Exam 10: Additional Consolidation Reporting Issues

Company A owns 85 percent of Company B's stock and 80 percent of Company C's stock. All acquisitions were made at book value. The fair values of noncontrolling interests at the time of acquisition were equal to the proportionate share of the book values of the companies. The companies file a consolidated tax return each year and in 20X9 paid a total tax of $112,000. Each company is involved in a number of intercompany inventory transfers each period. Information on the companies' activities for 20X9 is as follows: Company A does not record income tax expense on income from subsidiaries because a consolidated tax return is filed. -Based on the information provided,income to the controlling interest for 20X9 is:

On July 1, 20X8, Fair Logic Corporation acquires 75 percent of Integrated Systems Inc. common stock for its underlying book value. At the time of acquisition, the fair value of the noncontrolling interest is equal to its proportionate share of book value of Integrated Systems. On January 1, 20X8 Integrated reported common stock of $100,000 and retained earnings of $130,000. For the year 20X8, Integrated reports the following items: Fair Logic uses the equity method in accounting for this investment. -Based on the preceding information,what is the book value of shares acquired by Fair Logic on July 1,20X8?

Jupiter Corporation's consolidated cash flow statement for the year ended December 31, 20X8, reported operating cash inflows of $160,000, financing cash outflows of $90,000, and investing cash outflows $55,000, and an ending cash balance of $75,000. Jupiter acquired 75 percent of Ganymede Company's common stock on July 1, 20X6, at book value. At that date, the fair value of the noncontrolling interest was equal to 25 percent of Ganymede Company's book value. Ganymede reported net income of $20,000, paid dividends of $8,000 in 20X8, and is included in Jupiter's consolidated statements. Jupiter paid dividends of $25,000 in 20X8. The indirect method is used in computing cash flow from operations. -Based on the information provided,what was the consolidated cash balance at January 1,20X8?

Ceafoam Corporation acquired 80 percent of Trump Corporation's common stock on March 31, 20X4 for $360,000. At that date, the fair value of the noncontrolling interest was $90,000. On January 1, 20X4, Trump reported the following stockholders' equity balances: Trump reported net income of $100,000 in 20X4, earned uniformly throughout the year, and declared and paid dividends of $40,000 on December 31, 20X4. Ceafoam reported retained earnings of $500,000 on January 1, 20X8, and had 20X4 income of $200,000 from its separate operations. Ceafoam paid dividends of $50,000 on December 31, 20X4. Ceafoam accounts for its investment in Trump Corporation using the fully adjusted equity method. -Based on the information provided,what is the consolidated net income reported for the year 20X4?

On July 1, 20X8, Fair Logic Corporation acquires 75 percent of Integrated Systems Inc. common stock for its underlying book value. At the time of acquisition, the fair value of the noncontrolling interest is equal to its proportionate share of book value of Integrated Systems. On January 1, 20X8 Integrated reported common stock of $100,000 and retained earnings of $130,000. For the year 20X8, Integrated reports the following items: Fair Logic uses the equity method in accounting for this investment. -Based on the preceding information,what is the fair value of the noncontrolling interest at the time of acquisition?

Company A holds 70 percent of the voting shares of Company B. During 20X8, Company B sold land with a book value of $125,000 to Company A for $150,000. Company A continues to hold the land at the end of the year. The companies file separate tax returns and are subject to a 40 percent tax rate. Assume that Company A uses the fully adjusted equity method in accounting for its investment in Company B. -Use the information given,but also assume that Company A holds the land at the end of 20X9.The consolidating entry relating to the intercorporate sale of land to be entered in the consolidation worksheet prepared at the end of 20X9 will include:

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. -For a subsidiary to be eligible to be included in a consolidated tax return,at least _____ of its stock must be held by the parent company or another company included in the consolidated return.

The following information comes from Torveson Company's accounting records for 20X5: -Based on the preceding information,what amount will be reported by the company as cash flows from operating activities for 20X5?

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 provided by operating activities for 20X9?

Company A holds 70 percent of the voting shares of Company B. During 20X8, Company B sold land with a book value of $125,000 to Company A for $150,000. Company A continues to hold the land at the end of the year. The companies file separate tax returns and are subject to a 40 percent tax rate. Assume that Company A uses the fully adjusted equity method in accounting for its investment in Company B. -Based on the information given,which consolidating entry relating to the intercorporate sale of land is to be entered in the consolidation worksheet prepared at the end of 20X8?

New Life Corporation has just finished preparing a consolidated balance sheet, income statement, and statement of changes in retained earnings for 20X9. The following items are proposed for inclusion in the consolidated cash flow statement: New Life holds 75 percent of the voting stock of Shane Pharmaceuticals, acquired at book value on June 21, 20X6. On the date of the acquisition, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Shane. -Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash provided by operating activities for 20X9?

