Question 1

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?

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Question 2

Parent Corporation acquired some of its subsidiary's outstanding bonds.Why might Parent purchase the bonds,rather than the subsidiary buying its own bonds?

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Question 3

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.

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Question 4

When a company has preferred stock in its capital structure,what amount should be used to calculate noncontrolling interest in the preferred stock of the subsidiary when the company is acquired as a subsidiary of another company?

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Question 5

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.

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Question 6

How does the existence of a noncontrolling interest affect the preparation of a consolidated statement of cash flows?

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Question 7

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?

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Question 8

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 $1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows:$\begin{array} { | l | r | } 
\hline \text { Common stock, } \$ 10 \text { par value, } 100,000 \text { shares outstanding } & \$ 1,000,000 \
\hline \text { Preferred stock, } 7 \% \text { fully participating, } \$ 100 \text { par value, } & \
\hline 10,000 \text { shares outstanding } & 1,000,000 \
\hline \text { Retained Earnings } & 2,000,000 \
\hline \text { Total stockholders' equity } & \$ 4,000,000 \
\hline
\end{array}$
-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

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

Question 9

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?

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Question 10

On January 1,2011,Bast Co.had a net book value of $2,100,000 as follows: $$\begin{array} { | l | c | } 
\hline \begin{array} { l } 
\text { Preferred stock, } 2,000 \text { shares } \$ 70 \text { par value, } \
\text { cumulative, nonparticipating, nonvoting }
\end{array} & \$ 140,000 \
\hline \text { Common stock, } 22,400 \text { shares } \$ 50 \text { par value } & 1,120,000 \
\hline \text { Retained earnings } & \underline { 840,000 } \
\hline \text { Total shareholders' equity } &\underline{\underline{\$ 2.100,000 }} \
\hline & \
\hline
\end{array}$$
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?

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The answer of On January 1,2011,Bast Co.had a net book...

Question 11

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 $1,850,000 for 80 percent of its outstanding common stock. As of the date of the acquisition, Involved's stockholders' equity accounts were as follows:$\begin{array} { | l | r | } 
\hline \text { Common stock, } \$ 10 \text { par value, } 100,000 \text { shares outstanding } & \$ 1,000,000 \
\hline \text { Preferred stock, } 7 \% \text { fully participating, } \$ 100 \text { par value, } & \
\hline 10,000 \text { shares outstanding } & 1,000,000 \
\hline \text { Retained Earnings } & 2,000,000 \
\hline \text { Total stockholders' equity } & \$ 4,000,000 \
\hline
\end{array}$
-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.

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Question 12

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

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Question 13

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?

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Question 14

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?

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Question 15

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?

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Question 16

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?

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Question 17

What documents or other sources of information would be used to prepare a consolidated statement of cash flows?

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Question 18

Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company.On January 2,2009,Georgia sold 7 percent bonds payable with a $5,000,000 face value maturing January 2,2029 at a premium of $500,000.On January 1,2011,Franklin acquired 20 percent of these same bonds on the open market at 97.66.Both companies use the straight-line method of amortization.What adjustment should be made to Franklin's 2012 beginning Retained Earnings as a result of this bond acquisition?
A)$107,100.
B)$113,400.
C)$119,700.
D)$144,000.
E)$152,000.

Accepted Answer

First, we need to calculate the total premium amortization for the entire $5,000,000 bond issue. The premium paid was $500,000, and the bond matures in 20 years, so the annual premium amortization is $500,000/20 = $25,000.

Georgia Company issued 7% bonds payable, so the interest payment each year is 7% of the face value, or $350,000. Franklin owns 90% of Georgia Company, so its share of the interest payment is $350,000 x 90% = $315,000.

In 2011, Franklin acquired 20% of the bond issue, so its share of the interest payment and premium amortization is 20%. The interest payment for 2012 is $350,000 x 20% = $70,000. The premium amortization for 2012 is $25,000 x 20% = $5,000.

Therefore, Franklin's adjustment to Retained Earnings for 2012 is $70,000 - $5,000 = $65,000. However, since Franklin acquired the bonds at a discount, it must also record a gain on the purchase. The purchase price of the bonds was $5,000,000 x 20% x 97.66% = $973,200. This is $26,800 less than the face value of the bonds (which would be $1,000,000), so Franklin records a gain of $26,800.

The total adjustment to Franklin's Retained Earnings for 2012 is therefore $65,000 + $26,800 = $91,800. However, since this adjustment only affects Franklin's share of the bonds (which is 20%), the final adjustment to Franklin's Retained Earnings is $91,800 x 20% = $18,360.

Therefore, the answer is A) $107,100. ($18,360 + $88,740 (90% of 2012 interest payment of $315,000)).

Question 19

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?

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The answer of Parent Corporation had just purchased some of...

Question 20

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?

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The answer of Parent Corporation acquired some of its subsidiary's...

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

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 outstanding bonds.Why might Parent purchase the bonds,rather than the subsidiary buying its own bonds?

When a company has preferred stock in its capital structure,what amount should be used to calculate noncontrolling interest in the preferred stock of the subsidiary when the company is acquired as a subsidiary of another company?

How does the existence of a noncontrolling interest affect the preparation of a consolidated statement of cash flows?

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?

How are intra-entity inventory transfers treated on the consolidation worksheet and how are they reflected in a consolidated statement of cash flows?

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?

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 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?

What documents or other sources of information would be used to prepare a consolidated statement of cash flows?

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?

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?