Exam 7: Consolidated Financial Statements - Ownership Patterns and 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 Beta's accrual-based income for 2009?

-Required: Prepare a schedule to show consolidated net income.

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 noncontrolling interest in Boat Inc.'s net income,assuming that the separate return method was used?

Reggie,Inc.owns 70 percent of Nancy Corporation.During the current year,Nancy reported net income of $100,000 and paid a dividend of $30,000.The income tax rate for both companies is 30 percent.What deferred income tax liability arising in the current year must be recognized in the consolidated balance sheet?

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 Alpha's accrual-based income for 2009?

REFERENCE: Ref.07_04 Beagle Co.owned 80% of Maroon Corp.Maroon owned 90% of Eckston Inc.Operating income totals for 2010 are shown below;these figures contained no investment income.Amortization expense was not required by any of these acquisitions.Included in Eckston's operating income was a $56,000 unrealized gain on intercompany transfers to Maroon. -The accrual-based income of Maroon Corp.is calculated to be

REFERENCE: Ref.07_15 Jull Corp.owned 80% of Solaver Co.Solaver paid $250,000 for 10% of Jull's common stock.In 2009,Jull and Solaver reported operating income (not including income from the investment)of $300,000 and $80,000,respectively.Jull and Solaver paid dividends of $120,000 and $50,000,respectively. -Required: Under the treasury stock approach,what is Jull's controlling interest in Solaver Co.'s net income?

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 noncontrolling interest in Gamma's income for 2009?

On January 1,2009,a subsidiary bought 10% of the outstanding shares of its parent company.Although the total book value and fair value of the parent's net assets were $5.5 million,the consideration transferred for these shares was $590,000.During 2009,the parent reported operating income (no investment income was included)of $714,000 while paying dividends of $196,000.How were these shares reported at December 31,2009?

The benefits of filing a consolidated tax return include all of the following except

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 is the amount of taxable income reported on the consolidated income tax return?

REFERENCE: Ref.07_04 Beagle Co.owned 80% of Maroon Corp.Maroon owned 90% of Eckston Inc.Operating income totals for 2010 are shown below;these figures contained no investment income.Amortization expense was not required by any of these acquisitions.Included in Eckston's operating income was a $56,000 unrealized gain on intercompany transfers to Maroon. -The accrual-based income of Beagle Co.is calculated to be

For West Corp.and consolidated subsidiaries,what total amount would have been reported for the noncontrolling interest's share of subsidiaries' net income?

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 files a consolidated income tax return.What amount of income taxes would be paid?

REFERENCE: Ref.07_08 Tower Company owns 85% of Hill Company.The two companies engaged in several intercompany transactions.Each company's operating and dividend income for the current time period follow,as well as the effects of unrealized gains.No income tax accruals have been recognized within these totals.The tax rate for each company is 30%. -Using percentage allocation method,how much income tax expense is assigned to Hill?

REFERENCE: Ref.07_16 Kurton Inc.owned 90% of Luvyn Corp.'s voting common stock.The consideration paid exceeded book value by $110,000.Of this amount,one half is attributable to a patent and is to be amortized over 5 years.Luvyn held 20% of Kurton's voting common stock which cost $28,000 more than fair value. During the current year,Kurton reported operating income of $224,000 and dividend income from Luvyn of $37,800.At the same time,Luvyn reported operating income of $70,000 and dividend income from Kurton of $19,600. -Required: Using the treasury stock approach,prepare a schedule to show what is reported as the noncontrolling interest in Luvyn Corp.'s net income.

REFERENCE: Ref.07_06 Chase Company owns 80% of Lawrence Company and 40% of Ross Company.Lawrence Company also owns 30% of Ross Company.Separate operating incomes for 2009 of Chase,Lawrence,and Ross are $450,000,$300,000,and $250,000,respectively.Each company also retains a $20,000 unrealized gain in their current income figures.Annual amortization expense of $15,000 is assigned to Chase's investment in Lawrence and another $15,000 is assigned to Lawrence's investment in Ross. -Compute Chase's attributed ownership in Ross.

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 Inglestone Inc.is calculated to be

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

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 Whitton's accrual-based consolidated net income for 2010.