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

Question 1

REFERENCE: Ref.07_02
West Corp.owned 70% of the voting common stock of East Co.East owned 60% of Compass Co.West and East both used the initial value method to account for their investments.The following information was available from the financial statements and records of the three companies:
Operating income included unrealized intercompany gains (which are related to inventory transfers)but did not include dividend income from investment in subsidiary.
The accrual-based income of West Corp.is calculated to be

A)$734,000.
B)$1,261,000.
C)$1,123,900.
D)$1,140,700.
E)$1,149,700.

Answer 1

E

Question 2

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 ?

A)$9,800.
B)$13,692.
C)$10,836.
D)$12,460.
E)$11,214.

Answer 2

A

Question 3

REFERENCE: Ref.07_03
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 noncontrolling interest in Boat Inc.'s net income,assuming that the separate return method was used?

A)$16,800
B)$14,450
C)$14,700
D)$17,450
E)$13,800

Answer 3

B

Question 4

REFERENCE: Ref.07_04
Beagle Co.owned 80% of Maroon Corp.Maroon owned 90% of Eckston Inc.Operating income totals for 2010 are shown below;these figures contained no investment income.Amortization expense was not required by any of these acquisitions.Included in Eckston's operating income was a $56,000 unrealized gain on intercompany transfers to Maroon.

The accrual-based income of Eckston Inc.is calculated to be

A)$234,000.
B)$211,000.
C)$221,000.
D)$224,000.
E)$246,000.

Question 5

What amount of dividends did West Corp.receive from Compass Co.?

A)$-0-.
B)$25,200.
C)$36,000.
D)$42,000.
E)$90,000.

Question 6

What amount should have been reported for consolidated net income?

A)$1,285,000.
B)$1,331,700.
C)$1,349,000.
D)$1,315,000.
E)$1,314,900.

Question 7

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.How would the 10% investment in Prescott owned by Bell be presented on the consolidated balance sheet?

A)The 10% investment would be eliminated and the amount would not be shown on the consolidated balance sheet.
B)The 10% investment would be reclassified on Bell's balance sheet as Treasury Stock before the consolidation process begins.
C)The 10% investment would appear as treasury stock on the consolidated balance sheet.
D)The 10% investment would be included as part of Additional Paid-In Capital because it is less than 20% and therefore indicates no significant influence is present.
E)Prescott would treat the shares owned by Bell as if they had been repurchased on the open market,and a treasury stock account would be set up recording the shares at their market value on the date of combination.

Question 8

REFERENCE: Ref.07_01
Buckette Co.owned 60% of Shuvelle Corp.and 40% of Tayle Corp. ,and Shuvelle owned 35% of Tayle.
What is this pattern of ownership called?

A)pyramid ownership.
B)a connecting affiliation.
C)mutual ownership.
D)an indirect affiliation.
E)an affiliated group.

Question 9

On January 1,2009,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 2009,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 31,2009?

A)The investment was recorded for $641,800 at the end of 2009 and then eliminated for consolidation purposes.
B)Consolidated stockholders' equity was reduced by $641,800.
C)The investment was recorded for $590,000 at the end of 2009 and then eliminated for consolidation purposes.
D)Consolidated stockholders' equity was reduced by $639,800.
E)Consolidated stockholders' equity was reduced by $590,000.

Question 10

D Corp.had investments,direct and indirect,in several subsidiaries:
$\bullet$ E Co.a domestic firm in which D Corp.owned a 90% interest
$\bullet$ F Co.a domestic firm in which D Corp.owned 60% and E Co.owned 30%
$\bullet$ G Co.a domestic firm wholly owned by E Co.
$\bullet$ H Co.a foreign subsidiary in which D Corp.owned a 90% interest
$\bullet$ I Co.a domestic firm in which D Corp.owned 50% and G Co.owned 25%
Which of these subsidiaries may be included in a consolidated income tax return?

A)E,F,G,H,and I.
B)E,G,H,and I.
C)E and F.
D)E,F,G,and H.
E)E,F,and G.

