ch6 Key1. On January 1, 2009, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620 and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2009? A. The difference is added to the carrying value of the debt B. The difference is deducted from the carrying value of the debt C. The difference is treated as a loss from the extinguishment of the debt D. The difference is treated as a gain from the extinguishment of the debt E. The difference does not influence the consolidated financial statements Difficulty: Easy Hoyle - Chapter 06 #1 2. Safire Corp. recently acquired $500,000 of the bonds of Regency Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intercompany transaction, to whom would the loss be attributed? A. To Regency because the bonds were issued by Regency B. The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt C. The loss should be amortized over the life of the bonds and need not be attributed to either party D. The loss should be deferred until it can be determined to whom the attribution can be made E. To Safire because Safire is the controlling party in the business combination Difficulty: Easy Hoyle - Chapter 06 #2 3. Which one of the following characteristics of preferred stock would make the stock a dilutive security for earnings per share? A. The preferred stock is callable B. The preferred stock is convertible C. The preferred stock is cumulative D. The preferred stock is non-cumulative E. The preferred stock is participating Difficulty: Medium Hoyle - Chapter 06 #3 4. Where do dividends paid to the non-controlling interest of a subsidiary appear on a consolidated statement of cash flows? A. Cash flows from operating activities B. Cash flows from investing activities C. Cash flows from financing activities D. Supplemental schedule of non-cash investing and financing activities E. They do not appear on the consolidated statement of cash flows Difficulty: Easy Hoyle - Chapter 06 #4 5. Where do dividends paid by a subsidiary to the parent company appear on a consolidated statement of cash flows? A. Cash flows from operating activities B. Cash flows from investing activities C. Cash flows from financing activities D. Supplemental schedule of non-cash investing and financing activities E. They do not appear on the consolidated statement of cash flows Difficulty: Easy Hoyle - Chapter 06 #5 6. Where do intercompany sales of inventory appear on a consolidated statement of cash flows? A. They do not appear on the consolidated statement of cash flows B. Supplemental schedule of non-cash investing and financing activities C. Cash flows from operating activities D. Cash flows from investing activities E. Cash flows from financing activities Difficulty: Easy Hoyle - Chapter 06 #6 7. How do intercompany sales of inventory affect the preparation of a consolidated statement of cash flows? A. They must be added in calculating cash flows from investing activities B. They must be deducted in calculating cash flows from investing activities C. They must be added in calculating cash flows from operating activities D. Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required E. They must be deducted in calculating cash flows from operating activities Difficulty: Easy Hoyle - Chapter 06 #7 8. How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants? A. Parent's earnings per share plus subsidiary's earnings per share B. Parent's net income divided by parent's number of shares outstanding C. Consolidated net income divided by parent's number of shares outstanding D. Average of parent's earnings per share and subsidiary's earnings per share E. Consolidated income divided by total number of shares outstanding for the parent and subsidiary Difficulty: Easy Hoyle - Chapter 06 #8 On January 1, 2009, Riney Co. owned 85% of the common stock of Garvin Co. On that date, Garvin's stockholders' equity accounts had the following balances: The balance in Riney's Investment in Garvin Co. account was $569,500 and the non-controlling interest was $100,500. On January 1, 2009, Garvin Co. sold 10,000 shares of previously unissued common stock for $15 per share. Riney did not acquire any of these shares. Hoyle - Chapter 06 9. What is the balance in Investment in Garvin Co. after the sale of the 10,000 shares of common stock? (Do not round calculation of new interest.) A. $569,500 B. $580,833 C. $558,167 D. $584,500 E. $615,000 Difficulty: Medium Hoyle - Chapter 06 #9 10. What is the balance in Non-controlling Interest in Garvin Co. after the sale of the 10,000 shares of common stock? (Do not round calculation of new interest.) A. $100,500 B. $239,167 C. $261,833 D. $250,500 E. $205,000 Difficulty: Medium Hoyle - Chapter 06 #10 11. Rojas Co. owned 7,000 shares (70%) of the outstanding 10%, $100 par preferred stock and 60% of the outstanding common stock of Brett Co. When Brett reported net income of $780,000, what was the non-controlling interest in the subsidiary's income? A. $234,000 B. $273,000 C. $302,000 D. $312,000 E. $284,000 Difficulty: Hard Hoyle - Chapter 06 #11 Stoop Co. owned 80% of the common stock of Knight Co. Knight had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $10 and is convertible into four shares of common stock. Stoop did not own any of Knight's preferred stock. Knight also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Knight's annual after-tax interest expense for the bonds was $22,000. Stoop did not own any of Knight's bonds. Knight reported income of $300,000 for 2009. Hoyle - Chapter 06 12. What was the amount of Knight's earnings that should be included in calculating consolidated diluted earnings per share? A. $300,000 B. $240,000 C. $257,600 D. $322,000 E. $201,250 Difficulty: Hard Hoyle - Chapter 06 #12 13. Knight's diluted earnings per share (rounded) is calculated to be A. $5.62 B. $3.26 C. $3.11 D. $5.03 E. $4.28 Difficulty: Hard Hoyle - Chapter 06 #13 000 in cash dividends.000 B. Reduction of $19. $42. Reduction of $27. Sparrish acquired in the open market $70. $378.000. What is the non-controlling interest's share of the subsidiary's net income? A. $406. earned $140.200 based on a 12% effective interest rate over the remaining life of the bonds. Subsequently.000 in net income and distributed $14.000 D.000. Sparrish paid $65.000 in 2009 while Quasimota reported interest expense of $29. owned all of Quasimota Co. Vontkins Inc. The subsidiary had bonds payable outstanding on January 1.000 C. Campbell reported interest income of $31. 2010? A. Consolidated financial statements were prepared for 2010.000 E. owned all of Gordon Corp.000 of Tray's 8% bonds. an investment that it originally purchased at a price equal to the book value of the underlying net assets.14.000 C. $410. $37. For 2009. Campbell reported net income (without consideration of its investment in Gordon) of $280.000 Difficulty: Medium Hoyle .000.000. Sparrish Co. $39.000 while Gordon reported interest expense of $29.000 E. On the date of purchase. reported current earnings of $560. 