Exam 10: Additional Consolidation Reporting Issues

On January 1, 20X8, Gulfstream Corporation acquired 40 percent of the voting shares of Hunter Company for $65,000. Hunter reported net income of $45,000 and paid dividends of $10,000 in 20X8. Gulfstream reported operating income of $50,000 for the year. There is 80 percent exemption of intercompany dividends and the effective tax rate is 35 percent. Assume that the equity method is being used. Based on the preceding information, what would Gulfstream report as income tax expense for the year?

Flyer Corporation holds 90 percent of Kite Company's common shares but none of its preferred shares. On the date of acquisition, the fair value of the noncontrolling interest was equal to 10 percent of the book value of Kite Company. Summary balance sheets for the companies on December 31, 20X8, are as follows: Flyer's preferred pays a 8 percent annual dividend, and Kite's preferred pays a 10 percent dividend. Kite's preferred shares can be converted into 20,000 shares of common stock at any time. Kite reported net income of $35,000 and paid a total of $10,000 of dividends in 20X8. Flyer reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 20X8. Based on the information provided, what is the basic earnings per share for the consolidated entity for 20X8?

Tower Corporation's controller has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for the year ended December 31, 20X9. Tower owns 80 percent of Network Corporation's stock, which it acquired at underlying book value on November 1, 20X6. At that date, the fair value of the noncontrolling interest was equal to 20 percent of Network Corporation's book value. The following information is available: Consolidated net income for 20X9 was $160,000. Network reported net income of $50,000 for 20X9. Tower paid dividends of $30,000 in 20X9. Network paid dividends of $10,000 in 20X9. Tower issued common stock on February, 18, 20X9, for a total of $100,000. Consolidated wages payable decreased by $6,000 in 20X9. Consolidated depreciation expense for the year was $15,000. Consolidated accounts receivable decreased by $20,000 in 20X9. Bonds payable of Tower with a book value of $102,000 were retired for $100,000 on December 31, 20X9. Consolidated amortization expense on patents was $10,000 for 20X9. Tower sold land that it had purchased for $75,000 to a nonaffiliate for $80,000 on June 10, 20X9. Consolidated accounts payable decreased by $7,000 during 20X9. Total purchases of equipment by Tower and Network during 20X9 were $180,000. Consolidated inventory increased by $36,000 during 20X9. There were no intercompany transfers between Tower and Network in 20X9 or prior years except for Network's payment of dividends. Tower uses the indirect method in preparing its cash flow statement. Based on the preceding information, what amount will be reported in the consolidated cash flow statement as net cash used in investing activities for 20X9?

Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30, 20X8 for $225,000. At that date, the fair value of the noncontrolling interest was $25,000. On January 1, 20X8, Trigger reported the following stockholders' equity balances: Trigger reported net income of $80,000 in 20X8, earned uniformly throughout the year, and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31, 20X8. Catalyst reported retained earnings of $250,000 on January 1, 20X8, and had 20X8 income of $120,000 from its separate operations. Catalyst paid dividends of $50,000 on December 31, 20X8. Catalyst accounts for its investment in Trigger Corporation using the fully adjusted equity method. Based on the information provided, what is the amount of consolidated retained earnings as of December 31, 20X8?