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| 1 | |
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 text, to whom would the loss probably 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. |
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| 2 | |
On January 1 of the current year, Points Inc. acquired a $100,000 bond originally issued by its subsidiary. The bond, which pays $9,000 interest every December 31, was originally issued by the subsidiary to earn an 8% effective interest rate. The bond had a book value of $104,000 on January 1 of the current year. Points pays $95,000 indicating an effective interest rate of 10%. What amount of interest income should be eliminated in the current year? |
| | A) | $10,000 |
| | B) | $8,320 |
| | C) | $9,500 |
| | D) | $10,400 |
| | E) | $9,560 |
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| 3 | |
Toy Co. is a wholly owned subsidiary of Parks Company. On January 1 of the current year, Toy Co. has $100,000 of 8% bonds outstanding that were issued at face value and have five years to maturity. Both Toy Co. and Parks amortize any premium or discount using the straight-line method. On January 1 of the next year, Parks will purchase Toy Co.'s bonds for $96,000. How should this transaction be reflected in the consolidated financial statements in the year that Parks acquires the bonds? |
| | A) | The bonds are treated as having been retired, with an extraordinary loss shown on the consolidated income statement. |
| | B) | The bonds are treated as a constructive retirement of debt with a gain from extinguishment shown on the current consolidated income statement. |
| | C) | The bonds have no impact on the current consolidation. |
| | D) | Interest expense and interest income would exactly offset so no adjustment to net income is necessary. |
| | E) | Whether the balances agree or not, both the subsequent interest income and interest expense are recorded in the consolidated income statement. |
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| 4 | |
Toy Co. is a wholly owned subsidiary of Parks Company. On January 1 of the current year, Toy Co. has $100,000 of 8% bonds outstanding that were issued at face value and have five years to maturity. Both Toy Co. and Parks amortize any premium or discount using the straight-line method. On January 1 of the next year, Parks will purchase Toy Co.'s bonds for $96,000. The amount(s) that should appear on the consolidated balance sheet for Toy Co. and Parks Company are: |
| | A) | Bonds Payable $100,000. |
| | B) | Bonds Payable $100,000 and Bonds Discount $3,000. |
| | C) | Bonds Payable $100,000 and Bonds Discount $4,000. |
| | D) | Bonds Payable $98,000 and Bonds Premium $5,000. |
| | E) | Bonds Payable 0 because the account is eliminated. |
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| 5 | |
Parkview Inc. owns 80% of Skyline Co.'s 20,000 shares of outstanding common stock. The Investment in Skyline Co. account on the Parkview's books shows a balance of $480,000. In addition, Skyline has a book value of $30 per share. Assume that Skyline sells 5,000 previously unissued shares of its common stock to third parties for $40 per share. How does this transaction affect the Investment in Skyline Co. account on the Parkview's books? |
| | A) | The account must be increased by $32,000. |
| | B) | The account must be increased by $160,000. |
| | C) | The account is not affected since the shares were sold to outside parties. |
| | D) | The account must be decreased by $160,000. |
| | E) | The account must be decreased by $32,000. |
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| 6 | |
Parkview Inc. owns 80% of Skyline Co.'s 20,000 shares of outstanding common stock. The Investment in Skyline Co. account on the Parkview's books shows a balance of $480,000. In addition, Skyline has a book value of $30 per share. Assume that Skyline sells 5,000 previously unissued shares of its common stock to third parties for $20 per share. How does this transaction affect the Investment in Skyline Co. account? |
| | A) | The account must be increased by $32,000. |
| | B) | The account must be increased by $160,000. |
| | C) | The account is not affected since the shares were sold to outside parties. |
| | D) | The account must be decreased by $160,000. |
| | E) | The account must be decreased by $32,000. |
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| 7 | |
Parkview Inc. owns 80% of Skyline Co.'s 20,000 shares of outstanding common stock. The Investment in Skyline Co. account on the Parkview's books shows a balance of $480,000. In addition, Skyline has a book value of $30 per share. Assume that Skyline sells 5,000 previously unissued shares of its common stock solely to Parkview Inc. for $40 per share. How does this transaction affect the Investment in Skyline Co. account, subsequent to the account increase for the investment? |
| | A) | The account must be increased by $160,000. |
| | B) | The account must be decreased by $8,000. |
| | C) | The account must be increased by $32,000. |
| | D) | The account must be increased by $70,000. |
