Advanced Accounting Ch 7 LearnSmart - Connect

When a subsidiary company purchases shares of the parent company on the open market, these parent company shares are reported as__________________ stock on the consolidated financial statements

Treasury

True or False: A connecting affiliation is formed when two or more companies within a consolidated reporting entity own an interest in one of the affiliated companies

True

True or False: Mutual ownership occures when two or more companies within a consolidated reporting entity own an equity interest in eachother

True

True or False: On a consolidated worksheet for a father-son-grandson configuration, each noncontrolling interest's share of consolidated net income is computed seperately

True

temporary differences across financial accounting and tax reporting purpose can occur when

a difference in a tax and inancial reporting basis for an asset or liability results in a deductible future amount

In a father-son-grandson affiliation, when a subsidiary has control over one of the affiliated companies that computation of the subsidiary's accrual-based income

includes its accrual-based equity income from the controlled affiliates

In the Top-Midway-Bottom example, Top's accrual-based net income?

includes its share of Bottom's net income through its indirect ownership of Bottom through Midway, excludes its net intra-entity gains recognized on its books, includes its share of midway's net income through its direct ownership of midway

Alpha Company controls its subsidiary, Beta Company, through a majority voting interest. In turn, Beta COmpany controls Gamma Company through a majority voting interest. Through this pattern of ownership, Alpha possesses ____________________ control over Gamma Company.

indirect

In consolidated financial statements, the ownership of a parent's equity shares by a subsidiary

is valued at its reacquisition price, does not result in any effect from dividend declarations on the equity shares owned by the subsidiary, is reclassified as treasury stock

Under the partial equity method, a parent company

reduces its investment in subsidiary account balance for its share of subsidiary dividends declared, accrues its share of the subsidiary's reported income

To consolidate the income statements of a father-son-grandson affilliation, on the consolidation worksheet

the amounts recognized for subsidiary income by each seperate affiliate are brought to a zero balance, the accounts of all controlled affiliates are combined after appropriate adjustments for intra-entity gross profits, net income attributable to noncontrolling interests is deducted from consolidated net income to derive the parent's share of consolidated net income

For the Top-Midway-Bottom example, what components of Bottom's net income does Midway include in computing it own successive income?

Bottom's net intra-entity gains, Excess acquisition-date fair over book value amortization expense from Midway's acquisition of Bottom, Bottom's internally calculated net income

When preparing a consolidation worksheet for a father-son-grandson affiliation, only the common stock outstanding of the ______________________ company appears in the consolidated balance sheet column

Father

For the Top-Midway-Bottom example, what amounts does Midway include in computing its own accrual-based net income?

Midway's share of Bottom's accrual-based net income, Excess acquisition-date fair over book value amortization expense from Top's acquisitiom of Midway, Midway's net intra-entity gains

What is the effect of Pop and Son's mutual ownership on Consolidation Entry *C?

Pop must include its share of dividends declared by Son in Son's previous year's change in retained earnings, Pop must include Son's dividend income in Son's previous year's change in retained earnings

What is the effect of Pop and Son's mutual ownership on the derivation of consolidated stockholders' equity?

Son's investmet in Pop is reclassified as treasury stock and reduces the balance of stockholder's equity in the consolidated balance sheet, consolidation entry TS is used to reclassify Son's Investment in Pop as Treasury Stock, Consolidation Entry TS brings Son's Investment in Pop balance to Zero

When preparing a consolidation worksheet for a father-son-grandson affiliation, all investment in subsidiary account balance are brough to a ________________ balance, regardless of whether the subsidiary is controlled directly or indirectly

Zero

When a parent company indirectly controls other companies through its direct control of a subsidiary company

all companies under control (direct or indirect) are included in the parent's consolidated financial statements

In the Big-Middle-Little Companies example, consolidatiom Entry *G adjusts the retained earnings for each affiliate with pervious period intra-entity inventory sales for intra-entity gross profits in _________________ inventory.

beginning

Within a connecting affiliation, determining accrual-based net incomes begins with

companies soley ina subsidiary position

Consolidation entry *G

debits the Retained Earnings balance of the selling affiliate,transfers intra-entity begining inventory gross profits from the previous period to the current period, credits the current period balance of cost of goods sold