On December 31,20X7,Planet Corporation acquired 80 percent of Broadway Company's stock,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Broadway Company.The two companies' balance sheets on December 31,20X9,are as follows: On December 31,20X9,Planet holds inventory purchased from Broadway for $40,000.Broadway's cost of producing the merchandise was $25,000.Broadway's ending inventory also contains $30,000 of purchases from Planet that had cost it $20,000 to produce. On December 30,20X9,Broadway sold equipment to Planet for $40,000.Broadway had purchased the equipment for $60,000 several years earlier.At the time of sale to Planet,the equipment had a book value of $20,000.The two companies file separate tax returns and are subject to a 40 percent tax rate.Planet does not record tax expense on its share of Broadway's undistributed earnings. Required: 1)Prepare the consolidating entries necessary to complete a consolidated balance sheet worksheet as of December 31,20X9. 2)Complete a consolidated balance sheet worksheet as of December 31,20X9. Problem 57 (continued):

Which of the following observations concerning the comparisons between the direct and indirect approaches of presenting a cash flow statement is true?

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 amount would Gulfstream report as net income (after taxes)for the year?

Winter Corporation's consolidated cash flow statement for the year ended December 31, 20X2, reported operating cash inflows of $100,000, financing cash inflows of $30,000, investing cash outflows of $120,000, and an ending cash balance of $50,000. Winter acquired 60 percent of Snowboard Company's common stock on April 1, 20X0 at book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Snowboard's book value. Snowboard reported net income of $30,000, paid dividends of $20,000 in 20X2, and is included in Winter's consolidated statements. Winter paid dividends of $40,000 in 20X2. The indirect method is used in computing cash flows from operations. -Based on the information provided,what was the consolidated cash balance at January 1,20X2?

Company A owns 85 percent of Company B's stock and 80 percent of Company C's stock. All acquisitions were made at book value. The fair values of noncontrolling interests at the time of acquisition were equal to the proportionate share of the book values of the companies. The companies file a consolidated tax return each year and in 20X9 paid a total tax of $112,000. Each company is involved in a number of intercompany inventory transfers each period. Information on the companies' activities for 20X9 is as follows: Company A does not record income tax expense on income from subsidiaries because a consolidated tax return is filed. -Based on the information provided,what amount of consolidated net income will be reported for the year 20X9?

Winter Corporation's consolidated cash flow statement for the year ended December 31, 20X2, reported operating cash inflows of $100,000, financing cash inflows of $30,000, investing cash outflows of $120,000, and an ending cash balance of $50,000. Winter acquired 60 percent of Snowboard Company's common stock on April 1, 20X0 at book value. At that date, the fair value of the noncontrolling interest was equal to 40 percent of Snowboard's book value. Snowboard reported net income of $30,000, paid dividends of $20,000 in 20X2, and is included in Winter's consolidated statements. Winter paid dividends of $40,000 in 20X2. The indirect method is used in computing cash flows from operations. -Based on the information provided,what amount was reported as dividends paid in the cash flow from financing activities section of the consolidated statement of cash flows?

On July 1, 20X8, Fair Logic Corporation acquires 75 percent of Integrated Systems Inc. common stock for its underlying book value. At the time of acquisition, the fair value of the noncontrolling interest is equal to its proportionate share of book value of Integrated Systems. On January 1, 20X8 Integrated reported common stock of $100,000 and retained earnings of $130,000. For the year 20X8, Integrated reports the following items: Fair Logic uses the equity method in accounting for this investment. -Based on the preceding information,what journal entry would Fair Logic make to record equity method income for the year?

Electric Corporation holds 80 percent of Utility Company's voting common shares, acquired at book values, but none of its preferred shares. At the date of acquisition, the fair value of the noncontrolling interest was equal to 20 percent of the book value of Utility Company. Summary balance sheets for the companies on December 31, 20X8, are as follows: Neither of the preferred issues is convertible. Electric's preferred pays a 8 percent annual dividend, and Utility's preferred pays a 12 percent dividend. Utility reported net income of $30,000 and paid a total of $10,000 of dividends in 20X8. Electric reported income from its separate operations of $70,000 and paid total dividends of $25,000 in 20X8. -Based on the preceding information,what is the amount of earnings available to common shareholders reported in the consolidated financial statements for the year?

Power Corporation owns 75 percent of Transmitter Company's common stock.At the date of acquisition the fair value of the noncontrolling interest was equal to the book value of Transmitter Company's common stock.The following balance sheet data are presented for December 31,20X8: Transmitter reported net income of $90,000 in 20X8 and paid dividends of $30,000.Its bonds have an annual interest rate of 10 percent and are convertible into 12,000 common shares.Its preferred shares pay a 12 percent annual dividend and convert into 5,000 shares of common stock.In addition,Transmitter has warrants outstanding for 12,000 shares of common stock at $15 per share.The 20X8 average price of Transmitter common shares was $25. Power reported income of $180,000 from its own operations for 20X8 and paid dividends of $40,000.Its 9 percent bonds convert into 8,000 shares of its common stock.The companies file separate tax returns and are subject to income taxes of 40 percent. Required: Compute basic and diluted earnings per share for the consolidated entity for 20X8. Problem 58 (continued):