Exam 7: Consolidated Financial Statements - Ownership Patterns and Income Taxes

Explain how the treasury stock approach treats shares of the parent's common stock that are owned by the subsidiary and the rationale behind the approach.

What method is used in consolidation to account for a subsidiary's ownership of shares of its parent corporation?

Wilkins Inc.owned 60% of Motumbo Co.During the current year,Motumbo reported net income of $280,000 but paid a total cash dividend of only $56,000. Required: Assuming an income tax rate of 30%,what amount of Deferred Income Tax Liability arising this year must be recognized in the consolidated balance sheet?

REFERENCE: Ref.07_07 On January 1,2009,Jones Company bought 15% of Whitton Company.Jones paid $150,000 for these shares,an amount that exactly equaled the proportionate book value of Whitton.On January 1,2010,Whitton acquired 80% ownership of Jones.The following data are available concerning Whitton's acquisition of Jones: Consideration transferred for 80% interest,January 1,2010: $800,000 Jones' reported book value,January 1,2010: 900,000 Excess fair value over book value (assigned to trademarks)is amortized over 20 years. The initial value method is being used. The following information is available regarding Jones and Whitton: I can't edit picture.The year 2006 s/be 2009.The year 2007 s/be 2010. I can't access the art to remove italics.Let it go. Should the titles be italicized? -Compute the amount allocated to trademarks recognized in the January 1,2010 consolidated balance sheet.

How is the amortization of goodwill treated for income tax purposes? How does the amortization of goodwill affect deferred income taxes?

REFERENCE: Ref.07_10 Alpha Corporation owns 100 percent of Beta Company,and Beta owns 80 percent of Gamma,Inc. ,all of which are domestic corporations.Information for the three companies for the year ending December 31,2009 follows: -What is the total noncontrolling interest in the subsidiaries' income for 2009?

Jastoon Co.acquired all of Wedner Co.for $588,000 in cash in a tax-free transaction.On that date,the subsidiary had net assets with a $560,000 fair value but a $420,000 book value and income tax basis.The income tax rate was 30%.What amount of goodwill should have been recognized on the date of the acquisition?

B Co.owned 70% of the voting common stock of C Corp. ;C Corp.owned 20% of B Co.For 2009,B Co.and C Corp.reported net income (not including the investment)of $600,000 and $300,000,respectively.B Co.and C Corp.paid dividends of $80,000 and $60,000,respectively. Required: Prepare a schedule showing B Co.'s share of consolidated net income for 2009 using the treasury stock approach.

REFERENCE: Ref.07_03 River Co.owned 80% of Boat Inc.The two companies filed a consolidated income tax return and River used the initial value method to account for the investment.The following information was available from the two companies' financial statements: Operating income included net unrealized gains,which are associated with transfers of inventories between the two companies,but it did not include dividends received from a subsidiary.The income tax rate was 30%. -What was the amount of income tax expense that should have been assigned to Boat using the separate return method?

REFERENCE: Ref.07_01 Buckette Co.owned 60% of Shuvelle Corp.and 40% of Tayle Corp. ,and Shuvelle owned 35% of Tayle. -When Buckette prepared consolidated financial statements,it should include

When indirect control is present,which of the following statements is true?

C Co.currently owns 80% of D Co.and several other subsidiaries.C Co.is interested in gaining control of H Co.Why might C Co.allow D Co.to acquire H Co. ,rather than purchasing H Co.directly?

REFERENCE: Ref.07_01 Buckette Co.owned 60% of Shuvelle Corp.and 40% of Tayle Corp. ,and Shuvelle owned 35% of Tayle. -What percentage of Tayle's income is attributed to Buckette's ownership interest?

REFERENCE: Ref.07_14 Tate,Inc.owns 80 percent of Jeffrey,Inc.During the current year,Jeffrey sold merchandise costing $60,000 to Tate for $75,000.At the end of the year,10 percent of this merchandise was still being held.The tax rate is 30 percent. -Assuming that a consolidated income tax return is being filed,what deferred income tax asset is created?

Why might a consolidated group file separate income tax returns?

REFERENCE: Ref.07_05 Hardford Corp.held 80% of Inglestone Inc.which,in turn,owned 80% of Jade Co.Operating income figures (without investment income)as well as unrealized upstream gains included in the income for the current year follow: -The noncontrolling interest in the net income of Jade Co.is calculated to be

REFERENCE: Ref.07_03 River Co.owned 80% of Boat Inc.The two companies filed a consolidated income tax return and River used the initial value method to account for the investment.The following information was available from the two companies' financial statements: Operating income included net unrealized gains,which are associated with transfers of inventories between the two companies,but it did not include dividends received from a subsidiary.The income tax rate was 30%. -What was the amount of income tax expense that should have been assigned to Boat using the percentage allocation method?

What are the benefits or advantages of filing a consolidated income tax return?

Which of the following statements is true regarding goodwill?

Evanston Co.owned 60% of Montgomery Corp.Montgomery owned 75% of Noir Inc. ,and Noir owned 15% of Montgomery.This pattern of ownership would be called