Deck 10: Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Question 1

Pan Corporation has total stockholders' equity of $5,000,000 consisting of $1,000,000 of $10 par value Common Stock,$1,000,000 of Additional Paid-in Capital,and $3,000,000 of Retained Earnings.Pan owns 80% of Sailor Corporation's common stock purchased at book value,which equals fair value.Sailor has $900,000 of 10% cumulative preferred stock outstanding,with no preferred dividends in arrears.The preferred stock has no call price,redemption price or liquidation price.Pan acquired 60% of the preferred stock of Sailor for $500,000.After this transaction the balances in Pan's Retained Earnings and Additional Paid-in Capital accounts,respectively,are

A)$2,960,000 and $1,000,000.
B)$3,000,000 and $960,000.
C)$3,000,000 and $1,040,000.
D)$3,040,000 and $1,000,000.

Answer 1

C

Question 2

Use the following information to answer the question(s) below.

On January 1, 2014, Pamplin Corporation's stockholders' equity consisted of $1,000,000 of $10 par value Common Stock, $750,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings. On January 1, 2014, Pamplin purchased 90% of the outstanding common stock of Sage Corporation for $1,500,000 with all excess purchase cost assigned to goodwill. The stockholders' equity of Sage on this date consisted of $800,000 of $100 par value, 8% cumulative, preferred stock callable at $105, $900,000 of $10 par value common stock and $500,000 of Retained Earnings. Sage's net income for 2014 was $100,000.

On January 1, 2014, no preferred dividends are in arrears. No dividends are declared or paid in 2014. In a separate transaction on January 1, 2014, Pamplin purchased 70% of Sage's preferred stock for $600,000.


-What is the goodwill on the consolidated balance sheet for Pamplin and Subsidiaries on December 31,2014 based on Pamplin's purchase of Sage's common stock?

A)$140,000
B)$240,000
C)$290,000
D)$306,667

Answer 2

$306,667

Question 3

When a subsidiary has preferred stock that is convertible into subsidiary common stock,the parent's equity in the subsidiary's diluted earnings is calculated by the number of

A)subsidiary shares into which the subsidiary's dilutive securities can be converted times the subsidiary's basic EPS figure.
B)parent shares into which the subsidiary's dilutive securities can be converted times the parent's basic EPS figure.
C)subsidiary common shares held by the parent times the subsidiary's diluted EPS figure.
D)parent shares into which the subsidiary's dilutive securities can be converted times the subsidiary's basic EPS figure.

Answer 3

C

Question 4

Palmquist Corporation and its 80%-owned subsidiary,Sadler Corporation,are members of an affiliated group.They do not file consolidated tax returns.Sadler had $3,000,000 of income and paid $1,000,000 dividends in 2014.Palmquist and Sadler had 35% income tax rates.What amount of Sadler's dividends is taxable to Palmquist in 2014?

A)$0
B)$70,000
C)$160,000
D)$200,000

Question 5

Palmer Company owns a 25% interest in Sad,Incorporated,a domestic company.Sad had net income of $60,000 and paid dividends of $20,000.Palmer's tax rate is 35%.For simplicity,assume that Sad's undistributed earnings are Palmer's only temporary timing difference.Assume Sad qualifies for the 80% dividend received deduction.Which of the following statements is correct?

A)The current tax liability is $700.
B)The current tax liability is $1,050.
C)Under GAAP,Palmer provides for income taxes on Sad's undistributed earnings with a credit to deferred tax liability of $700.
D)Under GAAP,Palmer provides for income taxes on Sad's undistributed earnings with a credit to deferred tax liability of $1,050.

Question 6

Palm owns a 70% interest in Sable,a domestic subsidiary.Sable is not part of Palm's affiliated group.Palm will pay taxes on

A)none of the dividends it receives from Sable.
B)20% of the dividends it receives from Sable.
C)66% of the dividends it receives from Sable.
D)80% of the dividends it receives from Sable.

Question 7

Use the following information to answer the question(s) below.

On January 1, 2014, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation for $7,000,000 when Salter's stockholders' equity was as follows:
There were no preferred dividends in arrears on January 1, 2014. There are no book value/fair value differentials.

