Advanced Accounting chapter 6

Same information from # 7 Net Cash Flow from Financing Activities were:

$ (38,000) Parent dividend $ (12,000) NCI dividend(5000*20%) ( 1,000) Reduction in L-T N/P (25,000) Net Cash Flow (38,000)

Comparative consolidated balance sheet data for Iverson, Inc., and its 80% owned subsidiary Oakley, Co. follows: 2014 2013 Cash 7,000 20,000 A/R (net) 55,000 38,000 Merchandise Inventory 85,000 45,000 Building & Equip.(net) 95,000 105,000 Trademark 85,000 100,000 Total Assets 327,000 308,000 A/P 75,000 63,000 N/P, Long-term 0 25,000 Noncontrolling interest 39,000 35,000 R.E. (deficit) 13,000 (15,000) Common stock, $10 par 200,000 200,000 Total 327,000 327,000 Additional Information for fiscal year 2014: Iverson & Oakley's consolidated net income was $45,000 Oakley paid $5,000 in dividends during the year. Iverson paid $12,000 in dividends. Oakley sold $11,000 worth of merchandise to Iverson during the year. There were no purchases or sales of long-term assets during the year. In the 2014, consolidated statement of cash flows for Iverson company: Net cash flow from operating activities were:

$ 25,000 Net income $45,000 Depreciation 10,000 Amortization 15,000 Increase in A/R (17,000) Inc.in Inventory (40,000) Increase in A/P 12,000 (20,000) Cash Flow from OA $25,000

Mattoon, Inc. owns 80% of Effingham Company. For the current year, this combined entity reported consolidated net income of $500,000. Of this amount $465,000 was attributable to Mattoon's controlling interest while the remaining $35,000 was attributable to the noncontrolling interest. Mattoon has 100,000 shares of common stock outstanding and Effingham has 25,000 shares outstanding. Neither company has issued preferred shares or has any convertible securities outstanding . On the face of the consolidated income statement , how much should be reported as Mattoon's earnings per share?

$4.65 CONS EPS=ParentNI / Parent Outstanding sh. CONS EPS= 465,000 / 100,000 CONS EPS= 4.65

Warrenton, Inc. owns 80%of Aminable Corporation. On a consolidated income statement, the noncontrolling interest in the subsidiary's income is reported as $37,000. Aminable paid a total cash dividend of $100,000 for the year. How does this impact the consolidated statement of cash flows?

The dividends paid to the outside owners are reported as a financing activity, but the noncontrolling interest figure is not viewed as a cash flow.

Bensman Corporation is computing EPS. One of its subsidiaries has stock warrants outstanding. How do these convertible items affect Bensman's EPS computation?

The effect of the stock warrants must be computed in deriving the amount of subsidiary income to be included in making the diluted EPS calculation.

An enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and non controlling interest of that entity if :

The enterprise has a controlling financial interest in the VIE.

Arcola, Inc. acquires all 40,000 shares of Tuscola Company for $725,000. A year later, when Arcola's equity adjusted balance in its investment in Tuscola equals $800,000, Tuscola issues and additional 10,000 shares to outside investors for $25 per share. Which of the following best describes the effect of Tuscola's stock issue on Arcola's investment account?

The investment account is increased because Arcola's share of Tuscola's value has increased. 800,000 + (10,000shares*$25) = 1,050,000 percentage share= 40,000shares/50,000sh. percentage share= 80% 1,050,000*80%=840,000acquisition800,000=increase in investment 40,000

The entity will be treated as variable interest entity (VIE) when the following conditions exist :

1) Where the entities have right to take decisions regarding financial activities of other entities, which result into significant financial profits and the total equity at risk is not sufficient to permit the legal entity to finance the activities of the other entity. 2) Where there is an obligation to absorb losses or right to receive the profits or benefits, which are significant from of other entity or both the contents are available.

A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. The following statement is true:

Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes.

The parent company acquires all of a subsidiary's common stock but only 70% of its preferred shares. This preferred stock pays a 7% annual cumulative dividend. No dividends are in arrears at the current time. How is the noncontrolling interest's share of the subsidiary's income computed?

As 30% of the subsidiary's preferred dividend.

Aceton Corporation owns 80% of the outstanding stock of Votax, Inc. During the current year, Voctax made $140,000 in sales to Aceton. How does this transfer affect the consolidated statement of cash flows?

Because of the intra-entity nature of the transfers, the amount is not reported in the consolidated cash flow statement. (It is an upstream transaction).

Dane, Inc. owns Carlton Corporation. For the current year, Dane reports net income (without consideration of its investment in Carlton) of $185,000 and the subsidiary reports $105,000. The parent had a bond payable outstanding on January 1, with a book value of $209,000. The subsidiary acquired the bond on that date for $196,000. During the current year, Dane reported interest expense of $18,000 while Carlton reported interest income of $19,000, both related to the intra-entity bond payable . What is consolidated net income?

Consolidated net income 302,000 CNI=Parent NI 185,000 + subsidiary NI 105,000 - Interest income 19,000 + interest expense 18,000 + gain on the debt(BV209,000-sale196,000) CNI=302,000

Perkins Company acquires 90% of the outstanding common stock of the Butterfly Corporation as well as 55% of its preferred stock. How should these preferred shares be accounted for within the consolidation process?

Subsidiary outstanding preferred shares are part of the noncontrolling interest and are included in the consolidated financial statements at acquisition-date fair value and subsequently adjusted for their share of subsidiary income and dividends.