Variable interest entities may be established as a. Corporations. b. Trusts. c. Partnerships. d. All of the above.
> Foster Corporation established Kline Company as a wholly owned subsidiary. Foster reported the following balance sheet amounts immediately before and after it transferred assets and accounts payable to Kline Company in exchange for 4,000 shares of $12 pa
> Foster Corporation established Kline Company as a wholly owned subsidiary. Foster reported the following balance sheet amounts immediately before and after it transferred assets and accounts payable to Kline Company in exchange for 4,000 shares of $12 pa
> Twill Company has a reporting unit with the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit’s net assets on Twill’s books is $575,000, which includes $90,000 of goodwill. The fair value of the reporting uni
> Lester Company transferred the following assets to a newly created subsidiary, Mumby Corporation, in exchange for 40,000 shares of its $3 par value stock: Required a. Give the journal entry in which Lester recorded the transfer of assets to Mumby Corp
> Lester Company transferred the following assets to a newly created subsidiary, Mumby Corporation, in exchange for 40,000 shares of its $3 par value stock: Required a. Give the journal entry in which Lester recorded the transfer of assets to Mumby Corp
> Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale transferred these assets, cash of $21,000, and inventory cos
> Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale transferred these assets, cash of $21,000, and inventory cos
> What is the basic idea underlying the preparation of consolidated financial statements?
> What is the noncontrolling interest in a subsidiary?
> Why are subsidiary shares not reported as stock outstanding in the consolidated balance sheet?
> What is meant by indirect control? Give an illustration.
> What characteristics are normally examined in determining whether a company is a primary beneficiary of a variable interest entity?
> How has reliance on legal control as a consolidation criterion led to off-balance sheet financing?
> Grout Company reports assets with a carrying value of $420,000 (including goodwill with a carrying value of $35,000) assigned to an identifiable reporting unit purchased at the end of the prior year. The fair value of the net assets held by the reporting
> When is consolidation considered inappropriate even though the parent holds a majority of the voting common shares of another company?
> What major criteria must be met before a company is consolidated?
> Why is ownership of a majority of the common stock of another company considered important in consolidation?
> Are consolidated financial statements likely to be more useful to the creditors of the parent company or the creditors of the subsidiaries? Why?
> What is meant by parent company? When is a company considered to be a parent?
> Are consolidated financial statements likely to be more useful to the owners of the parent company or to the noncontrolling owners of the subsidiaries? Why?
> How might consolidated statements help an investor assess the desirability of purchasing shares of the parent company?
> What is the difference between consolidated and combined financial statements?
> What must be done if the fiscal periods of the parent and its subsidiary are not the same?
> What means other than majority ownership might be used to gain control over a company? Can consolidation occur if control is gained by other means?
> Tear Company, a newly established subsidiary of Stern Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in exchange for 7,000 shares of Tear’s $8 par value common stock.
> How does a variable interest entity typically differ from a traditional corporate business entity?
> What types of entities are referred to as special-purpose entities, and how have they generally been used?
> Exacto Company reported the following net income and dividends for the years indicated: True Corporation acquired 75 percent of Exacto’s common stock on January 1, 20X5. On that date, the fair value of Exacto’s net a
> Quoton Corporation acquired 80 percent of Tempro Company’s common stock on December 31, 20X5, at underlying book value. The book values and fair values of Tempro’s assets and liabilities were equal, and the fair value
> Purified Oil Company and Midwest Pipeline Corporation established Venture Company to conduct oil exploration activities in North America to reduce their dependence on imported crude oil. Midwest Pipeline purchased all 20,000 shares of the newly created c
> On December 28, 20X3, Stern Corporation and Ram Company established S&R Partnership, with cash contributions of $10,000 and $40,000, respectively. The partnership’s purpose is to purchase from Stern accounts receivable that have an
> Tally Corporation and its subsidiary reported consolidated net income of $164,300 for 20X2. Tally owns 60 percent of the common shares of its subsidiary, acquired at book value. Noncontrolling interest was assigned income of $15,200 in the consolidated i
> Select the correct answer for each of the following questions. 1. What is the theoretically preferred method of presenting a noncontrolling interest in a consolidated balance sheet? a. As a separate item within the liability section. b. As a deduction fr
> Paper Company acquired 80 percent of Scissor Company’s outstanding common stock for $296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000. Problem 3-30 summarizes the first year
> Paper Company acquired 80 percent of Scissor Company’s outstanding common stock for $296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000. Paper uses the equity method to accoun
> In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n) a. Expense of the combined company for the period in which the costs were incurred. b. Direct addition to stockholders’ equity of the combine
> Paper Company acquired 80 percent of Scissor Company’s outstanding common stock for $296,000 on January 1, 20X8, when the book value of Scissor’s net assets was equal to $370,000. Paper uses the equity method to accoun
> Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Problem 3-34 summarizes the first year
> Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Peanut uses the equity method to accoun
> Peanut Company acquired 90 percent of Snoopy Company’s outstanding common stock for $270,000 on January 1, 20X8, when the book value of Snoopy’s net assets was equal to $300,000. Peanut uses the equity method to accoun
> Purple Corporation recently attempted to expand by acquiring ownership in Green Company. The following ownership structure was reported on December 31, 20X9: The following income from operations (excluding investment income) and dividend payments were
> On October 1, X Company acquired for cash all of Y Company’s outstanding common stock. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income for the year ended December 31 should include net income o
> Aaron Inc. owns 80 percent of the outstanding stock of Belle Inc. Compare the total consolidated net earnings of Aaron and Belle (X) and Aaron’s operating earnings before considering the income from Belle (Y). Assume that neither company incurs a net los
> Select the correct answer for each of the following questions. 1. Consolidated financial statements are typically prepared when one company has a. Accounted for its investment in another company by the equity method. b. Accounted for its investment in an
> Ownership of 51 percent of the outstanding voting stock of a company would usually result in a. The use of the cost method. b. The use of the lower-of-cost-or-market method. c. The use of the equity method. d. A consolidation.
