Exam 10: Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

In computing consolidated diluted EPS,the replacement calculation replaces the parent's equity in subsidiary earnings with the

The parent company's retained earnings are reduced when additional paid-in capital is insufficient to absorb an excess of purchase price over book value of the subsidiary's preferred stock.

Palomba Corporation allocates consolidated income taxes to its 90%-owned subsidiary using the percentage allocation method.Under this method,consolidated income tax expense will be allocated to a subsidiary

Parnaby has 25,000 common stock shares outstanding and its 100%-owned subsidiary Sandal has 5,000 common stock shares outstanding.Parnaby and Sandal do not have any potentially dilutive securities outstanding.The separate net incomes for Parnaby and Sandal are $150,000 and $75,000,respectively.Diluted EPS for the consolidated company is

Jeff Corporation owns 90% of the common stock of Subsidiary Jordan.The following data is available: The preferred stock is cumulative and convertible.The annual preferred dividends are $20,000. Required: 1.Jordan's preferred stock is convertible into 20,000 shares of Jordan's common stock.Jeff and Jordan do not have any other potentially dilutive securities outstanding. a.What is Jordan's basic EPS and diluted EPS? b.What is consolidated basic EPS and diluted EPS? 2.Jordan's preferred stock is convertible into 20,000 shares of Jeff's common stock.Jeff and Jordan do not have any other potentially dilutive securities outstanding.What is consolidated basic EPS and diluted EPS?

Net income of an investee with preferred stock outstanding is first allocated to preferred stockholders based on the preferred stock contract.

Use the following information to answer the question(s) below. On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's stockholders' equity was as follows: On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000 and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials associated with Parminter's investments. -What should be the noncontrolling interest share,preferred in the consolidated financial statements of Parminter for the year ending December 31,2014?

Use the following information to answer the question(s) below. On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's stockholders' equity was as follows: On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000 and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials associated with Parminter's investments. -How much should the Parminter's Investment in Sanchez-Common Stock,change during 2014?

Palm owns a 70% interest in Sable,a domestic subsidiary.Sable is not part of Palm's affiliated group.Palm will pay taxes on

Parker Corporation owns an 80% interest in Sample Corporation's common stock.Throughout 2014,Sample had 10,000 shares of common stock outstanding and Parker had 100,000 shares of common stock outstanding.Sample's only dilutive security consists of $50,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sample stock.Parker and Sample's separate incomes for the year are $100,000 and $75,000,respectively.Assume a 34% flat income tax rate. Required: Compute the amount of basic and diluted earnings per share for Parker (Consolidated)and Sample Corporations.

Pretax operating incomes of Pang Corporation and its 70%-owned subsidiary,Sala Corporation,for the year 2014,are shown below.Sala pays total dividends of $60,000 for the year.There are no unamortized book value/fair value differentials relating to Pang's investment in Sala.During the year,Pang sold land to Sala for a gain of $35,000 and Sala holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%. Sales revenue \ 900,000 \ 600,000 Gain on sale of land 35,000 Cost of sales (480,000) (325,000) Other expenses (192,000) (78,000) Pretax operating income (does not include investment income) \ 263,000 \ 197,000 Required: 1.Determine the separate amounts of income tax expense for Pang and Sala as if they had filed separate tax returns. 2.Determine Pang's net income from Sala.

Sandy Corporation's stockholders' equity on December 31,2014 was as follows: 10% cumulative preferred stock,$100 par value, callable at \ 105 , with one year dividends in arrears \ 100,000 Common stock, \ 1 par value 200,000 Additional paid-in capital 40,000 Retained earnings Total stockholders' equity On January 1,2015,Bombard Corporation paid $200,000 for a 90% interest in Sandy's common stock.On January 1,2015,the book values of Sandy's assets and liabilities were equal to fair values.On January 2,2015,Bombard Corporation paid $120,000 for a 90% interest in Sandy's preferred stock. Required: 1.Determine the book value of the common stockholders' equity for Sandy Corporation on January 1,2015. 2.Prepare the journal entry(ies)on January 1,2015 for Bombard Corporation. 3.Prepare the journal entry(ies)on January 2,2015 for Bombard Corporation. 4.For the year ending December 31,2015,Sandy Corporation reported net income of $50,000.Sandy Corporation declared and paid dividends of $20,000 to preferred stockholders and $10,000 to common stockholders.Prepare the journal entries for Bombard Corporation relating to this information.

