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

West Corp. owns 70% of the voting common stock of East Co. East owns 60% of Compass Co. West and East 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. -For West Corp.and consolidated subsidiaries, what total amount would be reported for the net income attributable to the noncontrolling interest?

Reggie, Inc.owns 70 percent of Nancy Corporation.During the current year, Nancy reported operating income before tax of $100,000 and paid a dividend of $30,000.The income tax rate for both companies is 30 percent.What deferred income tax liability arising in the current year must be recognized in the consolidated balance sheet?

Use the following to answer questions 68 - 74: -Which of the following statements is true?

On January 1, 2017, 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 2017, not including investment income for any company, were as follows: Following are the 2018 financial statements for these three companies. Curle made numerous transfers of inventory to Lance since the takeover: $112,000 (2017) and $140,000 (2018). 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 total amount of goodwill for the January 1, 2017 acquisition of Curle Co.and for the acquisition of Lance Co.on the same date.

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 Alpha's accrual-based net income for 2018?

Assuming that separate income tax returns are being filed, what deferred income tax asset is created?

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?

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%. -Using the percentage allocation method for assigning income tax expense, the income tax expense assigned to Hill is closest to:

-The accrual-based net income of Maroon Corp.is calculated to be

West Corp. owns 70% of the voting common stock of East Co. East owns 60% of Compass Co. West and East 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 East Co.is calculated to be

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

In a tax-free business combination,