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

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

Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows: What is the net income attributable to the noncontrolling interest in Pi for 2021?

On January 1, 2021, a subsidiary buys 8% 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 in the consolidated balance sheet at December 31, 2021?

White Company owns 60% of Cody Company. Separate tax returns are required. For 2020, 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 declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute the income tax liability of Cody for 2021.

Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows: Which of the following statements is true?

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 net income attributable to the noncontrolling interest in Curle for the year 2021.

Which of the following statements is true regarding the filing of income taxes for an affiliated group?

Which of the following statements is true regarding mutual ownership between a parent and its subsidiary?

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 the net income attributable to the noncontrolling interest in Ross for 2021.

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

Patton's operating income excludes income from the investment in Stevens, but includes $150,000 of gross profit on intra-entity transfers of inventory and the inventory is still held by Stevens at the end of the year. Patton uses the initial value method to account for the investment in Stevens.Assume Patton owns 90% of the voting stock of Stevens and they each file separate income tax returns. What amount of total income tax would be paid?

Dean, Inc. owns 90% 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% of this merchandise was still on hand. The tax rate is 30%.Assuming that separate income tax returns are being filed, what deferred income tax asset is created?

When indirect control is present, which of the following statements is true?

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

Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows: What is Pi's accrual-based net income for 2021?

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?

Which of the following conditions will allow two companies to file a consolidated income tax return?

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 Alpha's accrual-based net income for 2021?

Patton's operating income excludes income from the investment in Stevens, but includes $150,000 of gross profit on intra-entity transfers of inventory and the inventory is still held by Stevens at the end of the year. Patton uses the initial value method to account for the investment in Stevens.Assume Patton owns 90% of the voting stock of Stevens and files a consolidated income tax return. What amount of income taxes would be paid?

Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows: What is the net income attributable to the noncontrolling interest in Sigma for 2021?