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In the consolidation worksheet for 2018, which of the following accounts would be credited to eliminate unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Fisher Company. E) Sales.
B
In the consolidation worksheet for 2017, which of the following accounts would be credited to defer unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Strickland Company. E) Sales.
C
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.
D
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.
D
How do intra-entity transfers of inventory affect the preparation of a consolidated statement of cash flows? A) They must be added in calculating cash flows from investing activities. B) They must be deducted in calculating cash flows from investing activities. C) They must be added in calculating cash flows from operating activities. D) Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required. E) They must be deducted in calculating cash flows from operating activities.
D
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.
D
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 nor subsidiary's dividends are deducted as a financing activity.
D
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.
E
Which of the following statements is false concerning variable interest entities (VIEs)? A) Sometimes VIEs do not have independent management. B) Most VIEs are established for valid business purposes. C) VIEs may be formed as a source of low-cost financing. D) VIEs have little need for voting stock. E) A VIE cannot take the legal form of a partnership or corporation.
E
Which of the following statements is false regarding the assignment of a gain or loss when an affiliate's debt instrument is acquired on the open market? A) Subsidiary net income is not affected by a gain on the debt transaction. B) Subsidiary net income is not affected by a loss on the debt transaction. C) Parent Company net income is not affected by a gain on the debt transaction. D) Parent Company net income is not affected by a loss on the debt transaction. E) Consolidated net income is not affected by a gain or loss on the debt transaction.
E
In the consolidation worksheet for 2018, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following accounts would be credited to defer recognition of intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Strickland Company. E) Sales.
B
On November 8, 2018, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized? A) Proportionately over a designated period of years. B) When Wood Co. sells the land to a third party. C) No gain may be recognized. D) As Wood uses the land. E) When Wood Co. begins using the land productively.
B
Parent sold land to its subsidiary resulting in a gain in 2016, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2019. Which of the following statements is true? A) A gain will be recognized in the consolidated income statement in 2016. B) A gain will be recognized in the consolidated income statement in 2019. C) No gain will be recognized in the 2019 consolidated income statement. D) Only the parent company will recognize a gain in 2019. E) The subsidiary will recognize a gain in 2016. Answer: B
B
When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? A) Income from subsidiary is not recognized until there is an entire year of consolidated operations. B) Income from subsidiary is recognized from date of acquisition to year-end. C) Excess cost over acquisition value is recognized at the beginning of the fiscal year. D) No goodwill can be recognized. E) Income from subsidiary is recognized for the entire year.
B
Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements? A) The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE. B) The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership. C) The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE. D) The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance. E) The business enterprise establishing a VIE is a primary beneficiary for the VIE.
B
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) Recognition of any gain or loss is deferred until the debt is extinguished for purposes of reporting such debt on consolidated financial statements. B) Any gain or loss is recognized in the year of acquisition on a consolidated income statement. C) Interest revenue generated from the debt of an affiliate is recognized on a consolidated income statement. D) Interest expense recognized from carrying debt instruments is recognized on a consolidated income statement. E) Consolidated retained earnings is adjusted to take into account the difference between the purchase price and carrying value of the debt.
B
Which of the following statements is true regarding an intra-entity transfer of land? A) A loss is always recognized but a gain is deferred in a consolidated income statement. B) A loss and a gain are deferred until the land is sold to an outside party. C) A loss and a gain are always recognized in a consolidated income statement. D) A gain is always recognized but a loss is deferred in a consolidated income statement. E) Recognition of a gain or loss is deferred by adjusting stockholders' equity through comprehensive income.
B
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.
A
In the consolidation worksheet for 2018, assuming Carter uses the initial value method of accounting for its investment in Strickland, which of the following accounts would be debited to defer unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Strickland Company. E) Sales.
A
A parent company owns a controlling interest in a subsidiary and on the last day of the year, the subsidiary issues new shares entirely to outside parties at $33 per share. The parent still holds control over the subsidiary. The adjusted subsidiary value at the date of the new stock issuance was $27 per share. Which of the following statements is true? A) Since the sale was made at the end of the year, the parent's investment account is not affected. B) Since the shares were sold for more than the adjusted subsidiary value per share, the parent's investment account must be increased. C) Since the shares were sold for more than the adjusted subsidiary value per share, the parent's investment account must be decreased. D) Since the shares were sold for more than the adjusted subsidiary value per share, but the parent did not buy any of the shares, the parent's investment account is not affected. E) None of these answer choices are correct.
B
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.
B
An intra-entity transfer took place whereby the book value exceeded the transfer price of a depreciable asset. Which statement is true for the year after the year of transfer? A) A worksheet entry is made with a debit to retained earnings for an upstream transfer. B) A worksheet entry is made with a credit to retained earnings for an upstream transfer. C) A worksheet entry is made with a debit to retained earnings for a downstream transfer. D) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. E) No worksheet entry is necessary.
