsidiary net income is not affected by a gain on bond transaction.
B)Subsidiary net income is not affected by a loss on bond transaction.
C)Parent Company net income is not affected by a gain on bond transaction.
D)Parent Company net income is not affected by a loss on bond transaction.
E)Consolidated net income is not affected by a gain or loss on bond transaction.

Accepted Answer

The answer of Which of the following statements is false...

Question 2

These questions are based on the following information and should be viewed as independent situations.
Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009, when Cocker had the following stockholders' equity accounts.
$\begin{array} { l r } 
\text { Common stock } - 40,000 \text { shares outstanding } & \$ 140,000 \
\text { Additional paid-in capital } & 105,000 \
\text { Retained earnings } & 476,000 \
 \text { Total stockholders' equity } & \$ 721,000 \
\end{array}$To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2012.
On January 1, 2012, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker.

-On January 1,2012,Cocker issued 10,000 additional shares of common stock for $21 per share.Popper did not acquire any of this newly issued stock.How would this transaction affect the additional paid-in capital of the parent company?
A)$0.
B)decrease it by $23,240.
C)decrease it by $68,250.
D)decrease it by $45,060.
E)decrease it by $43,680.

Accepted Answer

The issuance of new shares by Cocker dilutes Popper's ownership percentage. The decrease in Popper's additional paid-in capital is calculated based on the change in ownership percentage and the difference between the book value and the fair value of the shares issued.

Question 3

In reporting consolidated earnings per share when there is a wholly owned subsidiary,which of the following statements is true?
A)Parent company earnings per share equals consolidated earnings per share when the equity method is used.
B)Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used.
C)Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value.
D)Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value.
E)Preferred dividends are not deducted from net income for consolidated earnings per share.

Accepted Answer

The answer of In reporting consolidated earnings per share when...

Question 4

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?
A)Any gain or loss is deferred on a consolidated income statement.
B)Any gain or loss is recognized on a consolidated income statement.
C)Interest revenue on the affiliated debt is recognized on a consolidated income statement.
D)Interest expense on the affiliated debt is recognized on a consolidated income statement.
E)Consolidated retained earnings is adjusted for the difference between the purchase price and the carrying value of the bonds.

Accepted Answer

Any gain or loss on the acquisition of existing debt of a consolidated affiliate is recognized on a consolidated income statement. This is because the consolidated financial statements aim to reflect the economic reality of the group, and the gain or loss on the acquisition of the affiliated debt is a result of a transaction between the consolidated group and an external party. Interest revenue and expense on the affiliated debt is also recognized on the consolidated income statement. The consolidated retained earnings is adjusted for the difference between the purchase price and the carrying value of the bonds, but this is not the only correct statement as gain or loss is also recognized on the consolidated income statement.

Question 5

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:
A)Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances.
B)Subsequent interest revenue/expense must be removed although these balances fail to agree in amount.
C)A gain or loss must be recognized by both parent and subsidiary companies.
D)Changes in the investment,debt,interest revenue,and interest expense accounts occur constantly because of the amortization process.
E)The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired,even though this balance does not appear on the financial records of either company.

Accepted Answer

The answer of The accounting problems encountered in consolidated intra-entity...

Question 6

On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:$\begin{array}{ll}
\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding) } & \$ 500,000 \
\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, } & \
3,000 \text { shares outstanding } & 300,000 \
\text { Additional paid in capital } & 200,000 \
\text { Retained earnings } & 500,000\
\text { Total stockholders' equity }&\$1,500,000
\end{array}$
-Compute the goodwill recognized in consolidation.
A)$800,000.
B)$310,000.
C)$124,000.
D)$0.
E)$(196,000).

Accepted Answer

The answer of  On January 1, 2009, Nichols Company...

Question 7

Keenan Company has had bonds payable of $20,000 outstanding for several years.On January 1,2011,there was an unamortized premium of $2,000 with a remaining life of 10 years,Keenan's parent,Ross,Inc. ,purchased the bonds in the open market for $19,000.Keenan is a 90% owned subsidiary of Ross.The bonds pay 8% interest annually on December 31.The companies use the straight-line method to amortize interest revenue and expense.Compute the consolidated gain or loss on a consolidated income statement for 2011.
A)$3,000 gain.
B)$3,000 loss.
C)$1,000 gain.
D)$1,000 loss.
E)$2,000 gain.

Accepted Answer

The answer of Keenan Company has had bonds payable of...

Question 8

If newly issued debt is issued from a parent to its subsidiary,which of the following statements is false?
A)Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment.
B)There will be $0 net gain or loss on the bond transaction.
C)Interest expense needs to be eliminated on the consolidated income statement.
D)Interest revenue needs to be eliminated on the consolidated income statement.
E)A net gain or loss on the bond transaction will be reported.