Question 11

REFERENCE: Ref.07_03
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 is the amount of taxable income reported on the consolidated income tax return?

A)$720,000.
B)$625,000.
C)$621,000.
D)$665,000.
E)$655,000.

Question 12

REFERENCE: Ref.07_01
Buckette Co.owned 60% of Shuvelle Corp.and 40% of Tayle Corp. ,and Shuvelle owned 35% of Tayle.
When Buckette prepared consolidated financial statements,it should include

A)Shuvelle but not Tayle.
B)Tayle but not Shuvelle.
C)either Shuvelle or Tayle.
D)Shuvelle and Tayle.
E)neither Shuvelle nor Tayle.

Question 13

Jastoon Co.acquired all of Wedner Co.for $588,000 in 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?

A)$ 70,000.
B)$ 28,000.
C)$(14,000).
D)$ 19,600.
E)$ 65,000.

Question 14

REFERENCE: Ref.07_03
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 separate return method?

A)$36,000
B)$31,500
C)$33,390
D)$32,750
E)$32,660

Question 15

REFERENCE: Ref.07_01
Buckette Co.owned 60% of Shuvelle Corp.and 40% of Tayle Corp. ,and Shuvelle owned 35% of Tayle.
What percentage of Tayle's income is attributed to Buckette's ownership interest?

A)100%.
B)75%.
C)61%.
D)40%.
E)74%.

Question 16

Evanston Co.owned 60% of Montgomery Corp.Montgomery owned 75% of Noir Inc. ,and Noir owned 15% of Montgomery.This pattern of ownership would be called

A)mutual ownership.
B)direct control.
C)indirect control.
D)an affiliated group.
E)a connecting affiliation.

Question 17

REFERENCE: Ref.07_03
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?

A)$31,500
B)$32,750
C)$36,000
D)$32,660
E)$30,390

Question 18

For West Corp.and consolidated subsidiaries,what total amount would have been reported for the noncontrolling interest's share of subsidiaries' net income?

A)$165,300.
B)$199,300.
C)$191,000.
D)$228,000.
E)$153,000.

Question 19

REFERENCE: Ref.07_02
West Corp.owned 70% of the voting common stock of East Co.East owned 60% of Compass Co.West and East both used the initial value method to account for their investments.The following information was available from the financial statements and records of the three companies:
Operating income included unrealized intercompany gains (which are related to inventory transfers)but did not include dividend income from investment in subsidiary.
The accrual-based income of East Co.is calculated to be

A)$385,700.
B)$581,000.
C)$557,000.
D)$551,000.
E)$707,000.

Question 20

In a tax-free business combination,

A)the income tax basis for acquired assets and liabilities is adjusted to current fair value.
B)any goodwill created by the combination may be amortized in calculating taxable income.
C)the subsidiary's assets and liabilities are assigned an income tax basis of zero dollars,so that they will have no future income tax consequences.
D)any goodwill created by the combination must be deducted in total in calculating taxable income.
E)the subsidiary's costs for assets are retained for income tax calculations.

Question 21

The benefits of filing a consolidated tax return include all of the following except

A)Intercompany profits are not taxed until realized.
B)Intercompany profits are deferred.
C)Intercompany dividends are not taxable.
D)Losses incurred by an affiliated company can be used to reduce taxable income earned by other members to that affiliated group.
E)Intercompany profits are taxed before realized,but intercompany losses are deferred.

Question 22

REFERENCE: Ref.07_04
Beagle Co.owned 80% of Maroon Corp.Maroon owned 90% of Eckston Inc.Operating income totals for 2010 are shown below;these figures contained no investment income.Amortization expense was not required by any of these acquisitions.Included in Eckston's operating income was a $56,000 unrealized gain on intercompany transfers to Maroon.

The accrual-based income of Maroon Corp.is calculated to be

A)$481,600.
B)$472,700.
C)$488,900.
D)$502,300.
E)$358,800.