A subsidiary has dilutive securities outstanding that include convertible bonds payable.The bonds are convertible into the parent's common stock.When calculating consolidated diluted earnings per share,the convertible bonds will affect

Use the following information to answer the question(s) below. On January 1, 2014, Pamplin Corporation's stockholders' equity consisted of $1,000,000 of $10 par value Common Stock, $750,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings. On January 1, 2014, Pamplin purchased 90% of the outstanding common stock of Sage Corporation for $1,500,000 with all excess purchase cost assigned to goodwill. The stockholders' equity of Sage on this date consisted of $800,000 of $100 par value, 8% cumulative, preferred stock callable at $105, $900,000 of $10 par value common stock and $500,000 of Retained Earnings. Sage's net income for 2014 was $100,000. On January 1, 2014, no preferred dividends are in arrears. No dividends are declared or paid in 2014. In a separate transaction on January 1, 2014, Pamplin purchased 70% of Sage's preferred stock for $600,000. -What is the goodwill on the consolidated balance sheet for Pamplin and Subsidiaries on December 31,2014 based on Pamplin's purchase of Sage's common stock?

Paradise Corporation owns 100% of Aldred Corporation,90% of Balme Corporation,80% of Calder Corporation,75% of Dale Corporation,20% of East Corporation,and 8% of Faber Corporation.Paradise,Aldred,Balme and Calder belong to an affiliated group.All of these corporations are domestic corporations.During 2014,Paradise Corporation reports net income of $1,500,000.This net income includes the full amount of dividends received from Aldred and Faber,but does not include the dividends received from Balme,Calder,Dale,and East Corporations.All investees have paid out all of their net income in the form of dividends.Paradise's share of the various dividend distributions is as follows: Required: Calculate the correct amount of taxable income for Paradise Corporation if a consolidated tax return is filed.

Peter Corporation owns 90% of the common stock of Subsidiary Subway.The following data is available: The preferred stock is cumulative and convertible.The annual preferred dividends are $10,000. Required: 1.Subway's preferred stock is convertible into 12,000 shares of Subway's common stock.Peter and Subway do not have any other potentially dilutive securities outstanding. a.What is Subway's basic EPS and diluted EPS? b.What is consolidated basic EPS and diluted EPS? 2.Subway's preferred stock is convertible into 12,000 shares of Peter's common stock.Peter and Subway do not have any other potentially dilutive securities outstanding.What is consolidated basic EPS and diluted EPS?

The call or redemption price of preferred stock is used to allocate the investee's equity to preferred stockholders.

Peyton Corporation owns an 80% interest in Sampe Corporation's common stock.Throughout 2014,Sampe had 10,000 shares of common stock outstanding and Peyton had 100,000 shares of common stock outstanding.Sampe's only dilutive security consists of $100,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sampe stock.Peyton and Sampe's separate net incomes for the year are $200,000 and $150,000,respectively.Assume a 34% flat income tax rate. Required: Compute the amount of basic and diluted earnings per share for Peyton (consolidated)and Sampe Corporations.

Income is assigned to noncumulative,nonparticipating preferred stock only if dividends are declared and paid.

Pandy Corporation owns a 90% interest in Sakaj Corporation's common stock.Throughout 2014,Sakaj had 20,000 shares of common stock outstanding and Pandy had 50,000 shares of common stock outstanding.Sakaj's only dilutive security consists of 10,000 stock options,with an exercise price of $20 per share.The average price of Sakaj's stock is $50 per share in 2014.The options are exercisable for one share of Sakaj's common stock.Pandy's and Sakaj's separate net incomes for the year are $200,000 and $180,000,respectively. Required: Compute the amount of basic and diluted earnings per share for Pandy (Consolidated)and Sakaj Corporations.