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

REFERENCE: Ref.07_01 Buckette Co.owned 60% of Shuvelle Corp.and 40% of Tayle Corp. ,and Shuvelle owned 35% of Tayle. -What is this pattern of ownership called?

REFERENCE: Ref.07_09 White Company owns 60% of Cody Company.Separate tax returns are required.For 2009,White's operating income (excluding taxes and any income from Cody)was $300,000 while Cody reported a pretax income of $125,000.During the period,Cody paid a total of $25,000 in cash dividends,$15,000 (60%)to White with the remaining going to noncontrolling interest.The income tax rate for both companies is 30%. -Compute White's deferred income taxes for 2009.

REFERENCE: Ref.07_09 White Company owns 60% of Cody Company.Separate tax returns are required.For 2009,White's operating income (excluding taxes and any income from Cody)was $300,000 while Cody reported a pretax income of $125,000.During the period,Cody paid a total of $25,000 in cash dividends,$15,000 (60%)to White with the remaining going to noncontrolling interest.The income tax rate for both companies is 30%. -Compute Cody's undistributed earnings for 2009.

For each of the following situations,select the best answer concerning accounting for income taxes in combinations: (A)May file a consolidated income tax return. (B)May not a file consolidated income tax return. (C)Must file a consolidated income tax return. _____1.Parent company owns 85% of the voting stock of the subsidiary,and there are significant intercompany transactions. _____2.Subsidiary is a foreign corporation. _____3.Parent company owns 90% of the voting stock of the subsidiary,but there are no intercompany inventory transactions. _____4.Parent company owns 75% of the voting stock of the subsidiary but there are no intercompany inventory transactions. _____5.Parent company owns 90% of the voting stock of the subsidiary,and there are intercompany inventory transactions with transferred goods in ending inventory. _____6.Parent company owns 75% of the voting stock of the subsidiary and there are intercompany inventory transactions with transferred goods in ending inventory .

Britain Corporation acquires all of English,Inc.for $800,000 cash.On that date,English has net assets with fair value of $750,000 but a book value and tax basis of $500,000.The tax rate is 35 percent.Prior to this date,neither Britain nor English has reported any deferred income tax assets or liabilities.What amount of goodwill should be recognized on the date of the acquisition?

REFERENCE: Ref.07_12 Paris,Inc.owns 80 percent of the voting stock of Stance,Inc.The excess total fair value over book value was $75,000.Stance holds 10 percent of the voting stock of Paris.The payment for that investment was in excess of book value and fair value by $15,000.Any excess fair value is assigned to trademarks to be amortized over a 10-year period.During the current year,Paris reported operating income of $200,000 and dividend income from Stance of $20,000.At the same time,Stance reported operating income of $40,000 and dividend income from Paris of $5,000. -What will be reported as the noncontrolling interest in Stance'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 the noncontrolling interest in Ross' net income for 2009.

What ownership structure is referred to as a connecting affiliation? Describe briefly or illustrate with a diagram.

Horse Corporation acquires all of Pony,Inc.for $300,000 cash.On that date,Pony has net assets with fair value of $250,000 but a book value and tax basis of $200,000.The tax rate is 40 percent.Prior to this date,neither Horse nor Pony has reported any deferred income tax assets or liabilities.What amount of goodwill should be recognized on the date of the acquisition?

On January 1,2009,a subsidiary buys 8 percent of the outstanding voting stock of its parent corporation.The payment of $350,000 exceeded book value of the acquired shares by $50,000,attributable to a copyright with a 10-year useful life.During the year,the parent reported operating income of $675,000 (excluding investment income from the subsidiary),and paid $100,000 in dividends.If the treasury stock approach is used,how is the Investment in Parent Stock reported on the consolidated balance sheet at December 31,2009?

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 accrual-based income of Maurice Co.

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%. -Under the separate return method,how much income tax expense will be assigned to Hill?

Which of the following is true concerning the treasury stock approach in accounting for a subsidiary's investment in parent company stock?

In a tax-free business combination,

D Corp.had investments,direct and indirect,in several subsidiaries: $\bullet$ E Co.a domestic firm in which D Corp.owned a 90% interest $\bullet$ F Co.a domestic firm in which D Corp.owned 60% and E Co.owned 30% $\bullet$ G Co.a domestic firm wholly owned by E Co. $\bullet$ H Co.a foreign subsidiary in which D Corp.owned a 90% interest $\bullet$ I Co.a domestic firm in which D Corp.owned 50% and G Co.owned 25% Which of these subsidiaries may be included in a consolidated income tax return?