Question 23

REFERENCE: Ref.07_05
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

A)$36,900.
B)$33,600.
C)$42,400.
D)$32,300.
E)$39,200.

Question 24

REFERENCE: Ref.07_07
On January 1,2009,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 1,2010,Whitton acquired 80% ownership of Jones.The following data are available concerning Whitton's acquisition of Jones:
Consideration transferred for 80% interest,January 1,2010: $800,000
Jones' reported book value,January 1,2010: 900,000
Excess fair value over book value (assigned to trademarks)is amortized over 20 years.
The initial value method is being used.
The following information is available regarding Jones and Whitton: I can't edit picture.The year 2006 s/be 2009.The year 2007 s/be 2010.
I can't access the art to remove italics.Let it go.
Should the titles be italicized?
Compute the amount allocated to trademarks recognized in the January 1,2010 consolidated balance sheet.

A)$80,000.
B)$100,000.
C)$76,000.
D)$16,000.
E)$-0-.

Question 25

REFERENCE: Ref.07_06
Chase Company owns 80% of Lawrence Company and 40% of Ross Company.Lawrence Company also owns 30% of Ross Company.Separate operating incomes for 2009 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 2009.

A)$354,000.
B)$329,500.
C)$334,000.
D)$265,000.
E)$344,500.

Question 26

REFERENCE: Ref.07_04
Beagle Co.owned 80% of Maroon Corp.Maroon owned 90% of Eckston Inc.Operating income totals for 2010 are shown below;these figures contained no investment income.Amortization expense was not required by any of these acquisitions.Included in Eckston's operating income was a $56,000 unrealized gain on intercompany transfers to Maroon.

The accrual-based income of Beagle Co.is calculated to be

A)$706,670.
B)$755,980.
C)$805,280.
D)$838,150.
E)$815,770.

Question 27

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

A)The treasury stock approach focuses on the parent's control over its subsidiary.
B)For consolidation,both the parent and subsidiary must eliminate all intercompany investments.
C)In consolidation,the parent's retained earnings will not be reduced by the dividends it paid to the subsidiary.
D)This corporate combination is known as mututal ownership.
E)All of the above.

Question 28

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

A)This type of ownership pattern does not significantly alter the worksheet process.
B)Most worksheet entries are simply made twice.
C)The doubling of entries may seem overwhelming.
D)The individual consolidation procedures remain unaffected.
E)Consolidated financial statements are required for only the father and son companies.

Question 29

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

A)The shares of the parent held by a subsidiary should be treated as outstanding stock on the consolidated balance sheet.
B)Only the subsidiary's shares held by the parent should be eliminated in consolidation.
C)The treasury stock approach is required to reflect parent shares held by the subsidiary.
D)The treasury stock approach is required to eliminate subsidiary shares held by the parent company.
E)The parent company does not need to file consolidated financial statements if there is mutual ownership.

Question 30

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

A)At least one company within the business combination holds a parent and a subsidiary relationship.
B)The parent company owns a percent of subsidiary and subsidiary owns a percent of the parent.
C)Consolidated financial statements are required for only one subsidiary.
D)Recognition of income for an indirectly owned subsidiary is ignored.
E)Only dividend income is recognized for an indirectly owned subsidiary.

Question 31

Which of the following statements is true regarding goodwill?

A)For accounting purposes,goodwill may be amortized over a period not to exceed 40 years.
B)For accounting purposes,goodwill may be amortized over a period not to exceed 20 years.
C)For tax purposes,goodwill amortization cannot be deductible.
D)For tax purposes,goodwill amortization may be deductible over a 20-year period.
E)For tax purposes,goodwill amortization may be deductible over a 15-year period.

Question 32

REFERENCE: Ref.07_07
On January 1,2009,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 1,2010,Whitton acquired 80% ownership of Jones.The following data are available concerning Whitton's acquisition of Jones:
Consideration transferred for 80% interest,January 1,2010: $800,000
Jones' reported book value,January 1,2010: 900,000
Excess fair value over book value (assigned to trademarks)is amortized over 20 years.
The initial value method is being used.
The following information is available regarding Jones and Whitton: I can't edit picture.The year 2006 s/be 2009.The year 2007 s/be 2010.
I can't access the art to remove italics.Let it go.
Should the titles be italicized?
Compute the noncontrolling interest in net income for 2010.

