Advanced Accounting Exam #3
Dean, Incorporated owns 90% of Ralph, Incorporated. During the current year, Dean sold merchandise costing $80,000 to Ralph for $100,000. At the end of the year, 30% of this merchandise was still on hand. The tax rate is 30%.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
A) $0
Gardner Corporation owns 80% of the voting common stock of Lockhart Company. Lockhart owns 70% of Canning Company. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.What amount of dividends should Gardner recognize in its consolidated net income with respect to dividends received from Canning? A) $0 B) $25,200 C) $36,000 D) $42,000 E) $90,000
A) $0
Pear, Incorporated owns 80% of Apple Corporation. During the current year, Apple reported operating income before tax of $400,000 and paid a dividend of $120,000. The income tax rate for each company is 40% and separate tax returns are prepared. What deferred income tax liability arising this year must be recognized in the consolidated balance sheet? A) $0 B) $7,680 C) $17,920 D) $38,400 E) $51,200
A) $0
Tate, Incorporated owns 80% of Jeffrey, Incorporated. During the current year, Jeffrey sold merchandise costing $60,000 to Tate for $75,000. At the end of the year, 10% of this merchandise remained in Tate's inventory. The tax rate is 30%.Assuming that a consolidated income tax return is being filed, what deferred income tax asset is created? A) $0 B) $360 C) $450 D) $2,250 E) $3,600
A) $0
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, follows: What is Delta's accrual-based net income for 2024? A) $1,091,520 B) $1,115,520 C) $1,168,000 D) $1,168,520 E) $1,200,000
A) $1,091,520
Gardner Corporation owns 80% of the voting common stock of Lockhart Company. Lockhart owns 70% of Canning Company. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.What amount should be reported for consolidated net income? A) $1,425,000 B) $1,490,000 C) $1,525,000 D) $1,635,000 E) $1,700,000
A) $1,425,000
Reggie, Incorporated owns 70% of Nancy Corporation. During the current year, Nancy reported operating income before tax of $100,000 and paid a dividend of $30,000. The income tax rate for both companies is 30%. 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
A) $1,680
Clark Stone purchases raw material from its foreign supplier, Rinne Clay, on May 8. Payment of 1,500,000 foreign currency units (FC) is due in 30 days. May 31 is Clark's fiscal year-end. The pertinent exchange rates were as follows: For what amount should Clark's Accounts Payable be credited on May 8? A) $1,740,000 B) $1,850,000 C) $1,500,000 D) $1,680,000 E) $1,770,000
A) $1,740,000
Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follows, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. Using the percentage allocation method for assigning income tax expense, the income tax expense assigned to Hill is closest to A) $21,000. B) $24,000. C) $20,100. D) $17,400. E) $0.
A) $21,000.
1) Florrick Company owns 85% of Bishop Incorporated. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements: The income tax rate was 40%.What is the amount of income tax expense that should be assigned to Bishop using the percentage allocation method? A) $41,420 B) $54,500 C) $32,700 D) $50,000 E) $23,750
A) $41,420
Beagle Company owned 80% of Maroon Corporation. Maroon owned 90% of Eckston Incorporated. Separate company net incomes for 2024 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 gross profit on intra-entity transfers to Maroon. The accrual-based net income of Maroon is calculated to be A) $481,600. B) $472,700. C) $488,900. D) $502,300. E) $358,800.
A) $481,600.
White Company owns 60% of Cody Company. Separate tax returns are required. For 2023, 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 declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute Cody's undistributed earnings for 2024. A) $62,500 B) $125,000 C) $87,500 D) $100,000 E) $70,000
A) $62,500
White Company owns 75% of Cody Company. Separate tax returns are required. For 2024, White's operating income (before taxes and before any income from Cody) was $300,000, while Cody reported a pretax income of $125,000. During 2024, Cody declared and paid total dividends of $32,000; $24,000 to White (75%) and $8,000 to the noncontrolling interest. White declared and paid dividends of $180,000. The income tax rate for both companies is 21%.What is White's 2024 income tax liability? A) $64,764 B) $91,014 C) $68,040 D) $66,276
A) $64,764
Chapman Company acquired all of Klein Company for $613,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $590,000 fair value but a $460,000 book value and income tax basis. The income tax rate was 35%. What amount of goodwill should have been recognized on the date of the acquisition? A) $68,500 B) $23,000 C) $45,500 D) $22,500 E) $61,500
A) $68,500
Riley Corporation owned 90% of Brady Incorporated, while Brady owned 10% of the outstanding common shares of Riley. No goodwill or other allocations were recognized in connection with either of these acquisitions. Riley reported net income of $255,000 for 2024 whereas Brady recognized $87,000 during the same period. No investment income was included within either of these income totals.On a consolidated income statement, what is the net income attributable to the noncontrolling interest? A) $8,700 B) $16,800 C) $25,500 D) $14,250 E) $34,200
A) $8,700
When indirect control is present, which of the following statements is true? A) At least one company within the consolidated entity 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.
