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

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.How much will the consolidated group save if it decides to file a consolidated income tax return?

Florrick Co. owns 85% of Bishop Inc. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements: The income tax rate was 40%.What was the net income attributable to the noncontrolling interest, assuming that the separate return method was used to assign the income tax expense?

Explain how the treasury stock approach treats shares of the parent's common stock that are owned by the subsidiary and the rationale behind the approach.

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.The accrual-based net income of Lockhart Co. is calculated to be

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

Which of the following statements is true regarding goodwill?

On January 1, 2021, 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 $6.2 million, the consideration transferred for these shares was $700,000. During 2021, the parent reported separate net income of $816,000, before including investment income, while dividends declared were $207,000. How were these shares reported at December 31, 2021?

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%. What is the income tax liability for the current year if consolidated tax returns are prepared?

Riley Corp. owned 90% of Brady Inc., while Brady owned 10% of the outstanding common shares of Riley. No goodwill or other allocations were recognized in connection with either of these acquisitions. Riley reported net income of $255,000 for 2021 whereas Brady recognized $87,000 during the same period. No investment income was included within either of these income totals.On a consolidated income statement, what is the net income attributable to the noncontrolling interest?

Which of the following statements is true concerning connecting affiliations and mutual ownerships?

How does the accounting for intra-entity dividends differ between financial reporting and tax accounting?

Under current U.S. tax law for consolidated tax returns:

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 is consolidated net income?

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 Jade Co. is calculated to be

Woods Company has one depreciable asset valued at $800,000. Because of recent losses, the company has a net operating loss carryforward of $150,000. The tax rate is 30%. The company was acquired for $1,000,000. It is more likely than not that the tax benefit will be realized. Compute the goodwill recognized for consolidated financial statements.

Florrick Co. owns 85% of Bishop Inc. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements: The income tax rate was 40%.What is the amount of income tax expense that should be assigned to Bishop using the percentage allocation method?

T Corp. owns several subsidiaries that are eligible for inclusion on a consolidated income tax return, but T Corp. decided that each company in the group will file a separate return. Under what conditions would there be minimal advantage in filing a consolidated income tax return?

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: Compute the net income attributable to the noncontrolling interest for 2021.

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

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?