2009. Tray Co. Tray used the initial value method to account for these shares.600 D.000.Chapter 06 #16 . The bonds had originally been issued several years ago at 92. $394.000 Difficulty: Medium Hoyle . Reduction of $20. The parent acquired the bonds on that date for $288. Campbell Inc. The subsidiary had bonds payable outstanding on January 1.600. 2009. with a book value of $265. the book value of the bonds payable was $67.Chapter 06 #14 15.800 C. Reduction of $30.000. 2009. During 2009.000 B.080 Difficulty: Medium Hoyle . What is consolidated net income for 2009? A.000 while the subsidiary reported $112. Reduction of $4.Chapter 06 #15 16. with a book value of $297. On January 1. reflecting a 10% effective interest rate. $374. Vontkins reported interest income of $25.070 E. $40.000 B.000 while paying $56. Tray held a 70% interest in Sparrish for several years. What adjustment would have been required for the retained earnings balance as of January 1.000 in dividends. $44.000. The parent acquired the bonds on that date for $281.000 D. 000 was transferred from Knieval to Cadion (upstream) during the year for $56. Of this amount. No intercompany debt existed at the beginning or ending of the year. Cadion Co. $6. It is not affected since the shares were sold to outside parties Difficulty: Medium Hoyle . $18.000.Chapter 06 #18 19.000.400 C.400 E. Although the Investment in Odom Inc.000 during 2009 while Knieval reported $280. 2010. On January 1.000 new shares to the public for $70 per share.000 E.000 B. what portion of the value would be assigned to the non-controlling interest? A. the subsidiary's 12. $644. $602.120 B. Using the direct approach. It should be decreased by $128.000 shares had an underlying book value of only $56 per share.500. account had a balance of $834.000. If 90% of this company's equity was acquired by another.000. $714. what is the consolidated amount of cash collected by the business combination from its customers? A. $7. owned control over Knieval Inc.000.000 C. It should be increased by $48.000 D.Chapter 06 #17 18.000.000 D. and 7% preferred stock with a total par value of $6.17. Inventory costing $28.000 Difficulty: Medium Hoyle .000 at year-end.000 B.000. How does this transaction affect the Investment in Odom Inc.000 E. $686.000 and a fair value of $8.000. $2.400.929.000. $6. The book value of the company was $185.000.000 D.000 C.000 and fair value of $62.000 at the first of the year and $154.000. twenty-five percent was still in ending inventory at year's end. Odom issued 3.200.400 Difficulty: Easy Hoyle . A company had common stock with a total par value of $18. account? A.000. Parker owned all of Odom Inc. It should be decreased by $141. Cadion reported sales of $420. Total receivables on the consolidated balance sheet were $112. It should be increased by $176.Chapter 06 #19 . $592. Cocker issued 10. Increase it by $28. $0 B. How would this transaction affect the additional paid-in capital of the parent company? A. 2009. Popper acquired 8. 2009.000 of these shares. Decrease it by $68. On January 1.000 with any excess cost being allocated to goodwill.700 B. On January 1. How would this transaction affect the additional paid-in capital of the parent company? A. 2004. 2009.240 C. on January 1.800 C. 2009. Cocker reported a net book value of $1. Increase it by $280.113. $0 D. Increase it by $16.Chapter 06 #21 .060 E. To acquire this interest in Cocker. On January 1. thereby reflecting the change in book value of Cocker. purchased 80% of the common stock of Cocker Co.000 additional shares of common stock for $21 per share. Decrease it by $45. Popper Co. which has been measured for impairment annually and has not been determined to be impaired as of January 1.000 before the following transactions were conducted. Decrease it by $43. Popper paid a total of $682.000 additional shares of common stock for $35 per share. when Cocker had the following stockholders' equity accounts.Chapter 06 #20 21. Cocker issued 10.680 Difficulty: Medium Hoyle .250 D. Hoyle .Chapter 06 20.600 Difficulty: Easy Hoyle . Popper uses the equity method to account for its investment in Cocker. Decrease it by $23.These questions are based on the following information and should be viewed as independent situations.000 E. Popper did not acquire any of this newly issued stock. Increase it by $593. Chapter 06 #22 23. The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired.Chapter 06 #24 . A gain or loss must be recognized by both parent and subsidiary companies D. On January 1. How would this transaction have affected the additional paid-in capital of the parent company? A. $0 B.900 C.22. 2009. Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances B. Interest revenue needs to be eliminated on the consolidated income statement E.Chapter 06 #23 24. The accounting problems encountered in consolidated intercompany debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except: A. Changes in the investment. Interest expense needs to be eliminated on the consolidated income statement D. Decrease it by $49. Decrease it by $50. Subsequent interest revenue/expense must be removed although these balances fail to agree in amount C. Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment B. interest revenue and interest expense accounts occur constantly because of the amortization process E. A net gain or loss on the bond transaction will be reported Difficulty: Medium Hoyle . Decrease it by $45. which of the following statements is false? A. debt. Cocker reacquired 8.400 E. If newly issued debt is issued from a parent to its subsidiary. There will be $0 net gain or loss on the bond transaction C.000 of the outstanding shares of its own common stock for $34 per share.500 Difficulty: Medium Hoyle .700 D. None of these shares belonged to Popper. Decrease it by $32. even though this balance does not appear on the financial records of either company Difficulty: Medium Hoyle . What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method? A. All of parent's dividends and non-controlling interest of subsidiary's dividends are deducted as a financing activity E. Parent's dividends and subsidiary's dividends are deducted as a financing activity B. Interest expense on the affiliated debt is recognized on a consolidated income statement E. Subsidiary net income is not affected by a loss on bond transaction C. Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity D. Interest revenue on the affiliated debt is recognized on a consolidated income statement D.Chapter 06 #27 28. Parent Company net income is not affected by a gain on bond transaction D. Consolidated net income is not affected by a gain or loss on bond transaction Difficulty: Medium Hoyle . Any gain or loss is recognized on a consolidated income statement C.Chapter 06 #28 . Which of the following statements is false regarding the assignment of a gain or loss on intercompany bond transfer? A.Chapter 06 #26 27. Gain on sale of land would be deducted from net income C. Parent's dividends would be subtracted as a financing activity B. Any gain or loss is deferred on a consolidated income statement B. Proceeds from the sale of long-term investments would be added to investing activities E. Loss on sale of equipment would be added to net income Difficulty: Easy Hoyle . Non-controlling interest in net income of subsidiary would be added to net income D. Parent Company net income is not affected by a loss on bond transaction E. Subsidiary net income is not affected by a gain on bond transaction B. Neither parent's or subsidiary's dividends are deducted as a financing activity Difficulty: Medium Hoyle . Which of the following statements is true for a consolidated statement of cash flows? A. Consolidated retained earnings is adjusted for the difference between the purchase price and the carrying value of the bonds Difficulty: Medium Hoyle .Chapter 06 #25 26. Only parent's dividends are deducted as a financing activity C.25. Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition? A. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value E. The parent's additional paid-in capital will be decreased E. In reporting consolidated earnings per share when there is a wholly owned subsidiary.Chapter 06 #31 . Parent company earnings per share equals consolidated earnings per share when the equity method is used B. The investment in subsidiary will increase E. If a subsidiary issues additional common shares at below book value to outsiders.Chapter 06 #29 30.29. Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used C. Retained earnings will increase D. Additional paid-in capital will decrease C. which of the following statements is true? A. The parent's retained earnings will be increased D. If a parent acquires all of the additional common shares issued by its subsidiary at greater than book value. The parent's investment in subsidiary will be increased C. The parent's retained earnings will be decreased Difficulty: Medium Hoyle . Preferred dividends are not deducted from net income for consolidated earnings per share Difficulty: Medium Hoyle . which of the following statements is true? A. which of the following statements is true? A. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value D.Chapter 06 #30 31. The parent's additional paid-in capital will be increased B. The investment in subsidiary will decrease B. No adjustment will be necessary Difficulty: Medium Hoyle . No adjustment is necessary Difficulty: Medium Hoyle . Compute the consolidated gain or loss on a consolidated income statement for 2009. No adjustment is necessary Difficulty: Medium Hoyle . The companies use the straight-line method to amortize interest revenue and expense. Investment in subsidiary on the parent's books will increase B. 2009. Matthews Company. when there was an unamortized discount of $2. which of the following statements is true? A. Additional paid-in capital on the parent company's books will decrease B. which of the following statements is true? A. Its 80% owned subsidiary. If a subsidiary issues a stock dividend. A. The bonds pay 6% interest annually on December 31. Investment in subsidiary on the parent's books will decrease C.000 loss E. $1. purchased the bonds in the open market for $11.000 loss C. Stevens Company has had bonds payable of $10.32. On January 1.000 loss D. Investment in subsidiary will increase C.Chapter 06 #34 . $3. Additional paid-in capital on the parent's books will increase D. $3. Treasury stock on the parent's books will decrease E. $2. Treasury stock on the parent's books will increase D.000 outstanding for several years.000.Chapter 06 #32 33. If a subsidiary reacquires its outstanding shares from outside ownership for more than book value.000 and a remaining life of 5 years.000 gain B. $1.000 gain Difficulty: Easy Hoyle . Additional paid-in capital on the parent's books will increase E.Chapter 06 #33 34. Chapter 06 #36 .000 for Investment in Smith's Common Stock and $124. $1. Keenan Company has had bonds payable of $20.000.. Inc. $2.324. A. $1. Keenan's parent. when there was an unamortized premium of $2. The consideration transferred by Nichols was $1.000 loss C. $3. $1. The companies use the straight-line method to amortize interest revenue and expense. 2009. Any excess acquisition-date fair value over book value is considered goodwill.000 for Investment in Smith B.000 gain Difficulty: Easy Hoyle .000 outstanding for several years. Keenan is a 90% owned subsidiary of Ross.Chapter 06 #35 On January 1. $1. Determine the amount and account to be recorded for Nichols' investment in Smith. 2009.000 for Investment in Smith's Common Stock and $120. Compute the consolidated gain or loss on a consolidated income statement for 2009.000 for the preferred. $1.200.200. On January 1.000 loss E.200.000 gain B. $1. The bonds pay 8% interest annually on December 31.35.000 gain D.000 for Investment in Smith's Common Stock Difficulty: Medium Hoyle .000 for the common and $124.Chapter 06 36.000 for Investment in Smith's Preferred Stock E. A. purchased the bonds in the open market for $19. The capital structure of Smith immediately prior to the acquisition is: Hoyle .000 for Investment in Smith C.000 for Investment in Smith's Preferred Stock D.448. $3. Nichols Company acquired 80% of Smith Company's common stock and 40% of its non-voting. Ross.000 with a remaining life of 10 years. cumulative preferred stock.200. $1. A.000 and debit Additional paid-in capital $200.000 B. $310.000 C. $120. Debit Common stock $500. $124.000 Difficulty: Medium Hoyle . Debit Common stock $400. Debit Common stock $400. If Smith's net income is $100.000 D. The non-controlling interest balance will be $27.200 D. $(196.000. A. debit Additional paid-in capital $200.000 C. $300. A.000 Difficulty: Medium Hoyle .000 in the year following the acquisition. $800.Chapter 06 #37 38.000 B.000 C. $150.800 B.000 and debit Preferred stock $120. Debit Common stock $500.Chapter 06 #39 40. debit Preferred stock $120. debit Preferred stock $300.000 E. Compute the goodwill recognized in consolidation. $10.800 Difficulty: Hard Hoyle . $486. $0 E.000.37.000.800 preferred stock dividend will be subtracted from net income attributed to common stock in arriving at non-controlling interest in subsidiary income C. Compute the non-controlling interest in Smith at date of acquisition.Chapter 06 #38 39.000 and debit Additional paid-in capital $160.Chapter 06 #40 . The preferred stock dividend will be ignored in non-controlling interest in subsidiary net income because Nichols owns the non-controlling interest of preferred stock E.000 and debit Retained earnings $500.000) Difficulty: Medium Hoyle . The consolidation entry at date of acquisition will include (referring to Smith): A.000 D.000 E.000 D. The non-controlling interest in subsidiary net income is $30.000 B. $480.000 and debit Preferred stock $300. The portion allocated to the common stock (residual amount) is $92. Debit Common stock $500. (4. $30. (5. (1.000. (7.000.000.000 decrease as an investing activity on the consolidated statement of cash flows E.000 added to net income as an operating activity on the consolidated statement of cash flows B. Non-controlling interest in Stage's net income does