| | E) | The account is not affected since the shares were sold to outside parties. |
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| 8 | |
Parry Inc. owns all of Sally Co.'s outstanding common stock. For the current year, Parry reports income (exclusive of any investment income) of $600,000. Parry has 100,000 shares of common stock outstanding. Parry also has 10,000 shares of preferred stock outstanding that receives a dividend of $50,000 per year. Sally reports net income of $400,000 for the current year with 100,000 shares of common stock outstanding. Sally also has 1,000 $1,000 bonds outstanding that pay annual interest of $100 per bond. Each of these bonds can be converted into four shares of common stock. Parry owns none of these bonds which are common stock equivalents. Assume an income tax rate of thirty percent. Rounding percentage calculations to the nearest whole percent, the consolidated basic earnings per share for the current year is calculated to be: |
| | A) | $9.50. |
| | B) | $10.01. |
| | C) | $10.20. |
| | D) | $10.30. |
| | E) | $10.51. |
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| 9 | |
A parent company and its 100% owned subsidiary have only common stock outstanding and neither company has any potentially dilutive securities. Assuming, the net income of the parent includes is Equity in Income of the Subsidiary, the equation to compute EPS is: |
| | A) | (Net income of parent + net income of subsidiary) / total shares of stock for the parent and subsidiary. |
| | B) | (Net income of parent + net income of subsidiary) / total shares of stock of parent. |
| | C) | Net income of parent / total shares of stock for the parent and subsidiary. |
| | D) | Net income of parent / total shares of stock for the parent. |
| | E) | (Net income of parent / total shares of parent) + (net income of subsidiary / total shares of stock for the subsidiary). |
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| 10 | |
Parks Corp.'s net income for the current year is $500,000. Parks owns 80% of Sun and Sun's income for the period is $150,000. Parks has 500,000 shares of $10 par common stock outstanding, and Sun has 50,000 shares of $10 par common stock outstanding throughout the current year. In addition, Sun has 10,000 warrants to acquire 10,000 shares of Sun's common stock at $10 per share. The average market price of Sun's common stock was $20 per share during the current year. For purposes of calculating the consolidated diluted earnings per share, the subsidiary's outstanding common share equivalents are: |
| | A) | 500,000. |
| | B) | 560,000. |
| | C) | 60,000. |
| | D) | 55,000. |
| | E) | 50,000. |
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| 11 | |
Parks Corp.'s net income for the current year is $500,000. Parks owns 80% of Sun and Sun's income for the period is $150,000. Parks has 500,000 shares of $10 par common stock outstanding, and Sun has 50,000 shares of $10 par common stock outstanding throughout the current year. In addition, Sun has 10,000 warrants to acquire 10,000 shares of Sun's common stock at $10 per share. The average market price of Sun's common stock was $20 per share during the current year. What is the consolidated Basic EPS? |
| | A) | $1.36 |
| | B) | $1.30 |
| | C) | $1.24 |
| | D) | $1.19 |
| | E) | $1.00 |
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| 12 | |
Which of the following is NOT identified by GAAP as a characteristic of a "primary beneficiary" of a VIE? |
| | A) | The ability to make decisions about the VIE's activities. |
| | B) | The obligation to absorb expected losses of the VIE. |
| | C) | Ownership of a controlling equity interest in the VIE. |
| | D) | The right to receive expected residual returns from the VIE. |
| | E) | All of the above are characteristics of a "primary beneficiary". |
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| 13 | |
Which one of the following is not an example of a variable interest? |
| | A) | Lease residual value guarantee |
| | B) | Guarantee of debt |
| | C) | Participation rights |
| | D) | Stock options |
| | E) | Asset purchase options |
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| 14 | |
The financial statements of the primary beneficiary of VIE must provide: |
| | A) | A description of the nature and purpose of the VIE. |
| | B) | The carrying amount of the consolidated assets used as collateral for VIE's. |
| | C) | The size of the VIE. |
| | D) | The lack of recourse if creditors of the consolidated VIE have no recourse to general credit of primary beneficiary. |
| | E) | All of the above |
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| 15 | |
In preparing consolidated statement of cash flows, the presence of a noncontrolling interest will require an adjustment for: |
| | A) | the inclusion of the noncontrolling's interest share of subsidiary's net income. |
| | B) | the inclusion of dividends paid to the outside owners. |
| | C) | the exclusion of dividends paid to the outside owners. |
| | D) | the inclusion of intercompany transactions. |
| | E) | the inclusion of amortizations of allocations. |
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