-What is the implied goodwill for Salter based on Pardy's purchase price for Salter on January 1,2014?

A)$0
B)$35,000
C)$70,000
D)$100,000

Question 8

In computing consolidated diluted EPS,the replacement calculation replaces the parent's equity in subsidiary earnings with the

A)parent's share of basic EPS of the subsidiary.
B)subsidiary's share of basic EPS of the parent.
C)parent's share of diluted EPS of the subsidiary.
D)subsidiary's share of diluted EPS of the parent.

Question 9

If a parent company has controlling interest in a subsidiary which has no potentially dilutive securities outstanding,then in the calculation of consolidated diluted EPS,it will be necessary to

A)only make an adjustment of subsidiary's basic earnings.
B)replace the parent's equity in subsidiary earnings with the parent's equity in subsidiary's diluted EPS.
C)make a replacement calculation in the parent's basic earnings for the EPS.
D)only use the parent's common shares and shares represented by the parent's potentially dilutive securities.

Question 10

Use the following information to answer the question(s) below.

On January 1, 2014, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation for $7,000,000 when Salter's stockholders' equity was as follows:
There were no preferred dividends in arrears on January 1, 2014. There are no book value/fair value differentials.

-Assume Salter's net income for 2014 is $220,000.No dividends are declared or paid in 2014.What is the change in Pardy's Investment in Salter for the year ending December 31,2014?

A)$84,000
B)$119,000
C)$154,000
D)$189,000

Question 11

Use the following information to answer the question(s) below.

On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's stockholders' equity was as follows:
On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000 and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials associated with Parminter's investments.



-What should be the noncontrolling interest share,preferred in the consolidated financial statements of Parminter for the year ending December 31,2014?

A)$1,000
B)$2,000
C)$4,000
D)$5,000

Question 12

Use the following information to answer the question(s) below.

On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's stockholders' equity was as follows:
On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000 and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials associated with Parminter's investments.



-What should be the noncontrolling interest share,common in the consolidated financial statements of Parminter for the year ending December 31,2014?

A)$5,000
B)$20,000
C)$25,000
D)$30,000

Question 13

Use the following information to answer the question(s) below.

On December 31, 2013, Parminter Corporation owns an 80% interest in the common stock of Sanchez Corporation and an 80% interest in Sanchez's preferred stock. On December 31, 2013, Sanchez's stockholders' equity was as follows:
On December 31, 2013, preferred dividends are not in arrears. Sanchez had 2014 net income of $30,000 and only preferred dividends are declared and paid in 2014. There are no book value/fair value differentials associated with Parminter's investments.



-How much should the Parminter's Investment in Sanchez-Common Stock,change during 2014?

A)$5,000
B)$20,000
C)$25,000
D)$30,000

Question 14

Palomba Corporation allocates consolidated income taxes to its 90%-owned subsidiary using the percentage allocation method.Under this method,consolidated income tax expense will be allocated to a subsidiary

A)on the basis of the agreement between the parent and subsidiary.
B)on the basis of the subsidiary's pretax income as a percentage of consolidated pretax income.
C)on the basis of the income taxes remitted to the IRS.
D)at the rate of 90%.

Question 15

A subsidiary has dilutive securities outstanding that include convertible bonds payable.The bonds are convertible into the parent's common stock.When calculating consolidated diluted earnings per share,the convertible bonds will affect

A)the numerator of consolidated diluted EPS only.
B)the denominator of consolidated diluted EPS only.
C)the numerator and denominator of consolidated diluted EPS.
D)the numerator and denominator of the parent diluted EPS only.

Question 16

Assume a company's preferred stock is cumulative with a call provision and has dividends in arrears.The amount of stockholders' equity allocated to preferred stockholders is equal to the number of shares outstanding times the

A)sum of the par value per share plus any liquidation premium per share,plus the sum of any preferred dividends in arrears,plus the current year's dividend requirement,but only if dividends have been declared.
B)sum of the par value per share,plus any liquidation premium per share,plus the sum of any preferred dividends in arrears,plus the current year's dividend requirement,regardless of whether dividends have been declared.
C)call price plus the sum of any preferred dividends in arrears,plus the current year's dividend requirement,but only if dividends have been declared.
D)call price plus the sum of any preferred dividends in arrears,plus the current year's dividend requirement,regardless of whether dividends have been declared.

