Indirect Control - ANSWERSOccurs when a company's common stock is owned by one or more other companies that are all under common control
Direct Control - ANSWERSOccurs when one company owns a majority of another company's common stock
Ability to Exercise Control - ANSWERSA parent company cann...
Advanced Financial Accounting - Exam
1 Questions & Answers
Indirect Control - ANSWERSOccurs when a company's common stock is owned by one
or more other companies that are all under common control
Direct Control - ANSWERSOccurs when one company owns a majority of another
company's common stock
Ability to Exercise Control - ANSWERSA parent company cannot exercise control when
the subsidiary was in legal reorganization, bankruptcy, or if control rests with a court-
appointed trustee
Effective Control - ANSWERSOccurs when there is an ability to direct the policies of
another entity even though majority ownership is lacking
Three Eliminating Entries - ANSWERSIntercompany stockholdings, Intercompany
receivables and payables, and Intercompany sales
Intercompany Stockholdings - ANSWERSBecause the parent company owns the
subsidiary's stock, the common stock and retained earnings is eliminated during the
preparation of the Consolidated Financial Statements
Intercompany Sales - ANSWERSThe ending inventory from intercompany sales must
be restated to it's original cost, the profit recognized on intercompany sales and the
amount included in retained earnings must be removed
Difference Between FV and BV - ANSWERSThe fair value reflects the current value of
the acquired assets. First we allocate it to the differential, then to Goodwill
Noncontrolling Interest - ANSWERSThe shareholders of the subsidiary other than the
parent
Presentation of Noncontrolling Interest - ANSWERSConsolidated Net Income
Less Consolidated Net Income from noncontrolling interest
=Consolidated Net Income attributable to the controlling interest
Special Purpose Entities - ANSWERSAre corporations, trusts, or partnerships created
for a single specified purpose. They have no substantive operations and are used only
for financing purposes.
Variable Interest Entity - ANSWERSIs a legal structure used for business purposes,
usually a corporation, trust, or partnership that either (1) does not have equity investors
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