Variable Interest Entities (VIEs) Flashcards
Where do dividends paid by a subsidiary to the parent company appear in 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 in the consolidated statement of cash flows
E - They don’t appear in the consolidated statement of cash flows
A variable interest entity can take all of the following forms except a(n):
a. trust
b. partnership
c. joint venture
d. corporation
e. estate
Estate
Which of the following statements is false concerning variable interest entities (VIEs)?
a. Sometimes VIEs do not have independent management
b. Most VIEs are established for valid business purposes
c. VIEs may be formed as a source of low-cost financing
d. VIEs have little need for voting stock
e. A VIE cannot take the legal form or a partnership or corporation
E
Which of the following variable interests entitles a holder to residual profits, losses, and dividends?
a. participation rights
b. lease residual value guarantees
c. common stock
d. asset purchase options
e. subordinated debt instruments
Common stock
Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows?
a. They do not appear in 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
A
What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?
a. Parent’s dividends would be subtracted as a financing activity
b. Gain on sale of land would be deducted from net income
c. Non-controlling interest in net income of subsidiary would be added to net income
d. 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
C
In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true?
a. Parent company earnings per share equals consolidated earnings per share when the equity method is used.
b. Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used.
c. 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. 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. Preferred dividends are not deducted from net income for consolidated earnings per share.
A
How do outstanding subsidiary stock warrants affect the calculation of 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 diluted earnings per share if they are dilutive.
c. They will only be included in basic earnings per share if they are dilutive.
d. Only the warrants owned by the parent company affect consolidated earnings per share.
e. Because the warrants are for subsidiary shares, there will be no effect on consolidated earnings per share.
D
The following information has been taken from the consolidation worksheet of Graham Company and its 80% owned subsidiary, Stage Company.
- Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham $20,000.
- Non-controlling interest in Stage’s net income was $30,000.
- Graham paid dividends of $15,000.
- Stage paid dividends of $10,000.
- Excess acquisition-date fair value over book value amortization was $6,000.
- Consolidated accounts receivable decreased by $8,000.
- Consolidated accounts payable decreased by $7,000.
How will dividends be reported in consolidated statement of cash flows?
a. $15,000 decrease as a financing activity
b. $25,000 decrease as a financing activity
c. $10,000 decrease as a financing activity
d. $23,000 decrease as a financing activity
e. $17,000 decrease as a financing activity
E
Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE) should consolidate such VIE with its own financial statements?
a. The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE.
b. The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership.
c. The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE.
d. The business enterprise establishing a VIE has power through voting rights to direct the entity’s activities that significantly impact economic performance.
e. The business enterprise establishing a VIE is a primary beneficiary for the VIE.
B