Accepted Answer

The answer of If newly issued debt is issued from...

Question 9

On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:$\begin{array}{ll}
\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding) } & \$ 500,000 \
\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, } & \
3,000 \text { shares outstanding } & 300,000 \
\text { Additional paid in capital } & 200,000 \
\text { Retained earnings } & 500,000\
\text { Total stockholders' equity }&\$1,500,000
\end{array}$
-Compute the noncontrolling interest in Smith at date of acquisition.
A)$486,000.
B)$480,000.
C)$300,000.
D)$150,000.
E)$120,000.

Accepted Answer

The answer of  On January 1, 2009, Nichols Company...

Question 10

If a subsidiary issues a stock dividend,which of the following statements is true?
A)Investment in subsidiary on the parent's books will increase.
B)Investment in subsidiary on the parent's books will decrease.
C)Additional paid-in capital on the parent's books will increase.
D)Additional paid-in capital on the parent's books will decrease.
E)No adjustment is necessary.

Accepted Answer

The answer of If a subsidiary issues a stock dividend,which...

Question 11

If a subsidiary reacquires its outstanding shares from outside ownership for more than book value,which of the following statements is true?
A)Additional paid-in capital on the parent company's books will decrease.
B)Investment in subsidiary will increase.
C)Treasury stock on the parent's books will increase.
D)Treasury stock on the parent's books will decrease.
E)No adjustment is necessary.

Accepted Answer

The answer of If a subsidiary reacquires its outstanding shares...

Question 12

On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:$\begin{array}{ll}
\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding) } & \$ 500,000 \
\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, } & \
3,000 \text { shares outstanding } & 300,000 \
\text { Additional paid in capital } & 200,000 \
\text { Retained earnings } & 500,000\
\text { Total stockholders' equity }&\$1,500,000
\end{array}$
-If Smith's net income is $100,000 in the year following the acquisition,
A)the portion allocated to the common stock (residual amount)is $92,800.
B)$10,800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at noncontrolling interest in subsidiary income.
C)the noncontrolling interest balance will be $27,200.
D)the preferred stock dividend will be ignored in noncontrolling interest in subsidiary net income because Nichols owns the noncontrolling interest of preferred stock.
E)the noncontrolling interest in subsidiary net income is $30,800.

Accepted Answer

The answer of  On January 1, 2009, Nichols Company...

Question 13

On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:$\begin{array}{ll}
\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding) } & \$ 500,000 \
\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, } & \
3,000 \text { shares outstanding } & 300,000 \
\text { Additional paid in capital } & 200,000 \
\text { Retained earnings } & 500,000\
\text { Total stockholders' equity }&\$1,500,000
\end{array}$
-The consolidation entry at date of acquisition will include (referring to Smith):
A)Debit Common stock $500,000 and debit Preferred stock $120,000.
B)Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C)Debit Common stock $500,000 and debit Preferred stock $300,000.
D)Debit Common stock $500,000,debit Preferred stock $120,000,and debit Additional paid-in capital $200,000.
E)Debit Common stock $400,000,debit Preferred stock $300,000,debit Additional paid-in capital $200,000,and debit Retained earnings $500,000.

Accepted Answer

The answer of  On January 1, 2009, Nichols Company...

Question 14

On January 1, 2009, Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was $1,200,000 for the common and $124,000 for the preferred. Any excess acquisition-date fair value over book value is considered goodwill. The capital structure of Smith immediately prior to the acquisition is:$\begin{array}{ll}
\text { Common stock, } \$ 10 \text { par value }(50,000 \text { shares outstanding) } & \$ 500,000 \
\text { Preferred stock, } 6 \% \text { cumulative, } \$ 100 \text { par value, } & \
3,000 \text { shares outstanding } & 300,000 \
\text { Additional paid in capital } & 200,000 \
\text { Retained earnings } & 500,000\
\text { Total stockholders' equity }&\$1,500,000
\end{array}$
-Determine the amount and account to be recorded for Nichols' investment in Smith.
A)$1,324,000 for Investment in Smith.
B)$1,200,000 for Investment in Smith.
C)$1,200,000 for Investment in Smith's Common Stock and $124,000 for Investment in Smith's Preferred Stock.
D)$1,200,000 for Investment in Smith's Common Stock and $120,000 for Investment in Smith's Preferred Stock.
E)$1,448,000 for Investment in Smith's Common Stock.

Accepted Answer

The answer of  On January 1, 2009, Nichols Company...

