Exam 10: Additional Consolidation Reporting Issues

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 was the change in cash balance for the consolidated entity for 20X9?

Boycott Company holds 75 percent ownership of Fred Corporation.The consolidated balance sheets as of December 31,20X8,and December 31,20X9,are as follows: The 20X9 consolidated income statement contained the following amounts: Boycott acquired its investment in Fred on January 1,20X6,for $120,000.At that date,the fair value of the noncontrolling interest was $40,000,and Fred reported net assets of $130,000.A total of $20,000 of the differential was assigned to goodwill.The remainder of the differential was assigned to equipment with a remaining life of 10 years from the date of combination. Boycott sold $100,000 of bonds on December 31,20X9,to assist in generating additional funds.Fred reported net income of $20,000 for 20X9 and paid dividends of $10,000.Boycott reported 20X9 equity-method net income of $75,000 paid dividends of $20,000 for the year. Required: 1)Prepare a worksheet to develop a consolidated statement of cash flows for 20X9 using the indirect method of computing cash flows from operations. 2)Prepare a consolidated statement of cash flows for 20X9. Problem 55 (continued):

Sigma Company develops and markets organic food products to natural foods retailers. The following information is available for the company for the year 20X8: -Based on the preceding information,what amount will be reported by the company as cash payments to suppliers for 20X8?

Which sections of the cash flow statement are affected by the difference in the direct and indirect approaches of presenting a cash flow statement? I.Operating activities section II.Investing activities section III.Financing activities section

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 amount was reported as dividends paid in the cash flow from financing activities section of the consolidated statement of cash flows?

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 consolidated income to the controlling interest reported for the year 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,assuming that New Life uses the direct method of computing cash flows from operating activities,what amount will be reported by the company as cash payments to suppliers for 20X9?

Sigma Company develops and markets organic food products to natural foods retailers. The following information is available for the company for the year 20X8: -Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?

Locus Corporation acquired 80 percent ownership of Stereo Company on January 1,20X6,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Stereo Company.Consolidated balance sheets at January 1,20X8,and December 31,20X8,are as follows: The consolidated income statement for 20X8 contained the following amounts: Locus and Stereo paid dividends of $25,000 and $15,000,respectively,in 20X8. Required: 1)Prepare a worksheet to develop a consolidated statement of cash flows for 20X8 using the direct method of computing cash flows from operations. 2)Prepare a consolidated statement of cash flows for 20X8. Problem 54 (continued)

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 consolidated net income reported for the year 20X8?

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?

Denver Corporation owns 25 percent of the voting shares of Alamos Corporation. In 20X8, Alamos reported net income of $120,000 and paid dividends of $30,000. Denver uses the equity method to account for this investment. Denver reported taxable income of $160,000 on its separate operations and has an effective tax rate of 40 percent. There is an 80 percent exemption on intercompany dividends. -Based on the preceding information,income tax expense for Denver for the year 20X8 will be:

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 balance of Ceafoam's investment in Trump Corporation as of December 31,20X4?

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 income tax expense should be assigned to Company A?

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 a debit to Investment in Company B for:

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?

Locus Corporation acquired 80 percent ownership of Stereo Company on January 1,20X6,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Stereo Company.Consolidated balance sheets at January 1,20X8,and December 31,20X8,are as follows: The consolidated income statement for 20X8 contained the following amounts: Locus and Stereo paid dividends of $25,000 and $15,000,respectively,in 20X8. Required: 1)Prepare a worksheet to develop a consolidated statement of cash flows for 20X8 using the indirect method of computing cash flows from operations. 2)Prepare a consolidated statement of cash flows for 20X8. Problem 53 (continued):

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 used in investing activities for 20X9?

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 consolidated earnings per share for 20X8?

For the first quarter of 20X8,Vinyl Corporation reported sales of $150,000 and operating expenses of $100,000,and paid dividends of $20,000.Vinyl Company operates on a calendar-year basis.On April 1,20X8,Signature Corporation acquired 80 percent of Vinyl's common stock for $320,000.At that date,the fair value of the noncontrolling interest was $80,000,and Vinyl had 20,000 shares of $5 par common stock outstanding,originally issued at $12 per share.The differential is related to goodwill.On December 31,20X8,the management of Signature Corporation reviewed the amount attributed to goodwill as a result of its acquisition of Vinyl common stock and concluded that goodwill was not impaired.Vinyl's retained earnings statement for the full year 20X8 appears as follows: Signature uses the fully adjusted equity method in accounting for this investment: Required: 1)Prepare all entries that Signature would have recorded in accounting for its investment in Vinyl during 20X8. 2)Present all consolidating entries needed in a worksheet to prepare a complete set of consolidated financial statements for the year 20X8. Problem 56 (continued):