Question 17

When a parent acquires the preferred stock of a subsidiary,there will be a constructive retirement and

A)any difference paid above the book value of the preferred stock reduces the parent's additional paid-in capital.
B)any difference paid above the book value of the preferred stock reduces the subsidiary's retained earnings.
C)any difference paid above the book value of the preferred stock increases the parent's additional paid-in capital.
D)any difference paid above the book value of the preferred stock increases the parent's retained earnings.

Question 18

Use the following information to answer the question(s) below.

On January 1, 2014, Pamplin Corporation's stockholders' equity consisted of $1,000,000 of $10 par value Common Stock, $750,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings. On January 1, 2014, Pamplin purchased 90% of the outstanding common stock of Sage Corporation for $1,500,000 with all excess purchase cost assigned to goodwill. The stockholders' equity of Sage on this date consisted of $800,000 of $100 par value, 8% cumulative, preferred stock callable at $105, $900,000 of $10 par value common stock and $500,000 of Retained Earnings. Sage's net income for 2014 was $100,000.

On January 1, 2014, no preferred dividends are in arrears. No dividends are declared or paid in 2014. In a separate transaction on January 1, 2014, Pamplin purchased 70% of Sage's preferred stock for $600,000.


-For the year ending December 31,2014,the amount of Pamplin's income from Sage (associated with the common stock investment in Sage)is

A)$32,400.
B)$36,000.
C)$60,000.
D)$90,000.

Question 19

Use the following information to answer the question(s) below.

On January 1, 2014, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation for $7,000,000 when Salter's stockholders' equity was as follows:
There were no preferred dividends in arrears on January 1, 2014. There are no book value/fair value differentials.

-Salter has a 2014 net loss of $200,000.No dividends are declared or paid in 2014.What is the change in Pardy's Investment in Salter for the year ending December 31,2014?

A)$50,000
B)$70,000
C)$140,000
D)$210,000

Question 20

Parnaby has 25,000 common stock shares outstanding and its 100%-owned subsidiary Sandal has 5,000 common stock shares outstanding.Parnaby and Sandal do not have any potentially dilutive securities outstanding.The separate net incomes for Parnaby and Sandal are $150,000 and $75,000,respectively.Diluted EPS for the consolidated company is

A)$5.00.
B)$6.00.
C)$7.50.
D)$9.00.

Question 21

All dividends in arrears on cumulative preferred stock are included in the equity allocated to preferred stockholders.

Question 22

Pancino Corporation owns a 90% interest in Sakal Corporation's common stock.Throughout 2014,Sakal had 20,000 shares of common stock outstanding and Pancino had 50,000 shares of common stock outstanding.Sakal's only dilutive security consists of 2,500 stock options,with an exercise price of $20 per share.The average price of Sakal's stock is $50 per share in 2014.The options are exercisable for one share of Sakal's common stock.Pancino's and Sakal's separate net incomes for the year are $100,000 and $80,000,respectively.
Required:
Compute the amount of basic and diluted earnings per share for Pancino (Consolidated)and Sakal Corporations.

Question 23

Net income of an investee with preferred stock outstanding is first allocated to preferred stockholders based on the preferred stock contract.

Question 24

Peter Corporation owns 90% of the common stock of Subsidiary Subway.The following data is available:
The preferred stock is cumulative and convertible.The annual preferred dividends are $10,000.
Required:
1.Subway's preferred stock is convertible into 12,000 shares of Subway's common stock.Peter and Subway do not have any other potentially dilutive securities outstanding.
a.What is Subway's basic EPS and diluted EPS?
b.What is consolidated basic EPS and diluted EPS?
2.Subway's preferred stock is convertible into 12,000 shares of Peter's common stock.Peter and Subway do not have any other potentially dilutive securities outstanding.What is consolidated basic EPS and diluted EPS?