A)$11,000.
B)$9,200.
C)$35,000.
D)$37,200.
E)$10,000.

Question 33

REFERENCE: Ref.07_05
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

A)$193,000.
B)$189,000.
C)$196,000.
D)$201,000.
E)$144,000.

Question 34

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

A)All of the parent company's common stock is eliminated.
B)The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to treasury stock.
C)The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to retained earnings.
D)The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to additional paid-in capital.
E)The investment in parent company's common stock is not eliminated in consolidation.

Question 35

REFERENCE: Ref.07_07
On January 1,2009,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 1,2010,Whitton acquired 80% ownership of Jones.The following data are available concerning Whitton's acquisition of Jones:
Consideration transferred for 80% interest,January 1,2010: $800,000
Jones' reported book value,January 1,2010: 900,000
Excess fair value over book value (assigned to trademarks)is amortized over 20 years.
The initial value method is being used.
The following information is available regarding Jones and Whitton: I can't edit picture.The year 2006 s/be 2009.The year 2007 s/be 2010.
I can't access the art to remove italics.Let it go.
Should the titles be italicized?
Compute Whitton's accrual-based consolidated net income for 2010.

A)$179,000.
B)$175,000.
C)$172,800.
D)$186,000.
E)$184,000.

Question 36

REFERENCE: Ref.07_05
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 Inglestone Inc.is calculated to be

A)$106,950.
B)$102,640.
C)$114,530.
D)$106,960.
E)$103,680.

Question 37

Which of the following statements is true regarding the filing of income taxes for an affiliated group?

A)Domestic subsidiaries greater than 50% ownership must file a consolidated tax return.
B)Domestic subsidiaries greater than 60% ownership must file a consolidated tax return.
C)Domestic subsidiaries greater than 80% ownership must file a consolidated tax return.
D)Domestic subsidiaries greater than 80% ownership may file a consolidated tax return.
E)Foreign subsidiaries must file a consolidated tax return.

Question 38

REFERENCE: Ref.07_06
Chase Company owns 80% of Lawrence Company and 40% of Ross Company.Lawrence Company also owns 30% of Ross Company.Separate operating incomes for 2009 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 the noncontrolling interest in Ross' net income for 2009.

A)$92,000.
B)$77,400.
C)$75,000.
D)$64,500.
E)$69,000.

Question 39

REFERENCE: Ref.07_06
Chase Company owns 80% of Lawrence Company and 40% of Ross Company.Lawrence Company also owns 30% of Ross Company.Separate operating incomes for 2009 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 Chase's attributed ownership in Ross.

A)40%.
B)64%.
C)24%.
D)32%.
E)12.8%.

Question 40

REFERENCE: Ref.07_06
Chase Company owns 80% of Lawrence Company and 40% of Ross Company.Lawrence Company also owns 30% of Ross Company.Separate operating incomes for 2009 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 Chase's accrual-based income for 2009.

A)$746,000.
B)$719,000.
C)$779,600.
D)$774,200.
E)$758,100.

Question 41

REFERENCE: Ref.07_08
Tower Company owns 85% of Hill Company.The two companies engaged in several intercompany 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%.
Under the separate return method,how much income tax expense will be assigned to Hill?

A)$24,000.
B)$22,857.
C)$24,874.
D)$21,874.
E)$21,000.

Question 42

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

A)In a mutual ownership,at least two companies in the consolidated group own portions of a third company.
B)There are at least four companies in a connecting affiliation.
C)In a connecting affiliation,at least one subsidiary owns stock in the parent company.
D)In a mutual ownership,the subsidiary owns a portion of the parent's stock.
E)There are only two companies in a connecting affiliation.