B
Which one of the following characteristics of preferred stock would make the stock a dilutive security for purposes of calculating earnings per share? A) The preferred stock is callable. B) The preferred stock is convertible. C) The preferred stock is cumulative. D) The preferred stock is noncumulative. E) The preferred stock is participating.
B
In the consolidation worksheet for 2017, which of the following accounts would be credited to eliminate unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Fisher Company. E) Sales.
C
Which of the following variable interests entitles a holder to residual profits, losses, and dividends? A) Participation rights B) Lease residual value guarantees C) Common stock D) Asset purchase options E) Subordinated debt instruments
C
In the consolidation worksheet for 2018, which of the following accounts would be debited to eliminate unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Fisher Company. E) Sales.
D
Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows? A) Cash flows from operating activities. B) Cash flows from investing activities. C) Cash flows from financing activities. D) Supplemental schedule of noncash investing and financing activities. E) They do not appear in the consolidated statement of cash flows.
E
During 2017, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. For consolidation reporting purposes, when is the $14,000 intra-entity gross profit recognized? A) When goods are transferred to a third party by Lord. B) When Lord pays Von for the goods. C) When Von sold the goods to Lord. D) When Lord receives the goods. E) No gain can be recognized since the transfer was between related parties.
A
How would consolidated cost of goods sold have differed if the inventory transfers had been for the same amount and cost, but from Stendall to Edgar? A) Consolidated cost of goods sold would have remained $2,140,000. B) Consolidated cost of goods sold would have been more than $2,140,000 because of the controlling interest in the subsidiary. C) Consolidated cost of goods sold would have been less than $2,140,000 because of the noncontrolling interest in the subsidiary. D) Consolidated cost of goods sold would have been more than $2,140,000 because of the noncontrolling interest in the subsidiary. E) The effect on consolidated cost of goods sold cannot be predicted from the information provided.
A
How would net income attributable to the noncontrolling interest be different if the transfers had been for the same amount and cost, but from Stendall to Edgar? A) Net income attributable to the noncontrolling interest would have decreased by $6,000. B) Net income attributable to the noncontrolling interest would have increased by $24,000. C) Net income attributable to the noncontrolling interest would have increased by $20,000. D) Net income attributable to the noncontrolling interest would have decreased by $18,000. E) Net income attributable to the noncontrolling interest would have decreased by $56,000.
A
If a subsidiary re-acquires its outstanding shares from outside ownership for more than the noncontrolling interest valuation basis at the date of buying such treasury stock, 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.
A
Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows? A) They do not appear in the consolidated statement of cash flows. B) Supplemental schedule of noncash investing and financing activities. C) Cash flows from operating activities. D) Cash flows from investing activities. E) Cash flows from financing activities.
A
For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: A) Identifiable assets acquired, at fair value. B) Liabilities assumed, at book value. C) Non-controlling interest, at fair value. D) Goodwill, or a gain from bargain purchase. E) None of these choices is correct.
B
How do outstanding subsidiary stock warrants affect the calculation of consolidated earnings per share? A) They will be included in both basic and diluted earnings per share if they are dilutive. B) They will only be included in diluted earnings per share if they are dilutive. C) They will only be included in basic earnings per share if they are dilutive. D) Only the warrants owned by the parent company affect consolidated earnings per share. E) Because the warrants are for subsidiary shares, there will be no effect on consolidated earnings per share.
B
In the consolidation worksheet for 2017, which of the following accounts would be credited to eliminate the intra-entity transfer of inventory? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Fisher Company. E) Sales.
B
In the consolidation worksheet for 2017, which of the following accounts would be credited to eliminate the intra-entity transfer of inventory? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Strickland Company. E) Sales.
B
In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Fisher Company. E) Sales.
B
In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate unrecognized intra-entity gross profit with regard to the 2017 intra-entity transfers? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Strickland Company. E) Sales.
B
A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock has a cumulative dividend. No dividends are in arrears. How is the noncontrolling interest in the subsidiary's net income assigned? A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock. B) There is no allocation to the noncontrolling interest because the parent owns 100% of the common stock and net income belongs to the controlling interest. C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends. D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income before preferred stock dividends. E) The noncontrolling interest in consolidated net income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends.
C
A parent company owns a controlling interest in a subsidiary whose stock has a valuation basis of $27 per share. On the last day of the year, the subsidiary issues new shares entirely to outside parties at $25 per share. The parent still holds control over the subsidiary. Which of the following statements is true? A) Since the sale was made at the end of the year, the parent's investment account is not affected. B) Since the shares were sold for less than the adjusted subsidiary value per share, the parent's investment account must be increased. C) Since the shares were sold for less than the adjusted subsidiary value per share, the parent's investment account must be decreased. D) Since the shares were sold for less than the adjusted subsidiary value per share, but the parent did not buy any of the shares, the parent's investment account is not affected. E) None of these answer choices are correct.