A) At least one company within the consolidated entity holds a parent and a subsidiary relationship.
In a parent-child-grandchild combination, which of the following statements is true? A) Companies that are solely in subsidiary positions must have their accrual-based net income computed first in the consolidation process. B) Parent-child-grandchild 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 accrual-based net income is not important in the consolidation process. D) The parent must have its accrual-based net income computed first in the consolidation process. E) None of these answer choices are correct.
A) Companies that are solely in subsidiary positions must have their accrual-based net income computed first in the consolidation process.
On January 1, 2024, a subsidiary bought 12% 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 separate company 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, 2024? 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.
A) Consolidated stockholders' equity is reduced by $400,000.
Which of the following is not an advantage of filing a consolidated income tax return? A) The existence of deferred losses in ending inventory. B) The ability to use net operating losses of one company to offset profits of another company. C) The existence of intra-entity gross profit remaining in ending inventory. D) Transfers of inventory at a transfer price above cost. E) There is no difference between U.S. GAAP and tax accounting rules for dividends paid to a parent by an 85%-owned subsidiary.
A) The existence of deferred losses in ending inventory.
Evanston Company owned 60% of Montgomery Corporation. Montgomery owned 75% of Noir Incorporated, 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.
A) mutual ownership.
On June 1, Cagle Company received a signed agreement to sell inventory for ¥650,000. The sale would take place in 90 days. Cagle immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 = $0.003986, and the 90-day forward rate was ¥1 = $0.004021. At what amount would Cagle record the Forward Contract on June 1? A) $2,613.65 B) $0 C) $2,590.90 D) $2,275.00 E) $1,993.00
B) $0
On January 1, 2023, 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, 2024, Whitton acquired 80% ownership 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 net income attributable to the noncontrolling interest for 2024. A) $11,000 B) $10,800 C) $9,000 D) $8,200 E) $7,200
B) $10,800
On January 1, 2023, 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, 2024, Whitton acquired 80% ownership 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 amount allocated to trademarks recognized in the January 1, 2024, consolidated balance sheet. A) $80,000 B) $100,000 C) $76,000 D) $16,000 E) $0
B) $100,000
Florrick Company owns 85% of Bishop Incorporated. The two companies file a consolidated income tax return, and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements: The income tax rate was 40%.What was the net income attributable to the noncontrolling interest, assuming that the separate return method was used to assign the income tax expense? A) $12,625 B) $12,280 C) $31,250 D) $10,575 E) $6,750
B) $12,280
On January 1, 2024, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2025, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup's acquisition of Harley:Consideration transferred for 80% interest, January 1, 2025: $1,000,000Harley's reported book value, January 1, 2025: 1,200,000Excess 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 Harley and Buttercup: Compute the net income attributable to the noncontrolling interest for 2025. A) $10,575 B) $13,600 C) $10,200 D) $14,100 E) $14,600
B) $13,600
Gardner Corporation owns 80% of the voting common stock of Lockhart Company. Lockhart owns 70% of Canning Company. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.For Gardner and consolidated subsidiaries, what total amount would be reported for the net income attributable to the noncontrolling interest? A) $141,700 B) $152,200 C) $120,700 D) $202,050 E) $212,550
B) $152,200
Woods Company has one depreciable asset valued at $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 more likely than not that the tax benefit will be realized. Compute the goodwill recognized for consolidated financial statements. A) $0 B) $155,000 C) $200,000 D) $305,000 E) $350,000
B) $155,000
White Company owns 60% of Cody Company. Separate tax returns are required. For 2023, 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 declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute White's deferred income taxes for 2024. A) $6,000 B) $2,250 C) $3,150 D) $11,250 E) $21,000
B) $2,250
Clark Company, a U.S. corporation, sold inventory on December 1, 2024, with payment of 12,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: What amount of foreign exchange gain or loss should be recorded on January 30? A) $2,496 gain B) $2,496 loss C) $0 D) $1,740 loss E) $1,740 gain
B) $2,496 loss
Paris, Incorporated owns 80% of the voting stock of Stance, Incorporated. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance's dividend income from Paris was $5,000.What is net income attributable to the controlling interest of Paris? A) $232,500 B) $225,000 C) $224,500 D) $226,000 E) $233,500
B) $225,000
Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follows, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. Compute accrual-based consolidated income before income tax. A) $280,000 B) $245,000 C) $200,000 D) $255,200 E) $290,200
B) $245,000
Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Incorporated, all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2024, follows: What is Beta's accrual-based net income for 2024? A) $200,000 B) $276,800 C) $280,000 D) $296,000 E) $300,000
B) $276,800
Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence also owns 30% of Ross Company. Separate company net incomes for 2024 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess 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 net income for 2024. A) $354,000 B) $329,500 C) $334,000 D) $265,000 E) $344,500
B) $329,500
Woof Company acquired all of Meow Corporation for $502,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $480,000 fair value but a $400,000 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) $24,000 B) $46,000 C) $22,000 D) $13,800 E) $80,000
B) $46,000
On January 1, 2024, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2025, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup's acquisition of Harley:Consideration transferred for 80% interest, January 1, 2025: $1,000,000Harley's reported book value, January 1, 2025: 1,200,000Excess 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 Harley and Buttercup: Compute the amount allocated to trademarks recognized in the January 1, 2025, consolidated balance sheet. A) $10,000 B) $50,000 C) $7,500 D) $40,000 E) $0
B) $50,000
Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Incorporated, all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2024, follows: What is Alpha's accrual-based net income for 2024? A) $564,000 B) $564,800 C) $572,200 D) $580,000 E) $600,000
B) $564,800
Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence also owns 30% of Ross. Separate company net incomes for 2024 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess 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) 40.0% B) 64.0% C) 24.0% D) 32.0% E) 12.8%
B) 64.0%
Loeffler Company owned 60% of Chevelle Corporation and 40% of Scott Corporation, and Chevelle owned 35% of Scott. 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
B) A connecting affiliation
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.