Question 43

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

A)The original cost of the subsidiary's investment reduces long-term liabilities.
B)The cost of parent shares is treated as if the shares are no longer outstanding.
C)The subsidiary must apply the equity method in accounting for the investment if the treasury stock approach is used.
D)The treasury stock approach increases total stockholders' equity.
E)The cost of parent shares is treated as if the shares are no longer issued.

Question 44

On January 1,2009,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 on the consolidated balance sheet at December 31,2009?

A)Consolidated stockholders' equity is reduced by $400,000.
B)Consolidated stockholders' equity is reduced by $320,000.
C)Included in current assets.
D)Included in noncurrent assets.
E)There is no effect on the consolidated balance sheet,because the effects have been eliminated.

Question 45

On January 1,2009,a subsidiary buys 8 percent of the outstanding voting stock of its parent corporation.The payment of $350,000 exceeded book value of the acquired shares by $50,000,attributable to a copyright with a 10-year useful life.During the year,the parent reported operating income of $675,000 (excluding investment income from the subsidiary),and paid $100,000 in dividends.If the treasury stock approach is used,how is the Investment in Parent Stock reported on the consolidated balance sheet at December 31,2009?

A)Included in current assets.
B)Included in noncurrent assets.
C)Consolidated stockholders' equity is reduced by $350,000.
D)Consolidated stockholders' equity is reduced by $345,000.
E))There is no effect on the consolidated balance sheet,because the effects have been eliminated.

Question 46

REFERENCE: Ref.07_09
White Company owns 60% of Cody Company.Separate tax returns are required.For 2009,White's operating income (excluding taxes and any income from Cody)was $300,000 while Cody reported a pretax income of $125,000.During the period,Cody paid a total of $25,000 in cash dividends,$15,000 (60%)to White with the remaining going to noncontrolling interest.The income tax rate for both companies is 30%.
Compute Cody's income tax expense for 2009.

A)$33,000.
B)$34,500.
C)$37,500.
D)$30,000.
E)$22,500.

Question 47

Woods Company has a building worth $800,000.Because of recent losses,the company has a net operating loss carryforward 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.

A)$0.
B)$350,000.
C)$50,000.
D)$245,000.
E)$155,000.

Question 48

Why might a consolidated group file separate income tax returns?

A)There are no intercompany transfers.
B)There are no unrealized gains in ending inventory.
C)One company is a foreign company.
D)Parent owns 68 percent of one company and 82 percent of another.
E)All of the above.

Question 49

REFERENCE: Ref.07_10
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 31,2009 follows:

Which of the following statements is true?

A)Alpha and Beta must file a consolidated income tax return,but must exclude Gamma from the consolidated return.
B)Alpha,Beta,and Gamma must file a consolidated income tax return.
C)Alpha,Beta,and Gamma must file separate income tax returns because the ownership of Beta is less than 100%.
D)Alpha,Beta,and Gamma will probably not file a consolidated income tax return.
E)Alpha,Beta,and Gamma may file separate income tax returns or a consolidated income tax return.

Question 50

How is goodwill amortized?

A)It is not amortized for reporting purposes or for tax purposes.
B)It is not amortized for reporting purposes,but is amortized over a 5-year life for tax purposes.
C)It is not amortized for tax purposes,but is amortized over a 5-year life for reporting purposes.
D)It is not amortized for tax purposes,but is amortized over a 15-year life for reporting purposes.
E)It is not amortized for reporting purposes,but is amortized over a 15-year life for tax purposes.

Question 51

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

A)The existence of unrealized losses in ending inventory.
B)The ability to use net operating losses of one company to offset profits of another company.
C)The deferral of unrealized gains.
D)Transfers of inventory at a transfer price above cost.
E)Intercompany dividends are not taxable.

Question 52

How is goodwill amortized for income tax purposes?

A)Straight-line amortization over a 15-year period under the Revenue Reconciliation Act of 1990.
B)Straight-line amortization over a 5-year period under the Revenue Reconciliation Act of 1990.
C)Straight-line amortization over a 15-year period under the Revenue Reconciliation Act of 1993.
D)Straight-line amortization over a 5-year period under the Revenue Reconciliation Act of 1993.
E)It may not be amortized for tax purposes.