C
An intra-entity transfer of a depreciable asset took place whereby the transfer price exceeded the book value of the asset. Which statement is true with respect to the year following the year in which the transfer occurred? A) A worksheet entry is made with a debit to gain for a downstream transfer. B) A worksheet entry is made with a debit to gain for an upstream transfer. C) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer when the parent uses the equity method. D) A worksheet entry is made with a debit to retained earnings for a downstream transfer, regardless of the method used account for the investment. E) No worksheet entry is necessary.
C
An intra-entity transfer took place whereby the transfer price was less than the book value of a depreciable asset. Which statement is true for the year subsequent to the year of transfer? A) A worksheet entry is made with a debit to investment in subsidiary for an upstream transfer. B) A worksheet entry is made with a debit to investment in subsidiary for a downstream transfer. C) A worksheet entry is made with a credit to investment in subsidiary for a downstream transfer when the parent uses the equity method. D) A worksheet entry is made with a debit to retained earnings for an upstream transfer, regardless of the method used to account for the investment. E) No worksheet entry is necessary.
C
How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants? A) Parent's earnings per share plus subsidiary's earnings per share. B) Parent's net income divided by parent's number of shares outstanding. C) Consolidated net income divided by parent's number of shares outstanding. D) Average of parent's earnings per share and subsidiary's earnings per share. E) Consolidated income divided by total number of shares outstanding for the parent and subsidiary.
C
In a step acquisition, which of the following statements is false? A) The acquisition method views a step acquisition essentially the same as a single step acquisition. B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year. C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year. D) Obtaining control through a step acquisition is a significant measurement event. E) Pre-acquisition earnings are not included in the consolidated income statement.
C
In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest? A) Fair value based on stock trades of the acquired company. B) Subsidiary cash flows discounted to present value. C) Book value of subsidiary net assets. D) Projections of residual income. E) Consideration transferred by the parent company that implies a total subsidiary value.
C
Jax Company used the acquisition method when it acquired its investment in Saxton Company. Jax now sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the following statements is true? A) The difference between selling price and acquisition value is recorded as a realized gain or loss. B) The difference between selling price and acquisition value is recorded as an unrealized gain or loss. C) The difference between selling price and carrying value is recorded as a realized gain or loss. D) The difference between selling price and carrying value is recorded as an unrealized gain or loss. E) The difference between selling price and carrying value is recorded as an adjustment to retained earnings.
C
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.
C
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.
C
When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? A) If majority control is still maintained, consolidated financial statements are still required. B) If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required. C) If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required. D) If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required. E) A gain or loss calculation must be prepared if control is lost.
C
When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? A) Parent company net income equals controlling interest in consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equals consolidated dividends. E) Goodwill is not recorded on the parent's books.
C
Where do dividends paid to the noncontrolling interest of a subsidiary appear on a consolidated statement of cash flows? A) Cash flows from operating activities. B) Cash flows from investing activities. C) Cash flows from financing activities. D) Supplemental schedule of noncash investing and financing activities. E) They do not appear in the consolidated statement of cash flows.
C
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.
C
Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock? A) The parent recognizes a larger percent of subsidiary income. B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation. C) The book value of the subsidiary will increase. D) The parent's percent ownership in subsidiary will increase. E) Noncontrolling interest in subsidiary's net income will decrease.
C
Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? A) If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss. B) If control continues, the difference between selling price and acquisition value is an unrealized gain or loss. C) If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital. D) If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss. E) If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings.
C
Which of the following statements is true concerning an intra-entity transfer of a depreciable asset? A) Net income attributable to the noncontrolling interest is never affected by a gain on the transfer. B) Net income attributable to the noncontrolling interest is always affected by a gain on the transfer. C) Net income attributable to the noncontrolling interest is affected by a downstream gain only. D) Net income attributable to the noncontrolling interest is affected only when the transfer is upstream. E) Net income attributable to the noncontrolling interest is increased by an upstream gain in the year of transfer.
D
A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock. The preferred stock is noncumulative. The current year's dividend was paid. How is the noncontrolling interest in the subsidiary's net income assigned? A) The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock and their relative par values. B) There is no allocation to the noncontrolling interest because there are no dividends in arrears. C) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends. D) The noncontrolling interest in consolidated net income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends. E) The noncontrolling interest in consolidated net income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends.
