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

What configuration of corporate ownership is described as a father-son-grandson relationship?

How is goodwill amortized?

Under current U.S. tax law for consolidated tax returns:

Woods Company has one depreciable asset valued at $800,000. Because of recent losses, the company has a net operating loss carry-forward of $150,000. The tax rate is 30%. The company was acquired for $1,000,000. It is likely the benefit will be realized. Compute the goodwill realized in consolidation.

Delta Corporation owns 90 percent of Sigma Company, and Sigma owns 90 percent of Pi, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows: What is Delta's accrual-based income for 2011?

Which of the following statements is false concerning a father-son-grandson configuration?

Patton's operating income excludes income from the investment in Stevens, but includes $150,000 of unrealized gains on intra-entity transfers of inventory. Patton uses the initial value method to account for the investment in Stevens. Assume Patton owns 90 percent of the voting stock of Stevens and they each file separate income tax returns. What amount of total income tax would be paid?

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?

Under what conditions must a deferred income tax asset be recorded?

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?

Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of Gamma, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows: What is the total non-controlling interest in the subsidiaries' income for 2011?

On January 1, 2010, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2011, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones: Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton: Compute the non-controlling interest in net income for 2011.

In a father-son-grandson combination, which of the following statements is true?

T Corp. owns several subsidiaries that are eligible for inclusion on a consolidated income tax return, but T Corp. decided that each company in the group will file a separate return. Under what conditions would there be minimal advantage in filing a consolidated income tax return?

Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull's common stock. In 2011, Jull and Solaver reported operating income (not including income from the investment) of $300,000 and $80,000, respectively. Jull and Solaver paid dividends of $120,000 and $50,000, respectively. Required: Under the treasury stock approach, what is Jull's controlling interest in Solaver Co.'s net income?

When indirect control is present, which of the following statements is true?

Dog Corporation acquires all of Cat, Inc. for $400,000 cash. On that date, Cat has net assets with fair value of $350,000 but a book value and tax basis of $325,000. The tax rate is 30 percent. Prior to this date, neither Dog nor Cat has reported any deferred income tax assets or liabilities. What amount of goodwill should be recognized on the date of the acquisition?

Gamma Co. owns 80% of Delta Corp., and Delta Corp. owns 15% of Gamma Co. The two companies use the treasury stock approach to account for mutual ownership. How should Delta Corp.'s ownership interest in Gamma Co. be accounted for in the consolidation?

Which of the following statements is true regarding mutual ownership between a parent and its subsidiary?

Reggie, Inc. owns 70 percent of Nancy Corporation. During the current year, Nancy reported earnings 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?