not appear on a consolidated statement of cash flows Difficulty: Medium Hoyle . (2.000 decrease as a financing activity Difficulty: Medium Hoyle . Hoyle .000 deducted from net income as an operating activity Difficulty: Medium Hoyle .000 deducted from net income as an operating activity C. $15.Chapter 06 41. $30. $15. Stage Company. How will dividends be reported on consolidated statement of cash flows? A. $17.000.Chapter 06 #42 43.000 decrease as a financing activity E. $25. (3.000.Chapter 06 #43 . $5. $30. (6. $5.000.000.) Consolidated accounts payable decreased by $7.000 deducted from net income as an operating activity D.000 added to net income as an operating activity E. $10.) Graham paid dividends of $15.000 increase as an investing activity on the consolidated statement of cash flows D. Where does the non-controlling interest in Stage's net income appear on a consolidated statement of cash flows? A.The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary.) Non-controlling interest in Stage's net income was $30. The land cost Graham $20. $30.000 decrease as a financing activity C.) Consolidated accounts receivable decreased by $8.) Excess acquisition-date fair value over book value was expensed by $6. How is the loss on sale of land reported on the consolidated statement of cash flows? A.000 deducted from net income as an operating activity on the consolidated statement of cash flows C. $20. $23.000 decrease as a financing activity B.Chapter 06 #41 42.) Graham reports a loss on sale of land of $5.) Stage paid dividends of $10.000 decrease as a financing activity D.000. $20.000 added to net income as an operating activity B. $8.800 subtracted from net income D. $6.000 increase to net income as an operating activity B.000 increase to net income as an operating activity B. $6.600 decrease to net income as an operating activity E.Chapter 06 #45 46. $5.600 increase to net income as an operating activity D. $4. $8.Chapter 06 #46 Webb Company owns 90% of Jones Company. $7.000 decrease to net income as an operating activity C. The original balances presented for Jones and Webb as of January 1.400 increase to net income as an operating activity D. where does the decrease in accounts receivable appear on a consolidated statement of cash flows? A. How is the amount of excess acquisition-date fair value over book value recognized on a consolidated statement of cash flows assuming the indirect method is used? A.400 decrease to net income as an operating activity E. $4.Chapter 06 . Using the indirect method. Hoyle . are as follows: Jones sells 20.000 increase as an investing activity Difficulty: Easy Hoyle . $7.800 added to net income Difficulty: Medium Hoyle . $6.000 added to net income E. $6. It is ignored B.000 subtracted from net income C. $8.000 increase as a financing activity Difficulty: Easy Hoyle . Using the indirect method.000 shares of previously unissued shares of its common stock to outside parties for $10 per share. $7.000 decrease to net income as an operating activity C. $5. where does the decrease in accounts payable appear on a consolidated statement of cash flows? A.Chapter 06 #44 45.44. 2009. $1. 2009 are as follows: Assume Jones issues 20. What is the adjusted book value of Jones after the sale of the shares? A.000 shares to maintain its 90% interest in Jones.000 B. $30. $1. $180.000 D.000 C. $1. 90% C.47. The original balances presented for Jones and Webb as of January 1.000 new shares of its common stock for $15 per share.440.000 increase B.280. $180.000 decrease E. Webb acquires 18.Chapter 06 #48 49. $1. $30. Hoyle .400.050.000 Difficulty: Medium Hoyle . What is the new percent ownership of Webb in Jones after the stock issuance? A.Chapter 06 #47 48. $200.000 decrease C. 75% B. 60% Difficulty: Medium Hoyle . No adjustment is necessary Difficulty: Medium Hoyle .Chapter 06 . What adjustment is needed for Webb's investment in Jones account? A. 80% D.Chapter 06 #49 Webb Company owns 90% of Jones Company.000 increase D. 64% E.000 E. Of this total. 75% E.000 B.000 decrease E.5% C. $27.000 increase B.335.Chapter 06 #52 . What is the new percent ownership Ryan owns in Chase? A. $27.000 C. No adjustment is necessary Difficulty: Medium Hoyle . Hoyle . $1. 80% B. 87. what adjustment is needed for Webb's investment in Jones account? A.Chapter 06 #51 Ryan Company owns 80% of Chase Company.Chapter 06 52. The original balances presented for Ryan and Chase as of January 1. $270. 90% D.200.500. $1. $1.000 D.000 decrease C.000 additional shares common stock solely to Ryan for $12 per share. are as follows: Assume Chase issues 30. After acquiring the additional shares. What is the adjusted book value of Jones after the stock issuance? A.50. $270.000 E. $1.Chapter 06 #50 51. 82.000 Difficulty: Medium Hoyle . $1. 2009.000 increase D.080.5% Difficulty: Medium Hoyle .350. Chapter 06 #54 Ryan Company owns 80% of Chase Company. $336. $720.000 B. $320.000 C. 2009 are as follows: Assume Chase reacquired 8. What is the adjusted book value of Chase Company after the issuance of the shares? A. No adjustment is necessary Difficulty: Medium Hoyle .000 D. $760.000 Difficulty: Medium Hoyle . $464.Chapter 06 #55 .000 shares of its common stock from outsiders at $10 per share.000 C.000 E.000 decrease E.000 Difficulty: Medium Hoyle . The original balances presented for Ryan and Chase as of January 1. $608.Chapter 06 #53 54.53. $70. $400. what adjustment is needed for Ryan's investment in Chase account? A. $15. $480.000 increase B. What should the adjusted book value of Chase be after the treasury shares were purchased? A. $15. $400. After acquiring the additional shares.000 D.Chapter 06 55.000 E. $70.000 increase D. Hoyle . $680.000 B.000 decrease C. 80% B. 64% D. Asset purchase options Difficulty: Medium Hoyle . 69% Difficulty: Medium Hoyle .Chapter 06 #59 . A special purpose entity can take all of the following forms except a A. Corporation E. 76% E. Guarantees of debt B. When Ryan's new percent ownership is rounded to a whole number. $64. $60. what adjustment is needed for Ryan's investment in Chase account? A.000 decrease C. All of the following are examples of variable interests except A. Stock options C. Partnership C.Chapter 06 #56 57. What is Ryan's percent ownership in Chase after the acquisition of the treasury shares (rounded)? A. $16. Participation rights E. $64. Lease residual value guarantees D. Joint venture D.000 increase D. 95% C. Estate Difficulty: Easy Hoyle .56. Trust B.000 decrease E.Chapter 06 #58 59.000 decrease B. No adjustment is necessary Difficulty: Medium Hoyle .Chapter 06 #57 58. corporation or estate Difficulty: Medium Hoyle . 2) A VIE may be created specifically to benefit its sponsoring firm with low-cost financing. joint venture. A VIE cannot take the form of a trust. No ability to make decisions about the entity's activities E. 3 and 4 Difficulty: Easy Hoyle . 