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

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:Using the treasury stock approach, prepare a schedule to show what is reported as the net income attributable to the noncontrolling interest in Luvyn.

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 a consolidated income tax return is being filed, what deferred income tax asset is created?

Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull's common stock. In 2021, Jull and Solaver reported separate net incomes (not including income from the investment) of $300,000 and $80,000, respectively. Jull and Solaver declared dividends of $120,000 and $50,000, respectively.Required:Under the treasury stock approach, what is the net income attributable to the noncontrolling interest?

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 Whitton's accrual-based consolidated net income for 2021.

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: Compute Buttercup's accrual-based consolidated net income for 2022.

Dog Corporation acquires all of Cat, Inc. for $400,000 cash. On that date, Cat has net assets with fair value of $350,000 but a book value and tax basis of $325,000. The tax rate is 30%. Prior to this date, neither Dog nor Cat has reported any deferred income tax assets or liabilities. What amount of goodwill should be recognized on the date of the acquisition?

What are the benefits or advantages of filing a consolidated income tax return?

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 accrual-based net income of Mace Co for the year 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 Cody's undistributed earnings for 2021.

Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an investment accounted for by the equity method. During 2021, Dice had 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 2021?(B.) If Dice expects to sell its interest in Spalding in the near future, how does that decision change the 2021 income tax expense journal entry?

Which of the following is not a reason for a consolidated group to file separate income tax returns?

X Co. owned 80% of Y Corp., and Y Corp. owned 15% of X Co. Under the treasury stock approach, how would the dividends paid by X Co. to Y Corp. be handled on a consolidation worksheet?

Parent company owns 75% of the voting stock of the subsidiary and there are intra-entity transfers of inventory

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: Compute the net income attributable to the noncontrolling interest for 2022.

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%. Compute accrual-based consolidated income before income tax.

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

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 Chase's attributed ownership in Ross.

Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull's common stock. In 2021, Jull and Solaver reported separate net incomes (not including income from the investment) of $300,000 and $80,000, respectively. Jull and Solaver declared dividends of $120,000 and $50,000, respectively.Required:Under the treasury stock approach, what is Jull's net income attributable to the controlling interest in Solaver Co..?

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 Beta's accrual-based net income for 2021?

Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Separate company net incomes for 2021 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 gross profit on intra-entity transfers to Maroon. The accrual-based net income of Beagle Co. is calculated to be