Question 25

Jeff Corporation owns 90% of the common stock of Subsidiary Jordan.The following data is available:
The preferred stock is cumulative and convertible.The annual preferred dividends are $20,000.
Required:
1.Jordan's preferred stock is convertible into 20,000 shares of Jordan's common stock.Jeff and Jordan do not have any other potentially dilutive securities outstanding.
a.What is Jordan's basic EPS and diluted EPS?
b.What is consolidated basic EPS and diluted EPS?
2.Jordan's preferred stock is convertible into 20,000 shares of Jeff's common stock.Jeff and Jordan do not have any other potentially dilutive securities outstanding.What is consolidated basic EPS and diluted EPS?

Question 26

Paradise Corporation owns 100% of Aldred Corporation,90% of Balme Corporation,80% of Calder Corporation,75% of Dale Corporation,20% of East Corporation,and 8% of Faber Corporation.Paradise,Aldred,Balme and Calder belong to an affiliated group.All of these corporations are domestic corporations.During 2014,Paradise Corporation reports net income of $1,500,000.This net income includes the full amount of dividends received from Aldred and Faber,but does not include the dividends received from Balme,Calder,Dale,and East Corporations.All investees have paid out all of their net income in the form of dividends.Paradise's share of the various dividend distributions is as follows:
Required:
Calculate the correct amount of taxable income for Paradise Corporation if a consolidated tax return is filed.

Question 27

Pandy Corporation owns a 90% interest in Sakaj Corporation's common stock.Throughout 2014,Sakaj had 20,000 shares of common stock outstanding and Pandy had 50,000 shares of common stock outstanding.Sakaj's only dilutive security consists of 10,000 stock options,with an exercise price of $20 per share.The average price of Sakaj's stock is $50 per share in 2014.The options are exercisable for one share of Sakaj's common stock.Pandy's and Sakaj's separate net incomes for the year are $200,000 and $180,000,respectively.
Required:
Compute the amount of basic and diluted earnings per share for Pandy (Consolidated)and Sakaj Corporations.

Question 28

Parker Corporation owns an 80% interest in Sample Corporation's common stock.Throughout 2014,Sample had 10,000 shares of common stock outstanding and Parker had 100,000 shares of common stock outstanding.Sample's only dilutive security consists of $50,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sample stock.Parker and Sample's separate incomes for the year are $100,000 and $75,000,respectively.Assume a 34% flat income tax rate.
Required:
Compute the amount of basic and diluted earnings per share for Parker (Consolidated)and Sample Corporations.

Question 29

Saito Corporation's stockholders' equity on December 31,2014 was as follows:
10% cumulative preferred stock,$100 par value,
On January 1,2015,Panata Corporation paid $300,000 for a 70% interest in Saito's common stock.On January 1,2015,the book values of Saito's assets and liabilities were equal to fair values.
Required:
1.Determine the book value of the common stockholders' equity for Saito Corporation on January 1,2015.
2.What is the amount of goodwill reported on the consolidated balance sheet for Panata Corporation (and Subsidiary)at January 2,2015?
3.What is the noncontrolling interest that appeared on a consolidated balance sheet for Panata Corporation (and Subsidiary)on January 2,2015?

Question 30

Sally Corporation's stockholders' equity on December 31,2014 was as follows:
10% cumulative preferred stock,$100 par value,
On January 1,2015,Panera Corporation paid $500,000 for a 70% interest in Sally's common stock.On January 1,2015,the book values of Sally's assets and liabilities were equal to fair values.
Required:
1.Determine the book value of the common stockholders' equity for Sally Corporation on January 1,2015.
2.What is the amount of goodwill reported on the consolidated balance sheet for Panera Corporation and Subsidiary at January 2,2015?
3.On January 2,2015,Panera purchased 70% of Sally's preferred stock for $5,000.Prepare the journal entry(ies)for Panera for this purchase on January 2,2015.
4.Prepare the elimination entry on the consolidating work papers for the Investment in Sally,Preferred Stock and Sally's Preferred Stock on January 2,2015.

