Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 6UTI
To determine
Introduction: Consolidation is a process in which financial statements of a subsidiary is merged with financial statements of the parent. In this process, the effect of intercompany transactions is eliminated.
To explain: Whether there is an opportunity to shift profits to controlling interest with both direct financing and sales-type leases. Also, the difference between these leases with respect to income shifting.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
What are the advantages of operating and capital leases? What are the disadvantages? Why would a company pick one over the other?
A parent company is a producer of production equipment, some of which is acquired and used by the parent’s subsidiary companies. The parent offers a discount to the subsidiaries but still earns a significant profit on the sales of equipment to a subsidiary. Is there any difference in the consolidated company’s ability to recognize the profit on these sales if, instead of selling equipment to the subsidiaries, the equipment is leased to them under capital leases? Are there any other profit opportunities for the controlling interest in leasing as opposed to selling equipment to the subsidiaries?
• Match the following phrase to the term
-Costs that are expensed rather than capitalized
-A series of equal payment made at equal intervals
-The translation of new knowledge into new products -Attempt to find new knowledge
-Price paid for a subsidiary in excess of the fair value of its net assets
Options:
-Research
-Annuity
-Development
-Goodwill
-Research and Development
• Match the following phrase to the term
-Gives rise to deferred taxes
-EBIT minus interest
-Lease agreement where the risks and benefits are not conveyed to the lessee
-Account holding both interest expense and amortization expense on an operating lease
-Lease agreement where the risks and benefits are conveyed to the lessee
Options:
Operating lease
-Lease expense
-Finance lease
-Temporary difference
-Times -Interest -earned
Chapter 5 Solutions
Advanced Accounting
Ch. 5 - Prob. 1UTICh. 5 - Subsidiary Company S has $1000,000 of bonds...Ch. 5 - Plessor Industries acquired 80% of the outstanding...Ch. 5 - Company P purchased $100,000 of subsidiary Company...Ch. 5 - Prob. 5UTICh. 5 - Prob. 6UTICh. 5 - Prob. 7UTICh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3.1E
Ch. 5 - Prob. 3.2ECh. 5 - Prob. 4ECh. 5 - Carlton Company is an 80%- owned subsidiary of...Ch. 5 - Carlton Company is an 80%- owned subsidiary of...Ch. 5 - Prob. 6.1ECh. 5 - Prob. 6.2ECh. 5 - Prob. 7.1ECh. 5 - Prob. 7.2ECh. 5 - Prob. 7.3ECh. 5 - Prob. 8.1ECh. 5 - Prob. 8.3ECh. 5 - Prob. 9ECh. 5 - Prob. 5.1.1PCh. 5 - Prob. 5.1.2PCh. 5 - Prob. 5.2PCh. 5 - Prob. 5.3PCh. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Prob. 5.6PCh. 5 - Prob. 5.7PCh. 5 - Prob. 5.8.1PCh. 5 - Prob. 5.8.2PCh. 5 - Prob. 5.9PCh. 5 - Prob. 5.10PCh. 5 - Prob. 5.14PCh. 5 - Prob. 5.2.1CCh. 5 - Prob. 5.2.2CCh. 5 - Prob. 5.3.1CCh. 5 - Prob. 5.3.2CCh. 5 - Prob. 5.3.3CCh. 5 - Prob. 5.3.4C
Knowledge Booster
Similar questions
- One alleged advantage of leasing voiced in the past was that it kept liabilities off the balancesheet, thus making it possible for a firm to obtain more leverage than it otherwisecould have. This raised the question of whether the lease obligation and the asset involvedshould be capitalized and shown on the balance sheet. Discuss the pros and cons of capitalizingleases and related assets.arrow_forwardWhen a company sells an asset and simultaneously leases it back, what criteria must be met to apply saleleaseback accounting rather than accounting for the transaction as a loan ?arrow_forwardIn the process of determining fair value, the exit price refers to: Multiple Choice the amount the firm would receive if it sold a given asset. the amount the firm would pay if it bought an asset of the same type and condition as the one being valued. the sum of the future cash flows expected to be generated by continuing to use the asset. the expected sale price of the stock in a corporate buy-out.arrow_forward
- Why might leasing be advantageous for both the lessor and the lessee? Group of answer choices If the lessor's tax rates are higher, the lessor can share some of its tax benefits with the lessee in the form of higher lease payments. The lessor can share some of the benefits related to lower transaction costs with the lessee in the form of lower lease payments. More than one of the other statements is correct. If the cost of capital is lower for the lessee, then the lessee can share some of the lower cost of capital with the lessor in the form of higher lease payments. None of the other statements is correct.arrow_forwardWhich of the following is not one of the classifications for leases from the lessor’s viewpoint? Operating. Sales-type. Direct financing. Off-balance sheet.arrow_forwardHow does the company can benefit indirectly by leasing assets rather than buying?arrow_forward
- What is a leveraged buyout? It is a type of joint venture. It is an acquisition in which a large acquirer has leverage through bargaining power over a small target. It is an acquisition which is funded from a relatively large amount of debt. It is an acquisition which is funded from a relatively low amount of debt.arrow_forwardIf a company uses the fair value model to value investment property, changes in the fairvalue of the asset are least likely to aff ect:A. net income.B. net operating income.C. other comprehensive income.arrow_forwardAn enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and noncontrolling interest of that entity if:a. The VIE has issued no voting stock.b. The variable interest held by the enterprise involves a lease.c. The enterprise has a controlling financial interest in the VIE.d. Other equity interests in the VIE have the obligation to absorb the expected losses of the VIE.arrow_forward
- IFRS distinguishes between sales-type and direct financing leases for lessors. True or Falsearrow_forwardA company is most likely to:A. use a fair value model for some investment property and a cost model for other investment property.B. change from the fair value model when transactions on comparable properties becomeless frequent.C. change from the fair value model when the company transfers investment property toproperty, plant, and equipment.arrow_forwardA company may choose to finance its operations or certain projectts by the means of either debt or equity. explain the diffetence between these two methods and give at least two examples of each.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT