8/13/2019 AATBCH6

1/14

06 Chapter - Variable Interest Entities, Intra-Entity Debt, ConsolidatedCash Flo Chapter 06 Variable Interest Entities, Intra-Entity Debt,Consolidated Cash Flo Multiple Choice Questions 1. n !anuary 1, "011,#iley Corp. ac$uired so%e o& the outstandin' bonds o& one o& itssubsidiaries. (he bonds had a carryin' )alue o& *+"1,6"0, and #iley

paid *+01, &or the%. /o should you account &or the di&&erencebeteen the carryin' )alue and the purchase price in the consolidated&inancial state%ents &or "011 2. (he di&&erence is added to thecarryin' )alue o& the debt. 3. (he di&&erence is deducted &ro% thecarryin' )alue o& the debt. C. (he di&&erence is treated as a loss &ro%the e4tin'uish%ent o& the debt. D. (he di&&erence is treated as a 'ain&ro% the e4tin'uish%ent o& the debt. E. (he di&&erence does notin&luence the consolidated &inancial state%ents. ". #e'ency Corp.recently ac$uired *500,000 o& the bonds o& a&ire Co., one o& itssubsidiaries, payin' %ore than the carryin' )alue o& the bonds.2ccordin' to the %ost practical )ie o& this intra-entity transaction, to

ho% ould the loss be attributed 2. (o a&ire because the bondsere issued by a&ire. 3. (he loss should be allocated beteen a&ireand #e'ency based on the purchase price and the ori'inal &ace )alueo& the debt. C. (he loss should be a%orti7ed o)er the li&e o& the bondsand need not be attributed to either party. D. (he loss should bede&erred until it can be deter%ined to ho% the attribution can be%ade. E. (o #e'ency because #e'ency is the controllin' party in thebusiness co%bination. . 8hich one o& the &olloin' characteristics o&pre&erred stoc9 ould %a9e the stoc9 a diluti)e security &or earnin'sper share 2. (he pre&erred stoc9 is callable. 3. (he pre&erred stoc9 iscon)ertible. C. (he pre&erred stoc9 is cu%ulati)e. D. (he pre&erred

stoc9 is noncu%ulati)e. E. (he pre&erred stoc9 is participatin'. 6-1Chapter 06 - Variable Interest Entities, Intra-Entity Debt, ConsolidatedCash Flo +. 8here do di)idends paid to the noncontrollin' interest o& asubsidiary appear on a consolidated state%ent o& cash &los 2. Cash&los &ro% operatin' acti)ities. 3. Cash &los &ro% in)estin' acti)ities.C. Cash &los &ro% &inancin' acti)ities. D. upple%ental schedule o&noncash in)estin' and &inancin' acti)ities. E. (hey do not appear in theconsolidated state%ent o& cash &los. 5. 8here do di)idends paid by asubsidiary to the parent co%pany appear in a consolidated state%ento& cash &los 2. Cash &los &ro% operatin' acti)ities. 3. Cash &los&ro% in)estin' acti)ities. C. Cash &los &ro% &inancin' acti)ities. D.

upple%ental schedule o& noncash in)estin' and &inancin' acti)ities. E.(hey do not appear in the consolidated state%ent o& cash &los. 6.8here do intra-entity sales o& in)entory appear in a consolidatedstate%ent o& cash &los 2. (hey do not appear in the consolidatedstate%ent o& cash &los. 3. upple%ental schedule o& noncashin)estin' and &inancin' acti)ities. C. Cash &los &ro% operatin'acti)ities. D. Cash &los &ro% in)estin' acti)ities. E. Cash &los &ro%&inancin' acti)ities. . /o do intra-entity sales o& in)entory a&&ect the