D
A parent company owns a 70 percent interest in a subsidiary whose stock has a valuation basis of $27 per share. On the last day of the year, the subsidiary issues new shares for $27 per share, and the parent buys its 70 percent interest in the new shares. Which of the following statements is true? A) Since the sale was made at the end of the year, the parent's investment account is not affected. B) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, the parent's investment account must be increased. C) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, the parent's investment account must be decreased. D) Since the shares were sold for the same per share amount as the the adjusted subsidiary value per share, and the parent bought 70 percent of the shares, the parent's investment account is not affected except for the total acquisition amount for the new shares. E) None of these answer choices are correct.
D
All of the following statements regarding the sale of subsidiary shares are true except which of the following? A) The use of specific identification based on serial number is acceptable. B) The use of the FIFO assumption is acceptable. C) The use of the averaging assumption is acceptable. D) The use of specific LIFO assumption is acceptable. E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.
D
In comparing U.S. GAAP and International Financial Reporting Standards (IFRS) with regard to a basis for measurement of a noncontrolling interest, which of the following is true? A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement. B) U.S. GAAP and IFRS both require acquisition-date fair value measurement. C) U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement. D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement. E) U.S. GAAP and IFRS both apportion goodwill to the parent only.
D
On January 1, 2018, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2018? A) The difference is added to the carrying value of the debt. B) The difference is deducted from the carrying value of the debt. C) The difference is treated as a loss from the extinguishment of the debt. D) The difference is treated as a gain from the extinguishment of the debt. E) The difference does not influence the consolidated financial statements.
D
When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? A) Parent company net income equals consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equal consolidated dividends. E) Goodwill is recorded on the parent's books.
D
When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? A) Parent company net income equals consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equal consolidated dividends. E) Goodwill is recorded on the parent's books.
D
Which of the following methods is not used to value a noncontrolling interest under circumstances where a control premium is applied to determine the appropriate value for such interest? A) Valuation models based on subsidiary discounted cash flows. B) Valuation models based on subsidiary residual income projections. C) Comparison with comparable investments. D) The application of a safe harbor discount rate. E) Fair value based on market trades.
D
Wolff Corporation owns 70 percent of the outstanding stock of Donald, Inc. During the current year, Donald made $75,000 in sales to Wolff. How does this transfer affect the consolidated statement of cash flows? A) Included as a decrease in the investing section. B) Included as an increase in the operating section. C) Included as a decrease in the operating section. D) Included as an increase in the investing section. E) Not reported in the consolidated statement of cash flows.
E
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.
E
If new bonds are 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.
E
In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate the intra-entity transfer of inventory? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Fisher Company. E) Sales.
E
In the consolidation worksheet for 2017, which of the following accounts would be debited to eliminate the intra-entity transfer of inventory? A) Retained earnings. B) Cost of goods sold. C) Inventory. D) Investment in Strickland Company. E) Sales.
E
MacDonald, Inc. owns 80 percent of the outstanding stock of Stahl Corporation. During the current year, Stahl made $125,000 in sales to MacDonald. How does this transfer affect the consolidated statement of cash flows? A) Include 80 percent as a decrease in the investing section. B) Include 100 percent as a decrease in the investing section. C) Include 80 percent as a decrease in the operating section. D) Include 100 percent as an increase in the operating section. E) Not reported in the consolidated statement of cash flows.
E
Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intra-entity transaction, to whom should the loss be attributed? A) To Safire because the bonds were issued by Safire. B) The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt. C) The loss should be amortized over the life of the bonds and need not be attributed to either party. D) The loss should be deferred until it can be determined to whom the attribution can be made. E) To Regency because Regency is the controlling party in the business combination.
E
When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true of the subsidiary with respect to the presentation of consolidated financial statement information? A) Pre-acquisition earnings are deducted from consolidated revenues and expenses. B) Pre-acquisition earnings are added to consolidated revenues and expenses. C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity. D) Pre-acquisition earnings are added to the beginning consolidated stockholders' equity. E) Pre-acquisition earnings are ignored in the consolidated income statement.
E
Which of the following statements is true concerning variable interest entities (VIEs)? (1.) The role of the VIE equity investors can be fairly minor. (2.) A VIE may be created specifically to benefit the business enterprise that established it with low-cost financing. (3.) VIE governing agreements often limit activities and decision-making. (4.) VIEs usually have a well-defined and limited business activity.
E
Which of the following statements regarding consolidation of a VIE with its primary beneficiary is true? A) The consolidation of a VIE with its primary beneficiary requires the business enterprise to follow a separate process than the one required for consolidations based on voting interests. B) All intra-entity transactions between the primary beneficiary and the VIE are included in the consolidation. C) Only intra-entity transactions between the primary beneficiary and the VIE resulting from intra-entity transfers are eliminated in the consolidation. D) VIEs with controlling interests must include one hundred percent of the primary beneficiary's net income in a consolidation. E) The allocation of the VIE's net income is based on an analysis of the underlying contractual arrangements between the primary beneficiary and other holders of variable interests.
E
