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

Pear,Inc.owns 80 percent of Apple Corporation.During the current year,Apple reported net income of $400,000 and paid a dividend of $120,000.The income tax rate for each company is 40 percent and separate tax returns are prepared.What deferred income tax liability arising this year must be recognized in the consolidated balance sheet?

Which of the following statements is true regarding the subsidiary's investment in its parent's common stock?

What ownership pattern is referred to as mutual ownership? Describe briefly or illustrate with a diagram.

How is goodwill amortized?

REFERENCE: Ref.07_02 West Corp.owned 70% of the voting common stock of East Co.East owned 60% of Compass Co.West and East both used the initial value method to account for their investments.The following information was available from the financial statements and records of the three companies: Operating income included unrealized intercompany gains (which are related to inventory transfers)but did not include dividend income from investment in subsidiary. -The accrual-based income of West Corp.is calculated to be

Woods Company has a building worth $800,000.Because of recent losses,the company has a net operating loss carryforward of $150,000.The tax rate is 30%.The company was acquired for $1,000,000.It is likely the benefit will be realized.Compute the goodwill realized in consolidation.

What amount of dividends did West Corp.receive from Compass Co.?

REFERENCE: Ref.07_17 On January 1,2009,Maurice Co.acquired 75% of Lawrence Co.'s outstanding common stock.On the same date,Lawrence acquired an 80% interest in Curleton Co.Both of these investments were accounted using the initial value method.No dividends were distributed by either Lawrence or Curleton during 2009 or 2010.Maurice paid cash dividends each year equal to 40% of operating income.Reported operating income totals for 2009 were as follows: Following are the 2010 financial statements for these three companies.Curleton made numerous transfers of inventory to Lawrence since the takeover: $112,000 (2009)and $140,000 (2010).These transactions included the same markup applicable to Curleton's outside sales.In each of these years,Lawrence carried 20% of this inventory into the succeeding year before disposing of it. An effective income tax rate of 45% was applicable to all companies. I can't edit picture.Need to change the three years in the schedules - each from 2007 to 2010 The years should be 2010 instead of 2007 in this table -Required: Determine the noncontrolling interest in Curleton Co.'s net income.

What term is used to describe a parent and subsidiaries that are eligible to file a consolidated income tax return?

REFERENCE: Ref.07_11 Delta Corporation owns 90 percent of Sigma Company,and Sigma owns 90 percent of Pi,Inc. ,all of which are domestic corporations.Information for the three companies for the year ending December 31,2009 follows: -What is the noncontrolling interest in Pi's income for 2009?

REFERENCE: Ref.07_11 Delta Corporation owns 90 percent of Sigma Company,and Sigma owns 90 percent of Pi,Inc. ,all of which are domestic corporations.Information for the three companies for the year ending December 31,2009 follows: -What is Sigma's accrual-based income for 2009?

Which of the following statements is false concerning a father-son-grandson configuration?

REFERENCE: Ref.07_11 Delta Corporation owns 90 percent of Sigma Company,and Sigma owns 90 percent of Pi,Inc. ,all of which are domestic corporations.Information for the three companies for the year ending December 31,2009 follows: -What is Delta's accrual-based income for 2009?

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 noncontrolling interest in net income for 2010.

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: -Which of the following statements is true?

REFERENCE: Ref.07_18 Patton's operating income excludes income from the investment in Stevens,but includes $150,000 of unrealized gains on intercompany transfers of inventory.Patton uses the initial value method to account for the investment in Stevens. -Assume Patton owns 90 percent of the voting stock of Stevens and they each file separate income tax returns.What amount of income taxes would be paid?

Which of the following is not an advantage of filing a consolidated income tax return?

REFERENCE: Ref.07_13 Dean,Inc.owns 90 percent of Ralph,Inc.During the current year,Dean sold merchandise costing $80,000 to Ralph for $100,000.At the end of the year,30 percent of this merchandise was still on hand.The tax rate is 30 percent. -Assuming that separate income tax returns are being filed,what deferred income tax asset is created?

How is goodwill amortized for income tax purposes?

Gamma Co.owns 80% of Delta Corp. ,and Delta Corp.owns 15% of Gamma Co.The two companies use the treasury stock approach to account for mutual ownership.How should Delta Corp.'s ownership interest in Gamma Co.be accounted for in the consolidation?