8/13/2019 AATBCH6

2/14

preparation o& a consolidated state%ent o& cash &los 2. (hey %ustbe added in calculatin' cash &los &ro% in)estin' acti)ities. 3. (hey%ust be deducted in calculatin' cash &los &ro% in)estin' acti)ities. C.(hey %ust be added in calculatin' cash &los &ro% operatin' acti)ities.D. 3ecause the consolidated balance sheet and inco%e state%ent are

used in preparin' the consolidated state%ent o& cash &los, no specialeli%ination is re$uired. E. (hey %ust be deducted in calculatin' cash&los &ro% operatin' acti)ities. 6-" Chapter 06 - Variable InterestEntities, Intra-Entity Debt, Consolidated Cash Flo :. /o ouldconsolidated earnin's per share be calculated i& the subsidiary has nocon)ertible securities or arrants 2. ;arentar)in Co. a&ter the sale o& the 10,000 shares o& co%%on

stoc9 2. *1:,000. 3. *101,000. C. *":0,000. D. *"0,000. E.*16:,000. 6- Chapter 06 - Variable Interest Entities, Intra-Entity Debt,Consolidated Cash Flo 11. #oAas Co. oned ,000 shares B0= o& theoutstandin' 10=, *100 par pre&erred stoc9 and 60= o& the outstandin'co%%on stoc9 o& 3rett Co. 8hen 3rett reported net inco%e o&*:0,000, hat as the noncontrollin' interest in the subsidiary

8/13/2019 AATBCH6

3/14

8/13/2019 AATBCH6

4/14

tenty-&i)e percent as still in endin' in)entory at year

8/13/2019 AATBCH6

5/14

bonds payable is e4actly o&&set by a pre%iu% or discount on bondin)est%ent. 3. (here ill be *0 net 'ain or loss on the bondtransaction. C. Interest e4pense needs to be eli%inated on theconsolidated inco%e state%ent. D. Interest re)enue needs to beeli%inated on the consolidated inco%e state%ent. E. 2 net 'ain or loss

on the bond transaction ill be reported. "+. (he accountin' proble%sencountered in consolidated intra-entity debt transactions hen thedebt is ac$uired by an a&&iliate &ro% an outside party include all o& the&olloin' e4cept? 2. 3oth the in)est%ent and debt accounts ha)e to beeli%inated no and &or each &uture consolidated &inancial state%entdespite containin' di&&erin' balances. 3. ubse$uent interestre)enueGe4pense %ust be re%o)ed althou'h these balances &ail toa'ree in a%ount. C. 2 'ain or loss %ust be reco'ni7ed by both parentand subsidiary co%panies. D. Chan'es in the in)est%ent, debt,interest re)enue, and interest e4pense accounts occur constantlybecause o& the a%orti7ation process. E. (he 'ain or loss on the

retire%ent o& the debt %ust be reco'ni7ed by the businessco%bination in the year the debt is ac$uired, e)en thou'h this balancedoes not appear on the &inancial records o& either co%pany. 6-Chapter 06 - Variable Interest Entities, Intra-Entity Debt, ConsolidatedCash Flo "5. 8hich o& the &olloin' state%ents is true concernin' theac$uisition o& e4istin' debt o& a consolidated a&&iliate in the year o& thedebt ac$uisition 2. 2ny 'ain or loss is de&erred on a consolidatedinco%e state%ent. 3. 2ny 'ain or loss is reco'ni7ed on a consolidatedinco%e state%ent. C. Interest re)enue on the a&&iliated debt isreco'ni7ed on a consolidated inco%e state%ent. D. Interest e4penseon the a&&iliated debt is reco'ni7ed on a consolidated inco%e

state%ent. E. Consolidated retained earnin's is adAusted &or thedi&&erence beteen the purchase price and the carryin' )alue o& thebonds. "6. 8hich o& the &olloin' state%ents is &alse re'ardin' theassi'n%ent o& a 'ain or loss on interco%pany bond trans&er 2.ubsidiary net inco%e is not a&&ected by a 'ain on bond transaction. 3.ubsidiary net inco%e is not a&&ected by a loss on bond transaction. C.;arent Co%pany net inco%e is not a&&ected by a 'ain on bondtransaction. D. ;arent Co%pany net inco%e is not a&&ected by a loss onbond transaction. E. Consolidated net inco%e is not a&&ected by a 'ainor loss on bond transaction. ". 8hat ould di&&er beteen astate%ent o& cash &los &or a consolidated co%pany and an

unconsolidated co%pany usin' the indirect %ethod 2. ;arent

8/13/2019 AATBCH6

6/14

di)idends are deducted as a &inancin' acti)ity. 3. nly parent

8/13/2019 AATBCH6

7/14

there as an una%orti7ed discount o& *",000 and a re%ainin' li&e o& 5years, its :0= oned subsidiary, Matthes Co%pany, purchased thebonds in the open %ar9et &or *11,000. (he bonds pay 6= interestannually on Dece%ber 1. (he co%panies use the strai'ht-line %ethodto a%orti7e interest re)enue and e4pense. Co%pute the consolidated

