Exam 7: Consolidated Financial Statements - Ownership Patterns and Income

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 is Paris' share of consolidated net income?

Prescott Corp. owned 90% of Bell Inc., while Bell owned 10% of the outstanding common shares of Prescott. No goodwill or other allocations were recognized in connection with either of these acquisitions. Prescott reported operating income of $266,000 for 2009 whereas Bell earned $98,000 during the same period. No investment income was included within either of these income totals. On a consolidated income statement, what is the noncontrolling interest in Bell's net income ?

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

How is the amortization of goodwill treated for income tax purposes? How does the amortization of goodwill affect deferred income taxes?

On January 1, 2011, a subsidiary buys 12 percent of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value of the acquired shares by $80,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported operating income of $1,000,000 (excluding investment income from the subsidiary), and paid $120,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2011?

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

Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate operating incomes for 2011 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also retains a $20,000 unrealized gain in their current income figures. Annual amortization expense of $15,000 is assigned to Chase's investment in Lawrence and another $15,000 is assigned to Lawrence's investment in Ross. -Compute Lawrence's accrual-based income for 2011.

Which of the following conditions will allow two companies to file a consolidated income tax return?

When Buckette prepared consolidated financial statements, it should include

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

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%. -Compute accrual-based consolidated net income.

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 accrual-based income of Jade Co. is calculated to be

What percentage of Tayle's income is attributed to Buckette's ownership interest?

Kurton Inc. owned 90% of Luvyn Corp.'s voting common stock. The consideration paid exceeded book value by $110,000. Of this amount, one half is attributable to a patent and is to be amortized over 5 years. Luvyn held 20% of Kurton's voting common stock which cost $28,000 more than fair value. During the current year, Kurton reported operating income of $224,000 and dividend income from Luvyn of $37,800. At the same time, Luvyn reported operating income of $70,000 and dividend income from Kurton of $19,600. -Required: Prepare a schedule to show Kurton's share of controlling interest in Luvyn's net income.

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?

What are the essential criteria for including a subsidiary within an affiliated group? A subsidiary may be included in an affiliated group if both of the following conditions are met:

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

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 a consolidated income tax return is being filed, what deferred income tax asset is created?

Explain how the treasury stock approach treats shares of the parent's common stock that are owned by the subsidiary and the rationale behind the approach.

River Co. owned 80% of Boat Inc. The two companies filed a consolidated income tax return and River used the initial value method to account for the investment. The following information was available from the two companies' financial statements: Operating income included net unrealized gains, which are associated with transfers of inventories between the two companies, but it did not include dividends received from a subsidiary. The income tax rate was 30%. -What was the amount of income tax expense that should have been assigned to Boat using the percentage allocation method?