> Select the correct answer for each of the following questions. Items 1 and 2 are based on the following: On January 2, 20X8, Pare Company acquired 75 percent of Kidd Company’s outstanding common stock at an amount equal to its underlyin
> Goodwill represents the excess of the sum of the fair value of the (1) consideration given, (2) shares already owned, and (3) the noncontrolling interest over the a. Sum of the fair values assigned to identifiable assets acquired less liabilities assume
> Consolidated statements are proper for Neely Inc., Randle Inc., and Walker Inc., if a. Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Randle owns 30 percent of Walker. b. Neely owns 100 percent of the outstandin
> Select the correct answer for each of the following questions. Items 1 and 2 are based on the following: On January 2, 20X8, Pare Company acquired 75 percent of Kidd Company’s outstanding common stock at an amount equal to its underlyin
> Select the correct answer for each of the following questions. 1. Special-purpose entities generally a. Have a much larger portion of assets financed by equity shareholders than do companies such as General Motors. b. Have relatively large amounts of pre
> In determining whether or not a variable interest entity is to be consolidated, the FASB focused on a. Legal control. b. Share of profits and obligation to absorb losses. c. Frequency of intercompany transfers. d. Proportionate size of the two entities.
> An enterprise that will absorb a majority of a variable interest entity’s expected losses is called the a. Primary beneficiary. b. Qualified owner. c. Major facilitator. d. Critical management director.
> Consolidated financial statements are typically prepared when one company has a controlling interest in another unless a. The subsidiary is a finance company. b. The fiscal year-ends of the two companies are more than three months apart. c. Circumstances
> Select the correct answer for each of the following questions. 1. When a parent–subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of a. Reliability. b. Materiality. c. Legal entity. d.
> Which of the following is the best theoretical justification for consolidated financial statements? a. In form, the companies are one entity; in substance, they are separate. b. In form, the companies are separate; in substance, they are one entity. c. I
> Penn Inc., a manufacturing company, owns 75 percent of the common stock of Sell Inc., an investment company. Sell owns 60 percent of the common stock of Vane Inc., an insurance company. In Penn’s consolidated financial statements, should Sell and Vane be
> A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. In exchange for 40 percent of its voting stock A Company, acquires
> Many well-known products and names come from companies that may be less well known or may be known for other reasons. In some cases, an obscure parent company may have well-known subsidiaries, and often familiar but diverse products may be produced under
> Dell Computer Corp. and CIT Group Inc. established Dell Financial Services LP (DFS) as a joint venture to provide financing services for Dell customers. Dell originally purchased 70 percent of the equity of DFS and CIT purchased 30 percent. In the initia
> The concept of the accounting entity often is considered to be the most fundamental of accounting concepts, one that pervades all of accounting. For each of the following, indicate whether the entity concept is applicable; discuss and give illustrations.