'ain or loss on a consolidated inco%e state%ent &or "011. 2. *1,000'ain. 3. *1,000 loss. C. *",000 loss. D. *,000 loss. E. *,000 'ain. 5.eenan Co%pany has had bonds payable o& *"0,000 outstandin' &orse)eral years. n !anuary 1, "011, there as an una%orti7ed pre%iu%o& *",000 ith a re%ainin' li&e o& 10 years, eenan

8/13/2019 AATBCH6

8/14

subtracted &ro% net inco%e attributed to co%%on stoc9 in arri)in' atnoncontrollin' interest in subsidiary inco%e. C. the noncontrollin'interest balance ill be *","00. D. the pre&erred stoc9 di)idend ill bei'nored in noncontrollin' interest in subsidiary net inco%e because@ichols ons the noncontrollin' interest o& pre&erred stoc9. E. the

noncontrollin' interest in subsidiary net inco%e is *0,:00. (he&olloin' in&or%ation has been ta9en &ro% the consolidation or9sheeto& >raha% Co%pany and its :0= oned subsidiary, ta'e Co%pany.B1. >raha% reports a loss on sale o& land o& *5,000. (he land cost>raha% *"0,000. B". @oncontrollin' interest in ta'eraha% paid di)idends o& *15,000. B+. ta'e paiddi)idends o& *10,000. B5. E4cess ac$uisition-date &air )alue o)er boo9)alue as e4pensed by *6,000. B6. Consolidated accounts recei)abledecreased by *:,000. B. Consolidated accounts payable decreased by*,000. +1. /o is the loss on sale o& land reported on theconsolidated state%ent o& cash &los 2. *"0,000 added to net inco%e

as an operatin' acti)ity. 3. *"0,000 deducted &ro% net inco%e as anoperatin' acti)ity. C. *15,000 deducted &ro% net inco%e as anoperatin' acti)ity. D. *5,000 added to net inco%e as an operatin'acti)ity. E. *5,000 deducted &ro% net inco%e as an operatin' acti)ity.6-1+ Chapter 06 - Variable Interest Entities, Intra-Entity Debt,Consolidated Cash Flo +". 8here does the noncontrollin' interest inta'e

8/13/2019 AATBCH6

9/14

Consolidated Cash Flo +6. sin' the indirect %ethod, here does thedecrease in accounts payable appear in a consolidated state%ent o&cash &los 2. *,000 increase to net inco%e as an operatin' acti)ity.3. *,000 decrease to net inco%e as an operatin' acti)ity. C. *5,600increase to net inco%e as an operatin' acti)ity. D. *5,600 decrease to

net inco%e as an operatin' acti)ity. E. *,000 increase as a &inancin'acti)ity. 8ebb Co%pany ons 0= o& !ones Co%pany. (he ori'inalbalances presented &or !ones and 8ebb as o& !anuary 1, "011, are as&ollos? !ones sells "0,000 shares o& pre)iously unissued shares o& itsco%%on stoc9 to outside parties &or *10 per share. +. 8hat is theadAusted boo9 )alue o& !ones a&ter the sale o& the shares 2. *"00,000.3. *1,+00,000. C. *1,":0,000. D. *1,050,000. E. *1,++0,000. +:. 8hatis the ne percent onership o& 8ebb in !ones a&ter the stoc9issuance 2. 5=. 3. 0=. C. :0=. D. 6+=. E. 60=. 6-16 Chapter 06 -Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flo +.8hat adAust%ent is needed &or 8ebb

8/13/2019 AATBCH6

10/14

E. *+6+,000. 56. 8hat is #yan

8/13/2019 AATBCH6

11/14

potentially si'ni&icant bene&its o& the VIE. D. (he sponsorin' &ir% haspoer throu'h )otin' ri'hts to direct the entity

