411 Ch. 6 Sb AA

In allocating the income effect of a gain or loss from retirement of the debt of one affiliate that has been purchased by another affiliate, the entire income effect is allocated to the --- interest

controlling

If the consolidated entity has dilutive securities in its capital structure, then in addition to basic EPS the consolidated financial statements must also disclose --- EPS

diluted

Subsidiary dividends paid to its parent company

do not appear on the consolidated statement of cash flows.

True or false: The consolidated statement of cash flows is prepared from the individual cash flow statements of the separate companies comprising the business combination.

false

The effects of intra-entity inventory transfers do not appear on the consolidated statement of cash flows because such transfers do not affect the amount of --- held by the consolidated entity

inventory or cash

In a period when a mid-term business combination occurs, only post-acquisition excess fair-value amortizations are added back to --- --- in computing cash flows from operating activities using the indirect method.

net income

In general, an enterprise that has the power to direct the activities of a variable interest entity (VIE) and the obligation to absorb the losses of the VIE is the --- --- of the VIEs

primary beneficiary

When one affiliate within a consolidated group acquires the debt of another affiliate from a third party, from a consolidated view this liability is effectively --- as of the debt reacquisition date.

retired

If an affiliated entity is determined not to be a variable interest entity, then

the voting interest model is applied to determine whether an enterprise must consolidated the entity.

Consolidation is required when one company possesses a controlling financial interest over another company. When is a majority voting interest not effective in identifying a controlling financial interest in an affiliated entity?

When variable interests allow a primary beneficiary to exercise financial control over a variable interest entity.

In consolidating a business entity VIE, any excess of the VIE's total business fair value over the collective fair values of its net assets is recognized as

goodwill

The accounts and amounts used to prepare a consolidated statement of cash flows are based on

the consolidated income statement and comparative consolidated balance sheets.

In computing consolidated EPS, net income shall exclude the income attributable to the --- interest in the subsidiary.

noncontrolling

Consolidation Entry B adjusts which of the following accounts generated by the affiliates preparing consolidated financial statements in the year of an intra-entity bond reacquisition?

-Bonds Payable' -Investment in Bonds -Gain (or Loss) on Retirement of Bonds

Clark Company acquires Transport Company in exchange for a cash payment to the former owners of Transport. Included in the assets received by Clark is Transport Company's cash balance. The current year consolidated statement of cash flows would report

The net cash paid for the acquisition (cash paid less cash received) as an investing activity.

In computing consolidated EPS, the numerator contains earnings

attributable only to the controlling interest.

One affiliate within a consolidated group acquires the outstanding bonds of another affiliate from a third party. The consolidated gain or loss on the effective retirement is computed by comparing the price paid for the bond purchase to the bond's

carrying value

To prepare a consolidated statement of cash flows in the year of a business acquisition, the subsidiary's acquisition-date accounts receivable balance

must be removed in computing cash flows from operating activities.

The starting figure for preparing the operating section (indirect method) of a consolidated statement of cash flows is consolidated --- ---

net income

True or false: Assuming no carryover balances from operating accounts acquired in a previous year business combination, no special adjustments are required to prepare a consolidated statement of cash flows in periods subsequent to a business combination.

true

In years subsequent to the acquisition of bonds payable of one affiliate by another affiliate, which of the following accounts are affected by continuing bonds payable (and investment in bonds) discount amortizations on the affiliated companies' books?

-Interest Expense. -Interest Income. -Discount on Bonds Payable

In general, which of the following characteristics are needed to establish that an enterprise with an variable interest in a VIE has a controlling financial interest?

-The enterprise has the power to direct the economically significant activities of the VIE. -The enterprise is obligated to absorb significant losses of the VIE or is is entitled to receive significant benefits from the VIE.

Which of the following arrangements are considered encompassed within the IASB's control definition?

-The obtaining of decision-making rights over an investee that dominate voting rights. -Majority voting rights over the decision-making of an entity held by an investor. -Less than 50% voting interest where the remaining shares are diffusely held across many owners.

Under what general conditions does an entity qualify as a variable interest entity?

-There is insufficient equity at risk to enable the entity to finance its activities without additional support. -Equity investors' returns are capped by contractual arrangements with variable interest holders. -The equity investors lack the ability to exercise financial control over the entity.

Which of the following consolidation procedures are needed when one affiliate within a consolidated group acquires the debt of another affiliate from a third party?

-intra-entity interest revenue and expense must be eliminated. -Intra-entity investment in debt securities must be eliminated. -Intra-entity liabilities must be eliminated. -The intra-entity interest payable and receivable must be eliminated. -The ongoing amortization of intra-entity discounts and premiums must be taken into account in the consolidation process.

What business types typically describe variable interest entities?

-joint -Corporations. -Joint ventures across two or more other business entities.

Variable interests entities are often established to provide

-low-cost financing for asset purchases. -research and development arrangements. -leasing arrangements.

In computing consolidated diluted EPS, the presence of subsidiary dilutive securities will potentially affect

-the amount of consolidated net income attributable to the common shares. -the parent's percentage ownership to apply to the earnings attributable to common shares. -the numerator of the diluted EPS ratio.

When a subsidiary company has outstanding bonds payable that are convertible to common shares, it must assume conversion in computing diluted EPS. Assuming the convertible bonds are dilutive, what are the effects of the conversion on the subsidiary's diluted EPS ratio?

-the numerator will increase by the after-tax income saving from assumed conversion. -the denominator will increase by the number of common shares issued in the assumed conversion.

The potential dilutive effect of a less-than-100% owned subsidiary's stock options

-will not affect the parent's computation of basic EPS. -can affect the parent's share of the consolidated net income.

Assuming neither the parent nor its 90% owned subsidiary have dilutive securities or preferred shares, what EPS calculations are required for consolidated financial statements?

Basic EPS = Parent's share of consolidated net income divided by the parent's weighted average shares outstanding.

For the December 31, 2021, consolidation of Payton and Vicente, the net income attributable to the noncontrolling interest is determined by the noncontrolling interest's percentage ownership in Vicente multiplied by

Vicente's net income adjusted for excess acquisition-date fair value amortization expense.