> A reader of Gigantic Company’s consolidated financial statements received from another source copies of the financial statements of the individual companies included in the consolidation. The person is confused by the fact that the total assets in the co
> A variety of organizational structures are used by major companies, and different approaches to consolidation are sometimes found. Two large and familiar U.S. corporations are Union Pacific and ExxonMobil. a. Many large companies have tens or even hundre
> A variable interest entity (VIE) is a structure frequently used for off-balance sheet financing. VIEs have become quite numerous in recent years and have been the subject of some controversy. a. Briefly explain what is meant by off-balance sheet financ
> The International Accounting Standards Board (IASB) is charged with developing a set of high quality standards and encouraging their adoption globally. Standards promulgated by the IASB are called International Financial Reporting Standards (IFRS). The E
> During previous merger booms, a number of companies acquired many subsidiaries that often were in businesses unrelated to the acquiring company’s central operations. In many cases, the acquiring company’s management was unable to manage effectively the m
> How does the consolidation process change when consolidated statements are prepared after— rather than at—the date of acquisition?
> How are extraordinary items of the investee disclosed by the investor under equity-method reporting?
> In a business combination in which an acquiring company purchases 100 percent of the outstanding common stock of another company, if the fair value of the net identifiable assets acquired exceeds the fair value of the consideration given. The excess shou
> Troy Company notified Kline Company’s shareholders that it was interested in purchasing controlling ownership of Kline and offered to exchange one share of Troy’s common stock for each share of Kline Company submitted by July 31, 20X7. At the time of the
> How do service, merchandising, and manufacturing companies differ from each other? How are service, merchandising, and manufacturing companies similar to each other? List as many similarities and differences as you can identify.
> Explain why “differential cost” and “variable cost” do not have the same meaning. Give an example of a situation in which there is a cost that is a differential cost but not a variable cost.
> What makes a cost relevant or irrelevant when making a decision? Suppose a company is evaluating whether to use its warehouse for storage of its own inventory or whether to rent it out to a local theater group for housing props. Describe what informatio
> How are the cost of goods manufactured, the cost of goods sold, the income statement, and the balance sheet related for a manufacturing company? What specific items flow from one statement or schedule to the next? Describe the flow of costs between the c
> Describe how the income statement of a merchandising company differs from the income statement of a manufacturing company. Also comment on how the income statement from a merchandising company is similar to the income statement of a manufacturing company
> Stakeholders are frequently the reason that companies adopt sustainable practices. Think of an organization with which you are familiar. List as many stakeholders as you can think of for this organization. For each stakeholder listed, describe why that s
> Oftentimes, an investment in sustainable technology is more costly than a comparable investment in traditional technology. What arguments can you make for the investment in sustainable technology? What arguments can you make for the investment in traditi
> Compare product costs to period costs. Using a product of your choice, give examples of product costs and period costs. Explain why you categorized your costs as you did.
> The effect of sustainability on the environment is probably the most visible component of the triple bottom line. For a company with which you are familiar, list two examples of its sustainability efforts related to the planet.
> Information from an environmental management accounting (EMA) system can be used to support managers and their primary responsibilities of planning, directing, and control-ling. Think of an organization you’re familiar with. Give an example of informatio
> Compare and contrast a master budget and a flexible budget.
> Perform an online search on the terms “carbon offset” and “carbon footprint.” What is a carbon footprint? What is a carbon offset? Why would carbon offsets be of interest to a company? What are some companies that offer (sell) carbon offsets?
> What types of EMA information might be reported internally by this company? Make reasonable “guesses”; the annual report will not give this information directly. Use your imagination.
> What environmental goals does this company have for the upcoming five to ten years?
> What environmental accounting information does this company report?
> Perform an online search for sustainability issues in the industry in which this organization operates. Does the company appear to be addressing the sustainability issues of the industry?
> Judging from the information in the report(s) from the company, does the company appear to emphasize profits, environment, or society? Or does the company appear to give equal emphasis to each component of the triple bottom line? Justify your answer.
> Suppose a company has a relatively high inventory turnover. What does the high inventory turnover indicate about the company’s short-term liquidity?
> What does the accounts receivable turnover measure? What does a relatively high ac-counts receivable turnover indicate about a company?
> What is meant by the term product costs? What is meant by the term period costs? Why does it matter whether a cost is a product cost or a period cost?
> Describe horizontal analysis. Describe vertical analysis. What is each technique used for? How are the two methods similar? How are they different?
> Define residual income. How is it calculated? Describe the major weakness of residual income.
> Describe at least four financial conditions that may signal financial trouble.
> Compare and contrast the current ratio and the quick ratio.
> Describe at least two reasons that a company’s ratios might not be comparable over time.
> Describe the set of circumstances that could result in net income increasing while return on investment (ROI) decreases.
> Assume a company has a current ratio of 2.0. List two examples of transactions that could cause the current ratio to increase. Also list two examples of transactions that could cause the current ratio to decrease.
> How is the current ratio calculated? What is it used to measure? How is it interpreted?
> Describe why book value per share of common stock may not be useful for investment analysis.
> Calculate at least two ratios that help to analyze the stock as an investment.
> Calculate at least two ratios that measure profitability.
