Exam 7: Consolidated Financial Statements - Ownership Patterns and Income

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 the noncontrolling interest in Solaver Co.'s net income?

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

Dean, Inc. owns 90 percent of Ralph, Inc. During the current year, Dean sold merchandise costing $80,000 to Ralph for $100,000. At the end of the year, 30 percent of this merchandise was still on hand. The tax rate is 30 percent. -Assuming that a consolidated income tax return is being filed, what deferred income tax asset is created?

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: Consideration transferred for 80% interest, January 1, 2011: $800,000 Jones' reported book value, January 1, 2011: 900,000 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 noncontrolling interest in net income for 2011.

On January 1, 2011, a subsidiary bought 10% of the outstanding shares of its parent company. Although the total book value and fair value of the parent's net assets were $5.5 million, the consideration transferred for these shares was $590,000. During 2011, the parent reported operating income (no investment income was included) of $714,000 while paying dividends of $196,000. How were these shares reported at December 31, 2011?

Hardford Corp. held 80% of Inglestone Inc. which, in turn, owned 80% of Jade Co. Operating income figures (without investment income) as well as unrealized upstream gains included in the income for the current year follow: -The noncontrolling interest in the net income of Jade Co. is calculated to be

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 Sigma's accrual-based income for 2011?

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?

Which of the following is not an advantage of filing a consolidated income tax return?

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

On January 1, 2011, Youder Inc. bought 120,000 shares of Nopple Co. for $384,000, giving Youder 30% ownership and the ability to apply significant influence to the operating and financing decisions of Nopple. Youder anticipated holding this investment for an indefinite time. In making this acquisition, Youder paid an amount equal to the book value for these shares. The fair value of each asset and liability was the same as its book value. Dividends and income for Nopple for 2011 were as follows: Required: Assume a 40% income tax rate. Prepare all necessary journal entries for Youder for 2011 beginning at acquisition and ending at tax accrual.

Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. Each company's operating and dividend income for the current time period follow, as well as the effects of unrealized gains. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. -What is the tax liability for the current year if consolidated tax returns are prepared?

What term is used to describe a parent and subsidiaries that are eligible to file a consolidated income tax return?

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 files a consolidated income tax return. What amount of income taxes would be paid? Operating Income \ 2,250,000 [\ 2,000,000+\ 400,000-\ 150,000] Tax rate 30\% Taxes to be paid \ 675,000

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?

Dotes, Inc. owns 40% of Abner Co. Dotes accounts for its investment using the equity method. Abner follows a policy of paying dividends equal to 30% of its income each year. During the current year, Abner reported net income of $216,000. Dotes has an effective income tax rate of 32%. Required: What journal entry would Dotes record at the end of the current year for income taxes relating to the investment in Abner? Assume the investment is to be held for an indefinite time and that all amounts are to be rounded to the nearest dollar.

Tate, Inc. owns 80 percent of Jeffrey, Inc. During the current year, Jeffrey sold merchandise costing $60,000 to Tate for $75,000. At the end of the year, 10 percent of this merchandise was still being held. The tax rate is 30 percent. -Assuming that separate income tax returns are being filed, what deferred income tax asset is created?

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

Paris, Inc. owns 80 percent of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Stance holds 10 percent of the voting stock of Paris. The payment for that investment was in excess of book value and fair value by $15,000. Any excess fair value is assigned to trademarks to be amortized over a 10-year period. During the current year, Paris reported operating income of $200,000 and dividend income from Stance of $20,000. At the same time, Stance reported operating income of $40,000 and dividend income from Paris of $5,000. -What will be reported as the noncontrolling interest in Stance's net income?

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