1. Which of the following statements is false concerning variable interest entities (VIEs)? A. VIEs have little need for voting stock E. Most VIEs are established for valid business purposes C. The obligation to absorb the expected losses of the entity if they occur D. The direct ability to make decisions about the entity's activities B.60. Entitles holder to receive shares of common stock D. The indirect ability to make decisions about the entity's activities C.Chapter 06 #63 . VIEs may be formed as a source of low-cost financing D. Entitles holder to benefit from increases in asset fair value C. 3) VIE governing agreements often limit activities and decision making.Chapter 06 #62 63. honoring the guarantee will produce a loss Difficulty: Medium Hoyle . 1. If the special purpose entity cannot repay liabilities. partnership. Sometimes VIEs do not have independent management B. The right to receive the expected residual returns of the entity if they occur Difficulty: Easy Hoyle . Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity? A. 3 and 4 C. If leased asset declines below the residual value. 4) VIEs usually have a well-defined and limited business activity. 2.Chapter 06 #60 61. 2 and 4 D. 2 and 4 B. A. 2 and 3 E. 1. Entitles holder to residual profits B. All of the following are potential losses or returns of a special purpose entity except A. 2. honoring a debt guarantee will produce a loss E.Chapter 06 #61 62. Which of the following statements is true concerning variable interest entities (VIEs)? 1) The role of the VIE equity investors can be fairly minor. A parent acquires 70% of a subsidiary's common stock and 60 percent of its preferred stock. The sponsoring firm has only indirect ability to make decisions about the entity's activities Difficulty: Medium Hoyle . No dividends are in arrears. Income is assigned as 40 percent of the value of the preferred stock. The current year's dividend was paid. Income is assigned as 40 percent of the preferred stock dividends D. Income is assigned as 40 percent of the subsidiary's income before preferred stock dividends E. How is the non-controlling interest in the subsidiary's net income assigned? A. There is no allocation to the non-controlling interest because there are no dividends in arrears C. Income is assigned as 40 percent of the subsidiary's income after subtracting preferred stock dividends Difficulty: Medium Hoyle . based on an allocation between common stock and preferred stock and their relative par values B. How is the non-controlling interest in the subsidiary's net income assigned? A. The sponsoring firm has direct ability to make decisions about the entity's activities E. A parent acquires all of a subsidiary's common stock and 60 percent of its preferred stock. The sponsoring firm receives risks and rewards of the VIE in proportion to equity ownership C. Income is assigned as 40 percent of the value of the preferred stock. Which of the following is not an indicator that requires a sponsoring firm to consolidate a variable interest entity (VIE) with its own financial statements? A. based on an allocation between common stock and preferred stock B. The preferred stock is non-cumulative. There is no allocation to the non-controlling interest because the parent owns 100% of the common stock and net income belongs to the residual owners C.Chapter 06 #64 65. The preferred stock has a cumulative dividend. Income is assigned as 40 percent of the preferred stock dividends plus 30% of the subsidiary's income after subtracting all preferred stock dividends E. Income is assigned as 40 percent of the preferred stock dividends D. The sponsoring firm has the obligation to absorb the expected losses of the VIE if they occur B.Chapter 06 #65 66. Income is assigned as 30 percent of the subsidiary's income after subtracting 60% of preferred stock dividends Difficulty: Medium Hoyle . The sponsoring firm has the right to receive the expected residual returns of the VIE if they occur D.64.Chapter 06 #66 . 000 for the year. Included as an increase in the investing section E. Include 80 percent as a decrease in the investing section B. Donald made $75. Pursley. During the current year. Included as a decrease in the operating section D.000 in sales to Stahl. Income. Inc. Included as an increase in the operating section C.000 in sales to Wolff. Harry paid dividends in the amount of $80. E Above Difficulty: Medium Hoyle .Chapter 06 #67 68. How does this transfer affect the consolidated statement of cash flows? A.Chapter 06 #68 69. C Above D. Wolff Corporation owns 70 percent of the outstanding stock of Donald. Include 100 percent as a decrease in the investing section C.67. How does this transfer affect the consolidated statement of cash flows? A. Inc. The consolidated income statement for a year reports $50. Stahl Corporation owns 80 percent of the outstanding stock of MacDonald. Inc. Not reported in the consolidated statement of cash flows Difficulty: Easy Hoyle . D Above E. owns 70 percent of Harry. Inc. A Above B. During the current year. Not reported in the consolidated statement of cash flows Difficulty: Easy Hoyle . Include 80 percent as a decrease in the operating section D. Included as a decrease in the investing section B. What are the effects of these transactions on the consolidated statement of cash flows for the year? A. Inc. Include 100 percent as an increase in the operating section E.Chapter 06 #69 . MacDonald made $125.000 Non-controlling Interest in Harry. B Above C. Goehring.000 and decrease in the financing section of $30. for several years. Inc. Inc. owns 70 percent of Harry. and Arthur Corp. The consolidated income statement for a year reports $40.Chapter 06 #71 . Decrease in the financing section of $30..000 and decrease in the operating section of $30. $46. Income. $44.000 B.800 C. Inc. $50.Chapter 06 71..000 Non controlling Interest in Harry. Inc.000 B.200 Difficulty: Hard Hoyle .000 for the year.70.200 D. Harry paid dividends in the amount of $100. The balance sheets of Anderson. No effects Difficulty: Medium Hoyle .Chapter 06 #70 Anderson.000 C. Arthur Corp.000 D. Increase in the operating section of $70. $52. has owned 70% of its subsidiary. are presented below: Additional information for 2009: Hoyle . $44. Increase in the operating section of $70. Net cash flow from operating activities was: A. What are the effects of these transactions on the consolidated statement of cash flows for the year? A.000 E. Increase in the financing section of $70. Inc.000 E. $29. Net cash flow from financing activities was: A.000 Difficulty: Medium Hoyle .. Inc.000 E. $28.000 B.Chapter 06 #73 .000 C. $50. and its 70 percent-owned subsidiary. $64. Net cash flow from operating activities was: A. $63.000 B.200 Difficulty: Hard Hoyle . $92.Chapter 06 #72 The balance sheets of Butler. $35. $33.000 E.000 D.72. $63. are presented below: Additional information for 2009: Hoyle .000 C. Cassie Corp.000 D. $27.Chapter 06 73. They will only be included in diluted earnings per share if they are dilutive C. Since the shares were sold for less than book value. The last day of the year. there will be no effect on consolidated earnings per share Difficulty: Medium Hoyle . None of the above Difficulty: Medium Hoyle . $80. $61. None of