Question 31

Savy Corporation's stockholders' equity on December 31,2014 was as follows:
8% cumulative preferred stock,$100 par value,
$$\begin{array} { l l } { \text { callable at \$109, with two years of dividends } } \\\text { in arrears } & \$ 100,000 \\\text { Common stock, } \$ 25 \text { par value } & 700,000 \\\text { Additional paid-in capital } & 250,000 \\\text { Retained earnings } & \underline{\$4 00,000} \\\text { Total stockholders' equity } & \underline{\$ 1,450 ,000}\end{array}$$ On January 1,2015,Paul Corporation purchased a 70% interest in Savy's common stock for $2,100,000.On this date the book values of Savy's assets and liabilities are equal to their fair values.
Required:
1.Determine the book value of the common stockholders' equity for Savy Corporation on January 1,2015.
2.What is the amount of goodwill reported on the consolidated balance sheet for Paul Corporation and Subsidiary at January 2,2015?
3.On January 2,2015,Paul purchased 70% of Savy's preferred stock for $50,000.Prepare the journal entry(ies)for Paul for this purchase on January 2,2015.
4.Prepare the elimination entry on the consolidating work papers for the Investment in Savy,Preferred Stock and Savy's Preferred Stock on January 2,2015.

Question 32

Samford Corporation's stockholders' equity on December 31,2014 was as follows:
8% cumulative preferred stock,$100 par value,
On January 1,2015,Panera Corporation purchased a 70% interest in Samford's common stock for $1,400,000.On this date the book values of Samford's assets and liabilities are equal to their fair values.
Required:
1.Determine the book value of the common stockholders' equity for Samford Corporation on January 1,2015.
2.What is the amount of goodwill reported on the consolidated balance sheet for Panera Corporation and Subsidiary at January 2,2015?
3.What is the noncontrolling interest that appeared on a consolidated balance sheet for Panera Corporation and Subsidiary on January 2,2015?

Question 33

Pane Corporation owns 100% of Alder Corporation,85% of Ball Corporation,70% of Cake Corporation,40% of Dash Corporation,and 10% of Eager Corporation.All of these corporations are domestic corporations.Pane,Alder and Ball belong to an affiliated group.Pane's marginal income tax rate is 35%.All investees have paid out all their net income in the form of dividends.During 2014,Pane Corporation received the following cash dividends:
Required:
1.Compute the amount of the dividend income that would be excluded from taxation under the current Internal Revenue Code.
2.Compute Pane's current income tax liability for the dividend income received in 2014.

Question 34

Peyton Corporation owns an 80% interest in Sampe Corporation's common stock.Throughout 2014,Sampe had 10,000 shares of common stock outstanding and Peyton had 100,000 shares of common stock outstanding.Sampe's only dilutive security consists of $100,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sampe stock.Peyton and Sampe's separate net incomes for the year are $200,000 and $150,000,respectively.Assume a 34% flat income tax rate.
Required:
Compute the amount of basic and diluted earnings per share for Peyton (consolidated)and Sampe Corporations.

Question 35

Pretax operating incomes of Pang Corporation and its 70%-owned subsidiary,Sala Corporation,for the year 2014,are shown below.Sala pays total dividends of $60,000 for the year.There are no unamortized book value/fair value differentials relating to Pang's investment in Sala.During the year,Pang sold land to Sala for a gain of $35,000 and Sala holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%.
$\begin{array}{lcc}&\underline{\text { Pang }} & \underline{\text { Sala }}\\\text { Sales revenue } & \$ 900,000 & \$ 600,000 \\\text { Gain on sale of land } & 35,000 & \\\text { Cost of sales } & (480,000) & (325,000) \\\text { Other expenses } & (192,000) & (78,000) \\\text { Pretax operating income (does not include investment income) } & \$ 263,000 & \$ 197,000\end{array}$ Required:
1.Determine the separate amounts of income tax expense for Pang and Sala as if they had filed separate tax returns.
2.Determine Pang's net income from Sala.

Question 36

The call or redemption price of preferred stock is used to allocate the investee's equity to preferred stockholders.