Question 53

REFERENCE: Ref.07_08
Tower Company owns 85% of Hill Company.The two companies engaged in several intercompany 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%.
Using percentage allocation method,how much income tax expense is assigned to Hill?

A)$21,000.
B)$24,000.
C)$20,400.
D)$17,400.
E)$0.

Question 54

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

A)Companies that are solely in subsidiary positions must have their realized income computed first in the consolidation process.
B)Father-son-grandson configurations never require consolidation unless one company owns 100% of at least one other member of the combined group.
C)The order of the computation of realized income is not important in the consolidation process.
D)The parent must have its realized income computed first in the consolidation process.
E)None of the above.

Question 55

REFERENCE: Ref.07_09
White Company owns 60% of Cody Company.Separate tax returns are required.For 2009,White's operating income (excluding taxes and any income from Cody)was $300,000 while Cody reported a pretax income of $125,000.During the period,Cody paid a total of $25,000 in cash dividends,$15,000 (60%)to White with the remaining going to noncontrolling interest.The income tax rate for both companies is 30%.
Compute White's deferred income taxes for 2009.

A)$6,000.
B)$2,250.
C)$3,150.
D)$11,250.
E)$21,000.

Question 56

REFERENCE: Ref.07_08
Tower Company owns 85% of Hill Company.The two companies engaged in several intercompany 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?

A)$55,560.
B)$70,350.
C)$60,000.
D)$73,500.
E)$84,000.

Question 57

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

A)One company owns less than 50 percent of the other company's voting stock but has the ability to significantly influence the other company.
B)One company holds 50 percent of the other company's voting stock.
C)One company holds 75 percent of the other company's voting stock
D)One company holds 83 percent of the other company's voting stock.
E)None of the above.

Question 58

REFERENCE: Ref.07_09
White Company owns 60% of Cody Company.Separate tax returns are required.For 2009,White's operating income (excluding taxes and any income from Cody)was $300,000 while Cody reported a pretax income of $125,000.During the period,Cody paid a total of $25,000 in cash dividends,$15,000 (60%)to White with the remaining going to noncontrolling interest.The income tax rate for both companies is 30%.
Compute Cody's undistributed earnings for 2009.

A)$62,500.
B)$125,000.
C)$87,500.
D)$100,000.
E)$70,000.

Question 59

REFERENCE: Ref.07_09
White Company owns 60% of Cody Company.Separate tax returns are required.For 2009,White's operating income (excluding taxes and any income from Cody)was $300,000 while Cody reported a pretax income of $125,000.During the period,Cody paid a total of $25,000 in cash dividends,$15,000 (60%)to White with the remaining going to noncontrolling interest.The income tax rate for both companies is 30%.
Compute the income tax payable by White for 2009.

A)$93,600.
B)$91,350.
C)$94,500.
D)$90,900.
E)$90,000.

Question 60

REFERENCE: Ref.07_08
Tower Company owns 85% of Hill Company.The two companies engaged in several intercompany 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%.
How much income will be reported on the consolidated income statement before deducting noncontrolling interest?

A)$280,000.
B)$245,000.
C)$200,000.
D)$255,200.
E)$290,200.

Question 61

REFERENCE: Ref.07_12
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 consolidated net income?

A)$229,500.
B)$237,000.
C)$245,000.
D)$232,500.
E)$240,000.

Question 62

REFERENCE: Ref.07_13
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?

A)$0.
B)$900.
C)$1,100.
D)$1,800.
E)$2,700.

Question 63

REFERENCE: Ref.07_11
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 31,2009 follows:

What is the total noncontrolling interest in the subsidiaries' income for 2009?

A)$55,240.
B)$66,020.
C)$67,280.
D)$76,280.
E)$76,480.

Question 64

REFERENCE: Ref.07_11
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 31,2009 follows:

What is Pi's accrual-based income for 2009?