When the partial equity method is applied throught a father-son-grandson affiliation *C (conversion) worksheet entries are needed for each owner to affiliate to

ensure the parent's beginning retained earnings reflect the accrual basis, serve as part of the consolidation worksheet process to bring the investment in subsidiary account balance to zero, recognize previous period's excess fair value cumulative amortization expenses

The multiple Consolidation Entries S in father-son-grandson serve to

establsih the book value component of the noncontrolling interest valuation as of the beginning of the period, bring the beginning stockholders' eqioty balances in each subsidiary to a zero amount, provide a component in the process to bring the various investment in subsidiary balance to zero

When consolidating a father-son-grandson affiliation, regardless of whether control is direct or indirect,

excess fair valie amortization for each affiliate must be determined, control acquisition-date fair values are used for each of the connecting affiliates, the consolidation process is essentially repeated for each seperate affiliate

In the consolidation of father-son-grandson affiliations, Consolidation Entry A serves to recognize the acquisition-date ________________ ________________ over book value adjustments for each entity as of the beginning of the period

fair value

A father-son-grandson affiliation describes a situation where the

father company is able to control the grandson company indirectly through its control of the son

In consolidating the net incomes of a father-son-grandson affiliation, the process begins with the net income calculation of the

grandson

Under the Internal Revenue Code, to qualify as a member of an affiliated group for income tax purposes, a subsidiary company

must qualify for treatment as a domestic subsidiary, must be at least 80% owned by the parent (both voting and nonvoting stock)

On the consolidation worksheet, dividends declared by subsidiaries controlled through connecting affiliations will partially reduce the balance of any ______________ interest

noncontrolling

Consolidation of the net income of a father-son-grandson affiliation must also account for the allocation of consolidated net income across the controlling interest and ____________ interest of each of the successive affiliated companies.

noncontrolling or outside

The asset adjustments in Consolidation Entry A are allocated to

the parent and noncontrolling interest

For a parent company and its subsidiary to qualify for filing a single consolidated federal income tax return, the parent must own at least _________________________ % of the subsidiary's voting and nonvoting stock

80

Regardless of the position of a subsidiary within a father-son-grandson affiliated entity, the determination of the consolidated net income attributable to the noncontrolling interest is based on each subsidiary's _____________-______________ net income

Accrual-based

Acme Company owns a 60% equity interest in Zircon Company. Zircon, in turn, owns a 25% equity interest in Acme Company. This ownership configuration means

Acme and Zircon comprise a consolidated reporting entity, Acme had a controlling financial interest in Zircon, Acme and Zircon are mutual owners

When the partial equity method is applied throughout a father-son-grandson affiliation, the *C (conversion) worksheet entry for the parent's retain earnings

serves as paert of the consolidation worksheet process to bring the Investment in Subsidiary account balance to zero, includes an adjustment for previous periods' intra-entity inventory profits recorded by its subsidiary, includes the parent's share of its subsidiary *C worksheet entry

In the Top-Midway-Bottom example, Top's accrual-based net income includes its share of the accrual based net incomes of _______________ and _________________ companies.

son ; grandson

In father-son-grandson affiliations, what accompanying consolidation elements affect Consolidation Entry S for a particular subsidiary?

Any *C adjustments to the subsidiary;s retained earnings resulting from its control over another affiliate, the existence of a noncontrolling interest in the subsidiary, any *G adjustments to remove intra-entity gains the subsidiary's retained earnings

When a subsidiary within a connecting affiliation has a partial ownership interest in one of the affiliated companies, the computation of the subsidiary's accrual basis income

Includes any acquisition-date excess fair value over book value amortization expense related to its own acquisition by its parent, includes its accrual-based equity income from the partially owned affiliate

What are some key attributes of the Big-Middle-Little example of a father-son-grandson affiliation?

Intra-entity inventory transfers are upstream acriss affiliates, Big owns 80% of Middle and Middle acquires 70% of Little, Big and Middle each apply the partial equity method to their subsidiaries

Jay Company owns 60% of Zee Company and 25% of Bee o. If Zee Company purchases 40% ownership share of Bee Company, then

Jay and Zee have a connecting affiliation with Bee, Despite owning only a 25% direct ownership of Bee, Jay will possess a controlling interest in Bee, Jay, Zee, and Bee comprise a consolidated reporting entry