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

Hardford Corp. held 80% of Inglestone Inc., which, in turn, owned 80% of Jade Co. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow: The accrual-based net income of Jade Co. is calculated to be

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

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 separate net income of $224,000 as well as dividend income from Luvyn of $37,800. At the same time, Luvyn reported its separate net income of $70,000 as well as dividend income from Kurton of $19,600.Required:Prepare a schedule to show net income attributable to the controlling interest of Kurton.

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.Parent company owns 85% of the voting stock of the subsidiary, and there are significant intra-entity transfers.Subsidiary is a foreign corporation.Parent company owns 90% of the voting stock of the subsidiary, but there are no intra-entity transfers of inventory.Parent company owns 75% of the voting stock of the subsidiary but there are no intra-entity transfers of inventory.Parent company owns 90% of the voting stock of the subsidiary, and there are intra-entity transfers of inventory.Parent company owns 75% of the voting stock of the subsidiary and there are intra-entity transfers of inventory.

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.Parent company owns 85% of the voting stock of the subsidiary, and there are significant intra-entity transfers.Subsidiary is a foreign corporation.Parent company owns 90% of the voting stock of the subsidiary, but there are no intra-entity transfers of inventory.Parent company owns 75% of the voting stock of the subsidiary but there are no intra-entity transfers of inventory.Parent company owns 90% of the voting stock of the subsidiary, and there are intra-entity transfers of inventory.Parent company owns 75% of the voting stock of the subsidiary and there are intra-entity transfers of inventory.

Gardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.For Gardner Corp. and consolidated subsidiaries, what total amount would be reported for the net income attributable to the noncontrolling interest?

Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate company net incomes for 2021 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess 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 Lawrence's accrual-based net income for 2021.

Woof Co. acquired all of Meow Co. for $502,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $480,000 fair value but a $400,000 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?

Hardford Corp. held 80% of Inglestone Inc., which, in turn, owned 80% of Jade Co. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow: The net income attributable to the noncontrolling interest of Inglestone Inc. is calculated to be

Paris, Inc. owns 80% of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance's dividend income from Paris was $5,000.What will be reported as the net income attributable to the noncontrolling interest of Stance?

On January 1, 2020, Mace Co. acquired 75% of Lance Co.'s outstanding common stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these investments were acquired when book value was equal to fair value of identifiable net assets acquired. Both of these investments were accounted using the initial value method. Only Mace declared dividends in any year. Mace declared dividends each year equal to 40% of its separate net income before the calculation of any of its investment income. Separate net income totals for 2020, not including investment income for any company, were as follows: Following are the 2021 financial statements for these three companies. Curle made numerous transfers of inventory to Lance since the takeover: $112,000 (2020) and $140,000 (2021). These transfers included the same markup applicable to Curle's outside sales. In each of these years, Lance held 20% of the inventory it bought from Curle and then sold that inventory to outsiders in the following year.An effective income tax rate of 45% was applicable to all companies. Required:Determine the total amount of goodwill for the January 1, 2020 acquisition of Curle Co. and for the acquisition of Lance Co. on the same date.

Chapman Co. acquired all of Klein Co. for $613,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $590,000 fair value but a $460,000 book value and income tax basis. The income tax rate was 35%. What amount of goodwill should have been recognized on the date of the acquisition?

On January 1, 2020, 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, 2021, 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: What would be included in a consolidation worksheet entry for 2021?

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...

Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follow, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. Under the separate return method, income tax expense that will be assigned to Hill is closest to:

Dotes, Inc. owns 40% of Abner Co. Dotes accounts for its investment using the equity method. Abner follows a policy of declaring and paying dividends equal to 30% of its income each year. During the current year, Abner reported net income of $216,000. Dotes has an effective income tax rate of 32%.Required:What journal entry would Dotes record at the end of the current year for income taxes relating to the investment in Abner? Assume the investment is to be held for an indefinite time and that all amounts are to be rounded to the nearest dollar.

Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follow, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. Using the percentage allocation method for assigning income tax expense, the income tax expense assigned to Hill is closest to:

On January 1, 2021, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2022, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup's acquisition of Harley:Consideration transferred for 80% interest, January 1, 2022: $1,000,000Harley's reported book value, January 1, 2022: 1,200,000Excess 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 Harley and Buttercup: What would be included in a consolidation worksheet entry for 2022?

On January 1, 2021, a subsidiary buys 12% of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value of the acquired shares by $80,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported separate company income of $1,000,000 (excluding investment income from the subsidiary), and paid $120,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2021?

Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows: What is the net income attributable to the noncontrolling interest in Gamma for 2021?