A)$152,000.
B)$16,000.
C)$192,000.
D)$200,000.
E)$208,000.

Question 65

REFERENCE: Ref.07_11
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 31,2009 follows:

What is Delta's accrual-based income for 2009?

A)$1,091,520.
B)$1,115,520.
C)$1,168,000.
D)$1,168,520.
E)$1,200,000.

Question 66

REFERENCE: Ref.07_11
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 31,2009 follows:

What is Sigma's accrual-based income for 2009?

A)$400,000.
B)$592,000.
C)$540,000.
D)$572,800.
E)$600,000.

Question 67

REFERENCE: Ref.07_11
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 31,2009 follows:

What is the noncontrolling interest in Sigma's income for 2009?

A)$55,240.
B)$56,420.
C)$57,280.
D)$59,420.
E)$60,000.

Question 68

REFERENCE: Ref.07_10
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 31,2009 follows:

What is Alpha's accrual-based income for 2009?

A)$564,000.
B)$564,800.
C)$572,200.
D)$580,000.
E)$600,000.

Question 69

REFERENCE: Ref.07_11
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 31,2009 follows:

What is the noncontrolling interest in Pi's income for 2009?

A)$0.
B)$9,600.
C)$10,000.
D)$19,200.
E)$20,000.

Question 70

REFERENCE: Ref.07_12
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?

A)$232,500.
B)$225,000.
C)$224,500.
D)$226,000.
E)$233,500.

Question 71

REFERENCE: Ref.07_14
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?

A)$0.
B)$360.
C)$450.
D)$2,250.
E)$3,600.

Question 72

REFERENCE: Ref.07_10
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 31,2009 follows:

What is the total noncontrolling interest in the subsidiaries' income for 2009?

A)$0.
B)$9,600.
C)$10,000.
D)$19,200.
E)$20,000.

Question 73

REFERENCE: Ref.07_13
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 separate income tax returns are being filed,what deferred income tax asset is created?

A)$0.
B)$900.
C)$1,100.
D)$1,800.
E)$6,000.

Question 74

REFERENCE: Ref.07_10
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 31,2009 follows:

What is Gamma's accrual-based income for 2009?

A)$76,000.
B)$80,000.
C)$96,000.
D)$100,000.
E)$104,000.

Question 75

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

A)$1,680.
B)$2,400.
C)$1,470.
D)$9,800.
E)$2,940.

Question 76

REFERENCE: Ref.07_12
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?

A)$6,500.
B)$8,000.
C)$9,000.
D)$7,500.
E)$1,000.

Question 77

Pear,Inc.owns 80 percent of Apple Corporation.During the current year,Apple reported net income of $400,000 and paid a dividend of $120,000.The income tax rate for each company is 40 percent and separate tax returns are prepared.What deferred income tax liability arising this year must be recognized in the consolidated balance sheet?

A)$13,440.
B)$7,680.
C)$22,400.
D)$38,400.
E)$51,200.

Question 78

REFERENCE: Ref.07_10
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 31,2009 follows:

What is the noncontrolling interest in Gamma's income for 2009?

A)$0.
B)$9,600.
C)$10,000.
D)$19,200.
E)$20,000.

Question 79

REFERENCE: Ref.07_10
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 31,2009 follows:

What is Beta's accrual-based income for 2009?

A)$200,000.
B)$276,800.
C)$280,000.
D)$296,000.
E)$300,000.

Question 80

REFERENCE: Ref.07_11
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 31,2009 follows:

Which of the following statements is true?

A)Delta and Sigma must file a consolidated income tax return,but must exclude Pi from the consolidated return.
B)Delta,Sigma,and Pi must file a consolidated income tax return.
C)Delta,Sigma,and Pi must file separate income tax returns because the ownership of Sigma and Pi is less than 100%.
D)Delta,Sigma,and Pi will probably not file a consolidated income tax return.
E)Delta,Sigma,and Pi may file separate income tax returns or a consolidated income tax return.