12th Edition

ISBN: 9781259916977

Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy

Publisher: Mcgraw-hill Education,

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Chapter 3, Problem 3.10E

Reporting for a Variable Interest Entity
Gamble Company convinced Conservative Corporation that the two Companies should establish Simpletown Corporation to build a new gambling casino in Simpletown Coiner. Although chances for the casino’s success were relatively low, a local bank loaned $140 million to the new corporation, which built, the casino at a cost of $130 million. Conservative purchased 100 percent of the initial capital stock offering for $5.6 million, md Gamble agreed to supply 100 percent of the management which would include directing Simpletown’s day-to-day activities. Gamble also agreed to guarantee the bank loan. Additionally, Gamble guaranteed a 20 percent return to Conservative on its investment for the first 10 years. Gamble will receive all profits in excess of the 20 percent return to Conservative. Immediately after the casino’s construction, Gamble reported the following amounts:

Chapter 3, Problem 3.10E, Reporting for a Variable Interest Entity Gamble Company convinced Conservative Corporation that the

The only disclosure that Gamble currently provides in its financial reports about its relationships to Conservative and Simpletown is a brief footnote indicating that a contingent liability exists on itsguarantee of Simpletown Corporation’s debt.
Required
Prepare a consolidated balance sheet in good form for Gamble immediately fol1owin the casino’s Construction.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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Chapter 3, Problem 3.9E

Chapter 3, Problem 3.11E

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Preview Ltd is considering an investment in a new machine for the production of a new product X. There are two possibilities, Machine A and Machine B. Both the product and the machine would have an expected life of five years. The following information is available:Product X Selling price N$50 Variable cost N$32Increase in fixed overhead (excluding depreciation of the new machine) is N$90,000 per year.Sales unitsYear 1 10,000 2 15,000 3 20,000 4 20,000 5 5,000Machine A Machine BInitial cost (N$000) 550 480Residual value (N$000) 50 30The company’s cost of capital is 10%, the appropriate discount factors are:Year 1 0.909Year 2 0.826Year 3 0.751Year 4 0.682Year 5 0.621Required:a) Evaluate each machine, A and B, using the following methods:(i) Accounting rate of return (using average investment) (ii) Payback (iii) Net present valueb) On the basis of your figures in (a) above, advice management as to which machine to purchase, stating reasons for your decision.

Chapter 3 Solutions

Advanced Financial Accounting

Ch. 3 - What is the basic idea underlying the preparation...Ch. 3 - How might consolidated statements help an investor...Ch. 3 - Prob. 3.3Q Ch. 3 - Prob. 3.4Q Ch. 3 - Prob. 3.5Q Ch. 3 - Prob. 3.6Q Ch. 3 - Prob. 3.7Q Ch. 3 - Prob. 3.8Q Ch. 3 - Prob. 3.9Q Ch. 3 - Prob. 3.10Q

Ch. 3 - Prob. 3.11Q Ch. 3 - Prob. 3.12Q Ch. 3 - What is meant by indirect control? Give an...Ch. 3 - Prob. 3.14Q Ch. 3 - Prob. 3.15Q Ch. 3 - Prob. 3.16Q Ch. 3 - Prob. 3.17Q Ch. 3 - Prob. 3.18Q Ch. 3 - Prob. 3.1C Ch. 3 - Prob. 3.2C Ch. 3 - Prob. 3.1.1E Ch. 3 - Prob. 3.1.2E Ch. 3 - Prob. 3.1.3E Ch. 3 - Prob. 3.1.4E Ch. 3 - Multiple-Choice Question on Variable Interest...Ch. 3 - Multiple-Choice Question on Variable Interest...Ch. 3 - Prob. 3.2.3E Ch. 3 - Prob. 3.2.4E Ch. 3 - Prob. 3.3.1E Ch. 3 - Prob. 3.3.2E Ch. 3 - Prob. 3.3.3E Ch. 3 - Prob. 3.4.1E Ch. 3 - Prob. 3.4.2E Ch. 3 - Prob. 3.4.3E Ch. 3 - Prob. 3.4.4E Ch. 3 - Balance Sheet Consolidation On January 1, 20X3,...Ch. 3 - Prob. 3.6E Ch. 3 - Prob. 3.7E Ch. 3 - Prob. 3.8E Ch. 3 - Prob. 3.9E Ch. 3 - Reporting for a Variable Interest Entity Gamble...Ch. 3 - Prob. 3.11E Ch. 3 - Prob. 3.12E Ch. 3 - Prob. 3.13E Ch. 3 - Prob. 3.14E Ch. 3 - Prob. 3.15E Ch. 3 - Prob. 3.16E Ch. 3 - Prob. 3.17E Ch. 3 - Prob. 3.18E Ch. 3 - Prob. 3.19.1P Ch. 3 - Prob. 3.19.2P Ch. 3 - Prob. 3.20P Ch. 3 - Prob. 3.21P Ch. 3 - Prob. 3.22P Ch. 3 - Prob. 3.23P Ch. 3 - Prob. 3.24P Ch. 3 - Prob. 3.25P Ch. 3 - Prob. 3.26P Ch. 3 - Prob. 3.27P Ch. 3 - Prob. 3.28P Ch. 3 - Prob. 3.29P Ch. 3 - Consolidated Worksheet at End of the First Year of...Ch. 3 - Prob. 3.31P

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Solution Summary: The author explains that the consolidated financial statements are prepared to provide a unified view of the company's financials, including the cash flows of all subsidiary companies.

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