the above Difficulty: Medium Hoyle . Net cash flow from financing activities was: A.Chapter 06 #74 75. Since the shares were sold for more than book value. The last day of the year. Since the shares were sold for less than book value. A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share.74. The parent still holds control over the subsidiary. The parent still holds control over the subsidiary. Which of the following statements is true? A. the parent's investment account is not affected B. the parent's investment account is not affected E.000 Difficulty: Hard Hoyle . Since the shares were sold for more than book value. A parent company owns a controlling interest in a subsidiary whose stock has a book value of $27 per share. $96.Chapter 06 #75 76. the subsidiary issues new shares entirely to outside parties at $33 per share. Since the shares were sold for less than book value but the parent did not buy any of the shares.000 B. Since the sale was made at the end of the year. Which of the following statements is true? A. the parent's investment account must be decreased D. the parent's investment account is not affected E. Only the warrants owned by the parent company affect consolidated earnings per share E. the parent's investment account must be decreased D. Because the warrants are for subsidiary shares.000 E.000 C. $100.Chapter 06 #77 . the parent's investment account is not affected B. the subsidiary issues new shares entirely to outside parties at $25 per share.Chapter 06 #76 77. Since the shares were sold for more than book value but the parent did not buy any of the shares. the parent's investment account must be increased C. the parent's investment account must be increased C. How do subsidiary stock warrants outstanding affect consolidated earnings per share? A. They will be included in both basic and diluted earnings per share if they are dilutive B. They will only be included in basic earnings per share if they are dilutive D. Since the sale was made at the end of the year.000 D. $99. ) of $1. 2007. Inc.000. Both companies use the straight-line method of amortization. Inc.000. $122. 2009 with a carrying value of $1.6.200. Davidson.000. What is Carlson's share of consolidated net income? A.207. the subsidiary issues new shares for $27 per share and the parent buys its 70 percent interest in the new shares.000 B. Since the shares were sold for book value.000 Difficulty: Hard Hoyle .78. Carlson reports net income for 2009 (without consideration of its investment in Madrid. What adjustment should be made to Davidson's 2010 beginning Retained Earnings as a result of this bond acquisition? A. $114.176.Chapter 06 #79 80. Davidson sold 8 percent bonds payable with a $5. Carlson reported interest expense on the bonds in the amount of $96.000. A parent company owns a 70 percent interest in a subsidiary whose stock has a book value of $27 per share.317. Since the sale was made at the end of the year.Chapter 06 #78 79. while Madrid reported interest income of $94.000. $2. Carlson. $152. the parent's investment account must be decreased D. Inc. $2. $144. Since the shares were sold for book value and the parent bought 70 percent of the shares.000 E.090. owns 80 percent of Madrid. $2. $2.000 D.000. owns 70 percent of the outstanding voting stock of Ernest Company.500. On January 1.000 Difficulty: Hard Hoyle . Madrid reports net income of $705.066. During 2009. For the same year.000 B.Chapter 06 #80 . Since the shares were sold for book value. the parent's investment account must be increased C. None of the above Difficulty: Medium Hoyle . 2027 at a premium of $400.000 for the same bonds.000 face value maturing January 2. The last day of the year.000 C. $136. Inc. Carlson had bonds payable outstanding on January 1. 2009. Madrid acquired the bonds on January 3. the parent's investment account is not affected B.000 E. On January 2. Which of the following statements is true? A.000.000 D. Ernest acquired 30 percent of these same bonds at 97.064.000 C. $2. the parent's investment account is not affected except for the price of the new shares E. 2009 for $1. 000 B.500 C. $4. As of the date of the acquisition. $2. Franklin acquired 20 percent of these same bonds at 97.000 face value maturing January 2.Chapter 06 #81 On January 1. 2009. $107. 2027 at a premium of $500.850. What is the total acquisition-date fair value of Involved? A.812. On January 2.81. $2.500 D. Both companies use the straight-line method of amortization.062.000.400 C. 2009.000 Difficulty: Hard Hoyle .000 for 80 percent of its outstanding common stock.600. Harrison Corporation spent $2. 2007. $3.312.000 Difficulty: Medium Hoyle . $113.000 for 30 percent of Involved's preferred stock and $1.500 E. $3. On January 1.Chapter 06 82. $144.Chapter 06 #82 .700 D. What adjustment should be made to Franklin's 2010 beginning Retained Earnings as a result of this bond acquisition? A.250.000. Involved's stockholders' equity accounts were as follows: Hoyle .66. $152. Inc. This price was based on paying $750. $119.600. Georgia sold 7 percent bonds payable with a $5.000 to acquire control over Involved.100 B. Franklin Corporation owns 90 percent of the outstanding voting stock of Georgia Company.000 E. 000 Difficulty: Medium Hoyle .000 D.000.000. $625. Johnson. Consolidated accounts receivable on January 1. Difficulty: Easy Hoyle . Parent Corporation loaned money to its subsidiary on a five-year note at the market interest rate. Assuming Involved's accounts are correctly valued within the company's financial statements.Chapter 06 #85 86. Kaspar transferred inventory during 2009 to Johnson at a price of $50. $635.000 E. owns control over Kaspar. Johnson uses the direct approach in preparing the statement of cash flows. 30 percent of the transferred goods are still in Johnson's inventory.500 Difficulty: Medium Hoyle .Chapter 06 #86 .000 B. $610. 2009.500 E. How much is cash collected from customers on the consolidated statement of cash flows? A. Inc.Chapter 06 #83 84. $650. $812.000 and on December 31. Inc. 2009 is $130. $0 C. How would the note be accounted for in the consolidation process? The note would be eliminated in the consolidation process with an entry debiting Notes Payable and crediting Notes Receivable. Johnson reports sales of $400.Chapter 06 #84 85.000. Difficulty: Easy Hoyle . $2. 2009 was $120. $590. what amount of goodwill should be recognized for the Investment in Involved? A. What documents or other sources of information would be used to prepare a consolidated statement of cash flows? The main source of information would be the consolidated income statement and the consolidated balance sheet.000 D.83.000 C.000 B. On December 31.112.000 during 2009 while Kaspar reports $250. $200. $100. 87. A gain or loss would be recognized in the period in which they were acquired. How does the issuance of a five percent stock dividend by Renz affect Danbers and the consolidation process? A stock dividend would not influence Danbers' ownership percentage and would not alter the consolidation process. The remaining life of the bonds was eight years and Parent expected to hold the bonds for the full eight years. How are intercompany inventory transfers reflected on a consolidated statement of cash flows? Intercompany inventory transfers are eliminated on the consolidation worksheet and therefore do not appear on the consolidated statement of cash flows. Difficulty: Easy Hoyle . the bonds would be treated as if they had been retired. How should the acquisition of the bonds have been viewed in the consolidation process? In the consolidation process. paying a price $40. Difficulty: Medium Hoyle . Difficulty: Easy Hoyle .Chapter 06 #90 . owned seventy-five percent of the common stock of Renz Corp. Difficulty: Medium Hoyle .Chapter 06 #89 90.000 difference between the acquisition price and the carrying value would be recognized as a loss on early extinguishment of debt and would only be extraordinary under limited circumstances. Danbers Co. How should the difference between the purchase price and the carrying value be accounted for? The $40. Parent Corporation acquired some of its subsidiary's bonds on the bond market.000 higher than the bonds' carrying value. Parent Corporation acquired some of its subsidiary's bonds on the bond market.Chapter 06 #88 89.Chapter 06 #87 88. Chapter 06 #92 93. Also. Difficulty: Easy Hoyle . At the same time. rather than the subsidiary buying its own bonds? The purchase might have been made by Parent Corporation because it had more available cash than the subsidiary and there was a desire to bring the bonds in from the market.91. 2009. How would this acquisition have been reflected in the consolidated statement of cash flows? The cash paid for the bonds would be shown under cash flows from financing activities. what amount should be used to calculate non-controlling interest in the preferred stock of the subsidiary when the company is acquired as a subsidiary of another company? The non-controlling interest should be reflected at its acquisition-date fair value. how should the acquisition of the preferred stock be accounted for? The investment in preferred stock account and Foxboro's preferred stock balance should be eliminated in consolidation so that only the parent's equity remains. When a company has preferred stock in its capital structure. On January 1. Parent purchased sixty percent of Foxboro's outstanding preferred stock. During 2009. Parent Corporation acquired some of its subsidiary's outstanding bonds. Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. Why might Parent purchase the bonds. Difficulty: Easy Hoyle . Difficulty: Medium Hoyle . in some cases. No gain or loss should have been recognized.Chapter 06 #91 92. In preparing consolidated financial statements. Parent Corporation acquired a controlling interest in the voting common stock of Foxboro Co.Chapter 06 #93 94. the contract signed when the bonds were issued might prevent the subsidiary from purchasing its own bonds or it might require the payment of a price that would be higher than the market value of the bonds.Chapter 06 #94 . Difficulty: Medium Hoyle . Difficulty: Hard Hoyle . interest expense of the issuer and interest income of the investor. the loss could be assigned to the parent because the parent controls the combined entity. The loss could be assigned to the parent since the parent acquired the bonds. Over the life of the bonds. In the year in which the parent acquired the bonds.Chapter 06 #97 . Finally. the bonds must be eliminated on the consolidation worksheet. Parent Corporation had just purchased some of its subsidiary's outstanding bonds. since the parent is responsible for decision making for the combined entity.Chapter 06 #96 97. without regard to who issued and who purchased the bonds. at an amount which required the recognition of a loss. What items related to these bonds will have to be accounted for in the consolidation process? For each period that the parent owns the bonds. In what ways could the loss be allocated? Which allocation would you recommend? Why? The loss could be assigned to the subsidiary since it originally issued the bonds. Eliminating the bonds requires the elimination of the parent's investment account. Difficulty: Hard Hoyle . A method could be applied to divide the loss between the parent and subsidiary. as adjusted by the previous years' difference between interest expense and interest income. the portion of the bonds payable that the parent acquired. retained earnings must be debited or credited for the amount or the gain or loss. The loss should probably be assigned to the parent.Chapter 06 #95 96. Parent Corporation recently acquired some of its subsidiary's outstanding bonds. a gain or loss must have been recognized.95. Difficulty: Medium Hoyle . How does the existence of a non-controlling interest affect the preparation of a consolidated statement of cash flows? The non-controlling interest's share of the subsidiary's income would not appear on the consolidated statement of cash flows since it does not involve a cash flow. Dividends paid to the non-controlling interest represent cash outflows for the combined entity and should be shown as cash flows from financing activities. with a twelve-year life.000.98.Chapter 06 .000. Consequently. 2009. Fisher believed that one of Bast's buildings. Sanatee sold $1. The parent's interest was acquired several years ago on the date that the subsidiary was formed. The bonds pay a cash interest rate of 10% payable every December 31. 2006. no goodwill or other allocation was recorded in connection with the purchase price. Both companies utilized the straight-line method of amortization.000 as follows: Fisher Co. Fargus acquired 40% of these bonds on January 1.100.400. Hoyle . On January 1. acquired all of the outstanding preferred shares for $148. 2008.000 in ten-year bonds to the public at 108. Inc. for 95% of the face value. Bast Co. Required: What is the amount of goodwill to be recognized from this purchase? Difficulty: Hard Hoyle . had a net book value of $2.000 and 60% of the common stock for $1.281. was undervalued on the company's financial records by $70. On January 1.Chapter 06 #98 Fargus Corporation owned 51% of the voting common stock of Sanatee. What balances would need to be considered in order to prepare the consolidation entry in connection with these intercompany bonds at December 31.Chapter 06 #100 . Difficulty: Hard Hoyle . 2008? Difficulty: Medium Hoyle .Chapter 06 #99 100.99. the end of the first year of the intercompany investment? Prepare schedules to show numerical answers for balances that would be needed for the entry. What consolidation entry would have been recorded in connection with these intercompany bonds on December 31. 2008. Chapter 06 #102 . 2009? Difficulty: Hard Hoyle . What consolidation entry would have been recorded in connection with these intercompany bonds on December 31.101. What consolidation entry would have been recorded in connection with these intercompany bonds on December 31. 2010? Difficulty: Hard Hoyle .Chapter 06 #101 102. 