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

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?

On January 1, 2012, 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, 2013, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones: Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton: Compute Whitton's accrual-based consolidated net income for 2013.

How is goodwill amortized?

Woods Company has one depreciable asset valued at $800,000. Because of recent losses, the company has a net operating loss carry-forward 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.

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, 2012, 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, 2013, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones: Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton: Compute the non-controlling interest in net income for 2013.

Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an investment accounted for by the equity method. During 2013, Dice earned operating income (not including income from its investment in Spalding) of $370,000. For this same period, Spalding reported net income of $160,000 and paid cash dividends of $60,000. Dice has an effective income tax rate of 35% and anticipates holding its investment in Spalding for an indefinite period. Required: (A.) What income tax expense journal entry would Dice Inc. record at the end of 2013? (B.) If Dice expects to sell its interest in Spalding in the near future, how does that decision change the 2013 income tax expense journal entry?

Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity 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?

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, 2013 follows: What is the non-controlling interest in Pi's income for 2013?

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 intra-entity gains (which are related to inventory transfers) but did not include dividend income from investment in subsidiary. The accrual-based income of East Co. is calculated to be

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

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?

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: Prepare a schedule to show consolidated net income.

Pear, Inc. owns 80 percent of Apple Corporation. During the current year, Apple reported earnings before tax 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?

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 separate income tax returns are being filed, what deferred income tax asset is created?

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

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.

Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity 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%. What is the tax liability for the current year if consolidated tax returns are prepared?

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

What configuration of corporate ownership is described as a father-son-grandson relationship?