8/13/2019 AATBCH6

12/14

a year reports *50,000 @oncontrollin' Interest in /arry, Inc. Inco%e./arry paid di)idends in the a%ount o& *:0,000 &or the year. 8hat arethe e&&ects o& these transactions in the consolidated state%ent o& cash&los &or the year 2. 2 2bo)e 3. 3 2bo)e C. C 2bo)e D. D 2bo)e E. E2bo)e 0. >oehrin', Inc. ons 0 percent o& /arry, Inc. (he

consolidated inco%e state%ent &or a year reports *+0,000@oncontrollin' Interest in /arry, Inc. Inco%e. /arry paid di)idends inthe a%ount o& *100,000 &or the year. 8hat are the e&&ects o& thesetransactions in the consolidated state%ent o& cash &los &or the year2. Increase in the &inancin' section o& *0,000, and decrease in theoperatin' section o& *0,000. 3. Increase in the operatin' section o&*0,000, and decrease in the &inancin' section o& *0,000. C. Increasein the operatin' section o& *0,000. D. Decrease in the &inancin'section o& *0,000. E. @o e&&ects. 6-" Chapter 06 - Variable InterestEntities, Intra-Entity Debt, Consolidated Cash Flo 2nderson, Inc. hasoned 0= o& its subsidiary, 2rthur Corp., &or se)eral years. (he

consolidated balance sheets o& 2nderson, Inc. and 2rthur Corp. arepresented belo? 2dditional in&or%ation &or "011? 1. @et cash &lo&ro% operatin' acti)ities as? 2. *+,000. 3. *++,:00. C. *+6,"00. D.*50,000. E. *"5,000. ". @et cash &lo &ro% &inancin' acti)ities as? 2.*B":,000. 3. *B5,000. C. *B1,000. D. *B6,000. E. *B61,000. 6-"+Chapter 06 - Variable Interest Entities, Intra-Entity Debt, ConsolidatedCash Flo (he balance sheets o& 3utler, Inc. and its 0 percent-onedsubsidiary, Cassie Corp., are presented belo? 2dditional in&or%ation&or "011? . @et cash &lo &ro% operatin' acti)ities as? 2. *",000.3. *",000. C. *6,000. D. *",000. E. *+,000. +. @et cash &lo &ro%&inancin' acti)ities as? 2. *B1",000. 3. *B6,000. C. *B00,000. D.

*B:0,000. E. *B1"6,000. 6-"5 Chapter 06 - Variable Interest Entities,Intra-Entity Debt, Consolidated Cash Flo 5. /o do subsidiary stoc9arrants outstandin' a&&ect consolidated earnin's per share 2. (heyill be included in both basic and diluted earnin's per share i& they arediluti)e. 3. (hey ill only be included in diluted earnin's per share i&they are diluti)e. C. (hey ill only be included in basic earnin's pershare i& they are diluti)e. D. nly the arrants oned by the parentco%pany a&&ect consolidated earnin's per share. E. 3ecause thearrants are &or subsidiary shares, there ill be no e&&ect onconsolidated earnin's per share. 6. 2 parent co%pany ons acontrollin' interest in a subsidiary hose stoc9 has a boo9 )alue o& *"

per share. (he last day o& the year, the subsidiary issues ne sharesentirely to outside parties at * per share. (he parent still holdscontrol o)er the subsidiary. 8hich o& the &olloin' state%ents is true2. ince the sale as %ade at the end o& the year, the parent

8/13/2019 AATBCH6

13/14

ere sold &or %ore than boo9 )alue but the parent did not buy any o&the shares, the parent

8/13/2019 AATBCH6

14/14

Cash Flo :1. Fran9lin Corporation ons 0 percent o& the outstandin')otin' stoc9 o& >eor'ia Co%pany. n !anuary ", "00, >eor'ia sold percent bonds payable ith a *5,000,000 &ace )alue %aturin' !anuary", "0" at a pre%iu% o& *500,000. n !anuary 1, "011, Fran9linac$uired "0 percent o& these sa%e bonds on the open %ar9et at .66.

3oth co%panies use the strai'ht-line %ethod o& a%orti7ation. 8hatadAust%ent should be %ade to Fran9lin