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

Britain Corporation acquires all of English, Inc.for $800,000 cash.On that date, English has net assets with fair value of $750,000 but a book value and tax basis of $500,000.The tax rate is 35 percent.Prior to this date, neither Britain nor English has reported any deferred income tax assets or liabilities.What amount of goodwill should be recognized on the date of the acquisition?

What is consolidated net income?

River Co. owns 80% of Boat Inc. The two companies file a consolidated income tax return and River 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 30%. -Jastoon Co.acquired all of Wedner Co.for $588,000 cash in a tax-free transaction.On that date, the subsidiary had net assets with a $560,000 fair value but a $420,000 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?

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

Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent 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, 2018 follows: -What is Beta's accrual-based net income for 2018?

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

White Company owns 60% of Cody Company. Separate tax returns are required. For 2017, 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 -Compute the income tax liability of Cody for 2018.

Which of the following statements is true regarding the subsidiary's investment in its parent's common stock?

D Corp.had investments, direct and indirect, in several subsidiaries: -E Co.is a domestic firm in which D Corp.owned a 90% interest -F Co.is a domestic firm in which D Corp.owned 60% and E Co.owned 30% -G Co.is a domestic firm wholly owned by E Co. -H Co.is a foreign subsidiary in which D Corp.owned a 90% interest -I Co.is a domestic firm in which D Corp.owned 50% and G Co.owned 25% Which of these subsidiaries may be included in a consolidated income tax return?

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

White Company owns 60% of Cody Company. Separate tax returns are required. For 2017, 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 -Compute Cody's undistributed earnings for 2018.

Wilkins Inc.owned 60% of Motumbo Co.During the current year, Motumbo reported net income of $280,000 but paid a total cash dividend of only $56,000. Required: Assuming an income tax rate of 30%, what amount of Deferred Income Tax Liability arising this year must be recognized in the consolidated balance sheet?

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

On January 1, 2018, a subsidiary buys 12 percent 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, 2018?

Use the following to answer questions 68 - 74: -What is the total net income attributable to the noncontrolling interest for 2018?

Why might a consolidated group file separate income tax returns?

How is the amortization of goodwill treated for income tax purposes? How does the amortization of goodwill affect deferred income taxes?

Use the following to answer questions 68 - 74: -What is Delta's accrual-based net income for 2018?

Use the following to answer questions 1 - 3: 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?

White Company owns 60% of Cody Company. Separate tax returns are required. For 2017, 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 -Compute the income tax liability of White for 2018.