Question 37

Stello Corporation's stockholders' equity on December 31,2014 was as follows:
10% cumulative preferred stock,$100 par value,
On January 1,2015,Kaprelian Corporation paid $300,000 for a 90% interest in Stello's common stock.On January 1,2015,the book values of Stello's assets and liabilities were equal to fair values.On January 2,2015,Kaprelian Corporation paid $100,000 for a 90% interest in Stello's preferred stock.
Required:
1.Determine the book value of the common stockholders' equity for Stello Corporation on January 1,2015.
2.Prepare the journal entry(ies)on January 1,2015 for Kaprelian Corporation.
3.Prepare the journal entry(ies)on January 2,2015 for Kaprelian Corporation.
4.For the year ending December 31,2015,Stello Corporation reported net income of $50,000.Stello Corporation declared and paid dividends of $10,000 to preferred stockholders and $10,000 to common stockholders.Prepare the journal entries for Kaprelian Corporation relating to this information.

Question 38

Sandy Corporation's stockholders' equity on December 31,2014 was as follows:
10% cumulative preferred stock,$100 par value,
$\begin{array}{ll}\quad \text { callable at } \$ 105 \text {, with one year dividends in arrears } & \$ 100,000 \\\text { Common stock, } \$ 1 \text { par value } & 200,000 \\\text { Additional paid-in capital } & 40,000 \\\text { Retained earnings } &\underline{160,000} \\\text { Total stockholders' equity } & \underline{\underline{\$ 500,000}}\end{array}$
On January 1,2015,Bombard Corporation paid $200,000 for a 90% interest in Sandy's common stock.On January 1,2015,the book values of Sandy's assets and liabilities were equal to fair values.On January 2,2015,Bombard Corporation paid $120,000 for a 90% interest in Sandy's preferred stock.
Required:
1.Determine the book value of the common stockholders' equity for Sandy Corporation on January 1,2015.
2.Prepare the journal entry(ies)on January 1,2015 for Bombard Corporation.
3.Prepare the journal entry(ies)on January 2,2015 for Bombard Corporation.
4.For the year ending December 31,2015,Sandy Corporation reported net income of $50,000.Sandy Corporation declared and paid dividends of $20,000 to preferred stockholders and $10,000 to common stockholders.Prepare the journal entries for Bombard Corporation relating to this information.

Question 39

Pretax operating incomes of Panitz Corporation and its 80%-owned subsidiary,Salazar Corporation,for the year 2014,are shown below.
Panitz and Salazar belong to an affiliated group.Salazar pays total dividends of $35,000 for the year.There are no unamortized book value/fair value differentials relating to Panitz's investment in Salazar.During the year,Panitz sold land to Salazar at a total loss of $15,000 which is included in its pretax operating income.Salazar still holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%.
$\begin{array}{lll}&\text { Panitz}&\text { Salazar}\\\text { Sales revenue } & \$ 890,000 & \$ 700,000 \\\text { Loss on sale of land } & (15,000) & \\\text { Cost of sales } & (400,000) & (250,000) \\\text { Other expenses } & (350,000) & (350,000) \\\text { Depreciation expense } & (50,000) & (35,000)\end{array}$ Pretax operating income
Required:
1.Determine the separate amounts of income tax expense for Panitz and Salazar as if they had filed separate tax returns.
2.Determine Panitz's net income from Salazar.

Question 40

If no redemption provision is provided on preferred stock,the equity allocation base is based on par value of the stock less any liquidation premium.

Question 41

Income is assigned to noncumulative,nonparticipating preferred stock only if dividends are declared and paid.

Question 42

The GAAP requires that corporations report both basic and diluted earnings per share.

Question 43

The parent company's retained earnings are reduced when additional paid-in capital is insufficient to absorb an excess of purchase price over book value of the subsidiary's preferred stock.

Question 44

The constructive retirement of subsidiary preferred stock through the purchase by the parent is reported as an actual retirement in the consolidated statements.

Question 45

The calculation of parent EPS and consolidated basic EPS are identical.

Question 46

A disadvantage of filing a consolidated return is intercompany dividends are included in taxable income.

Question 47

A parent's net income and the controlling share of the consolidated net income are equal under the equity method.

Question 48

The consolidated entity must file a consolidated income tax return.

Question 49

The investment in preferred stock of a subsidiary by the parent is accounted for under the equity method.

Question 50

From the viewpoint of a consolidated entity,the parent's purchase of the outstanding subsidiary preferred stock results in the retirement of the stock purchased.