Question 15

These questions are based on the following information and should be viewed as independent situations.
Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2009, when Cocker had the following stockholders' equity accounts.
$\begin{array} { l r } 
\text { Common stock } - 40,000 \text { shares outstanding } & \$ 140,000 \
\text { Additional paid-in capital } & 105,000 \
\text { Retained earnings } & 476,000 \
 \text { Total stockholders' equity } & \$ 721,000 \
\end{array}$To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition date fair value over book value being allocated to goodwill, which has been measured for impairment annually and has not been determined to be impaired as of January 1, 2012.
On January 1, 2012, Cocker reported a net book value of $1,113,000 before the following transactions were conducted. Popper uses the equity method to account for its investment in Cocker, thereby reflecting the change in book value of Cocker.

-On January 1,2012,Cocker reacquired 8,000 of the outstanding shares of its own common stock for $34 per share.None of these shares belonged to Popper.How would this transaction have affected the additional paid-in capital of the parent company?
A)$0.
B)decrease it by $32,900.
C)decrease it by $45,700.
D)decrease it by $49,400.
E)decrease it by $50,500.

Accepted Answer

The answer of  These questions are based on the...

Question 16

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?
A)Parent's dividends would be subtracted as a financing activity.
B)Gain on sale of land would be deducted from net income.
C)Noncontrolling interest in net income of subsidiary would be added to net income.
D)Proceeds from the sale of long-term investments would be added to investing activities.
E)Loss on sale of equipment would be added to net income.

Accepted Answer

The answer of What would differ between a statement of...

Question 17

Stevens Company has had bonds payable of $10,000 outstanding for several years.On January 1,2011,when there was an unamortized discount of $2,000 and a remaining life of 5 years,its 80% owned subsidiary,Matthews Company,purchased the bonds in the open market for $11,000.The bonds pay 6% interest annually on December 31.The companies use the straight-line method to amortize interest revenue and expense.Compute the consolidated gain or loss on a consolidated income statement for 2011.
A)$1,000 gain.
B)$1,000 loss.
C)$2,000 loss.
D)$3,000 loss.
E)$3,000 gain.

Accepted Answer

The answer of Stevens Company has had bonds payable of...

Question 18

Which of the following statements is true for a consolidated statement of cash flows?
A)Parent's dividends and subsidiary's dividends are deducted as a financing activity.
B)Only parent's dividends are deducted as a financing activity.
C)Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity.
D)All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as a financing activity.
E)Neither parent's or subsidiary's dividends are deducted as a financing activity.

Accepted Answer

The answer of Which of the following statements is true...

Question 19

A subsidiary issues new shares of common stock at an amount below book value.Outsiders buy all of these shares.Which of the following statements is true?
A)The parent's additional paid-in capital will be increased.
B)The parent's investment in subsidiary will be increased.
C)The parent's retained earnings will be increased.
D)The parent's additional paid-in capital will be decreased.
E)The parent's retained earnings will be decreased.

Accepted Answer

When a subsidiary issues new shares of common stock at an amount below book value and outsiders buy all of these shares, the parent's additional paid-in capital will decrease because the amount received for the shares is less than their book value. The parent's investment in subsidiary and retained earnings are not affected by this transaction.

Question 20

A subsidiary issues new shares of common stock.If the parent acquires all of these shares at an amount greater than book value,which of the following statements is true?
A)The investment in subsidiary will decrease.
B)Additional paid-in capital will decrease.
C)Retained earnings will increase.
D)The investment in subsidiary will increase.
E)No adjustment will be necessary.

Accepted Answer

When the parent company acquires all of the new shares of common stock issued by its subsidiary at an amount greater than book value, it means that the parent has paid a premium for these shares. This premium paid is accounted for as an increase in the investment in subsidiary account. Therefore, the correct statement is that the investment in subsidiary will increase.

Quiz 6: Variable Interest Entities,intra-Entity Debt,consolidated Cash Flo

Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer?

In reporting consolidated earnings per share when there is a wholly owned subsidiary,which of the following statements is true?

Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition?

The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except:

If newly issued debt is issued from a parent to its subsidiary,which of the following statements is false?

If a subsidiary issues a stock dividend,which of the following statements is true?

If a subsidiary reacquires its outstanding shares from outside ownership for more than book value,which of the following statements is true?

What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

Which of the following statements is true for a consolidated statement of cash flows?

A subsidiary issues new shares of common stock at an amount below book value.Outsiders buy all of these shares.Which of the following statements is true?

A subsidiary issues new shares of common stock.If the parent acquires all of these shares at an amount greater than book value,which of the following statements is true?