000. All of the subsidiary's assets and liabilities were determined to have fair values equal to their book values except for land which is undervalued by $130. Thomas reported earning $630. The preferred stock remained in the hands of outside parties and had a fair value of $3.000.000 was recognized and amortized over five years. Kuried decided used the equity method to account for this investment.120. During 2009. 2009: Kuried Co. acquired 90% of this common stock for $2.000.Chapter 06 #103 Thomas Inc. Required: What amount was attributed to goodwill on the date of acquisition? Difficulty: Medium Hoyle .000.000 in net income and paid $504.060.250. had the following stockholders' equity accounts as of January 1. 2009. Skipen Corp.656. had the following stockholders' equity accounts: The preferred stock was participating and is therefore considered to be equity.Chapter 06 .000 and 70% of the preferred stock for $1. acquired all of the voting common stock of Thomas on January 1. for $20. A database valued at $656. Vestin Corp.000 in total cash dividends.103. Hoyle . Difficulty: Easy Hoyle . What was the non-controlling interest's share of consolidated net income for this period? All residual net income is attributed to the controlling interest of Kuried as sole owner of common stock of Thomas.Chapter 06 #105 106. What is the amount of goodwill resulting from this acquisition? Difficulty: Medium Hoyle .Chapter 06 #106 .104. What is the controlling interest share of Thomas' net income for the year ended December 31. 2009? Difficulty: Medium Hoyle .Chapter 06 #104 105. What was Kuried's balance in the Investment in Thomas Inc. Difficulty: Medium Hoyle .107. Prepare all consolidation entries for 2009. 2009? Difficulty: Medium Hoyle . account as of December 31.Chapter 06 #107 108.Chapter 06 #108 . 000 in cash. for $644. During that year. Goodwill of $56. Jet applied the partial equity method so that income would be accrued each period based solely on the earnings reported by the subsidiary. Jet began to sell merchandise to Nittle. on January 1. acquired all of the outstanding shares of Nittle Inc. Jet Corp. During 2010.200. The following financial figures were for the two companies for the year ended December 31.000. On January 1. 2007. 2010.109. 2010. 2010.000 was attributed to equipment with a ten-year remaining useful life. Jet reported $280.000 (at selling price) of these goods were resold to outside parties by year's end. $42.000 in bonds outstanding with a book value of $263. Nittle purchased half of these bonds on the open market for $135. inventory costing $112. Nittle still owed $50. Required: Prepare a consolidation worksheet for the year ended December 31.000 was transferred at a price of $140. .000 had also been identified. All but $14.800. Of this price.400 for inventory shipped from Jet during December. CONSOLIDATION WORKSHEET For the Year Ended 12/31/2010 Difficulty: Medium Hoyle .Chapter 06 #109 . held 80% of the common stock of Brewer Inc. A building with a cost of $84. Amortization of a database acquired in the original combination amounted to $7. Either the direct method or the indirect method may be used.000 per year. Additional Information: Bonds were issued during 2010 by the parent for cash.000 book value was sold by the parent for cash on May 11.110. the parent issued common stock for cash. Late in November 2010. Allen Co. the subsidiary paid dividends of $14. 2010.000 but a $42. During 2010. . 2010. using cash. Equipment was purchased by the subsidiary on July 23. The following consolidated financial statements were for 2009 and 2010. 2010.000. Required: Prepare a consolidated statement of cash flows for this business combination for the year ending December 31. and 40% of this subsidiary's convertible bonds. Difficulty: Hard Hoyle .Chapter 06 #110 . however. Describe how this transaction would affect Panton's books.000 ($600. At the present time.000 (5. None of this stock is purchased by Panton. Glotfelty is reporting the following stockholders' equity: Glotfelty issues 5.Panton. The book value underlying Panton's investment is now $576. Prepare Panton's journal entry to recognize the impact of this transaction. Hoyle . will only be 72% (18. acquired 18.000) so that a $36.000/25.000 shares).000 x 90%). Difficulty: Easy Hoyle .000).000 increase must be recorded by the parent.000.000 shares of previously unissued stock to the public for $40 per share. Inc. Panton owns a 90% interest in Glotfelty (18.000 shares out of 20.000 shares of Glotfelty Corp.Chapter 06 #111 112. Prior to the issuance of the new shares. The underlying book value of this investment is $540. several years ago. Subsequent to the issuance. Panton's ownership. total book value of the subsidiary will have risen by $200.Chapter 06 111.000 shares x $40) to $800. Difficulty: Medium Hoyle .Chapter 06 #112 .000 (72% of $800. Panton. will only be 72% (18.000/25. acquired 18.000 x 90%).000 shares of previously unissued stock to the public for $27 per share. Difficulty: Medium Hoyle .000 (5. Panton owns a 90% interest in Glotfelty (18.000 shares of Glotfelty Corp.Chapter 06 #114 .000. Inc. total book value of the subsidiary will have risen by $135. several years ago. however. None of this stock is purchased by Panton.000) so that a $10.000 shares). Panton's ownership. The underlying book value of this investment is $540.Chapter 06 #113 114. At the present time. Glotfelty is reporting the following stockholders' equity: Glotfelty issues 5.000).000 shares out of 20. Describe how this transaction would affect Panton's books.000 ($600.000 shares x $27) to $735. Hoyle .Chapter 06 113. Subsequent to the issuance. Difficulty: Easy Hoyle .200 (72% of $735. Prepare Panton's journal entry to recognize the impact of this transaction. Prior to the issuance of the new shares. The book value underlying Panton's investment is now $529.800 decrease must be recorded by the parent. 000 Book value of subsidiary after new issuance ($600.Chapter 06 #115 . A change in ownership is accounted for as an equity transaction when controlling interest is retained. Required: Describe how this transaction would affect Panton's books.000 . the additional amount has been paid by the parent company. acquired 18. In this case.000) Difficulty: Medium Hoyle . Book value equivalency prior to new issuance (90% x $600.000 Adjustment: Decrease investment and additional paid-in capital ($713. The investment price is above the book value of the subsidiary. Panton. Inc.000) $775. Glotfelty is reporting the following stockholders' equity: Glotfelty issues 5. Because the payment is made by Panton. the investment account will need an adjustment after recording the cost of the new shares.$715.000 shares/25.000 + $175.000 shares of previously unissued stock to Panton for $35 per share.000 shares) x 92% Book value equivalency after new issuance $713.000) $715.115. not by an outside party.000 + $175.000) = $(2. several years ago. At the present time.000 shares of Glotfelty Corp. however.000) $540.000 Panton's ownership (23.000 Investment account after new shares recorded (540.