B) The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to treasury stock.
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.
B) The cost of parent shares is treated as if the shares are no longer outstanding.
Gardner Corporation owns 80% of the voting common stock of Lockhart Company. Lockhart owns 70% of Canning Company. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.The accrual-based net income of Gardner is calculated to be A) $1,114,800. B) $1,212,450. C) $1,272,800. D) $1,382,800. E) $1,393,500.
C) $1,272,800.
Dean, Incorporated owns 90% of Ralph, Incorporated. During the current year, Dean sold merchandise costing $80,000 to Ralph for $100,000. At the end of the year, 30% of this merchandise was still on hand. The tax rate is 30%.Assuming that separate income tax returns are being filed, what deferred income tax asset is created? A) $0 B) $1,100 C) $1,800 D) $6,000 E) $9,000
C) $1,800
On January 1, 2023, 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, 2024, Whitton acquired 80% ownership 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 Whitton's accrual-based consolidated net income for 2024. A) $199,000 B) $190,000 C) $185,000 D) $184,000 E) $176,000
C) $185,000
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, follows: What is Pi's accrual-based net income for 2024? A) $152,000 B) $16,000 C) $192,000 D) $200,000 E) $208,000
C) $192,000
Hardford Corporation held 80% of Inglestone Incorporated, which, in turn, owned 80% of Jade Company. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow: The accrual-based net income of Jade is calculated to be A) $193,000. B) $189,000. C) $196,000. D) $201,000. E) $144,000.
C) $196,000.
On January 1, 2024, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2025, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup's acquisition of Harley:Consideration transferred for 80% interest, January 1, 2025: $1,000,000Harley's reported book value, January 1, 2025: 1,200,000Excess 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 Harley and Buttercup: Compute Buttercup's accrual-based consolidated net income for 2025. A) $254,500 B) $244,000 C) $233,500 D) $245,500 E) $256,000
C) $233,500
Clark Stone purchases raw material from its foreign supplier, Rinne Clay, on May 8. Payment of 1,500,000 foreign currency units (FC) is due in 30 days. May 31 is Clark's fiscal year-end. The applicable exchange rates were as follows: How much Foreign Exchange Gain or Loss should Clark record on May 31? A) $0 B) $30,000 gain C) $30,000 loss D) $60,000 gain E) $60,000 loss
C) $30,000 loss
White Company owns 60% of Cody Company. Separate tax returns are required. For 2023, 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 declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute the income tax liability of Cody for 2024. A) $33,000 B) $34,500 C) $37,500 D) $30,000 E) $22,500
C) $37,500
Tate, Incorporated owns 80% of Jeffrey, Incorporated. During the current year, Jeffrey sold merchandise costing $60,000 to Tate for $75,000. At the end of the year, 10% of this merchandise remained in Tate's inventory. The tax rate is 30%.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
C) $450
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, follows: What is the net income attributable to the noncontrolling interest in Sigma for 2024? A) $55,240 B) $56,420 C) $57,280 D) $59,420 E) $60,000
C) $57,280
Gardner Corporation owns 80% of the voting common stock of Lockhart Company. Lockhart owns 70% of Canning Company. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.The accrual-based net income of Lockhart is calculated to be A) $530,000. B) $590,000. C) $603,500. D) $683,500. E) $723,500.
C) $603,500.
Horse Corporation acquires all of Pony, Incorporated for $300,000 cash. On that date, Pony has net assets with a fair value of $250,000 but a book value and tax basis of $200,000. The tax rate is 40%. Prior to this date, neither Horse nor Pony has reported any deferred income tax assets or liabilities. What amount of goodwill should be recognized on the date of the acquisition? A) $0 B) $50,000 C) $70,000 D) $100,000 E) $150,000
C) $70,000
Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence also owns 30% of Ross. Separate company net incomes for 2024 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess 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 net income for 2024. A) $746,000 B) $719,000 C) $779,600 D) $774,200 E) $758,100
C) $779,600
1) Beagle Company owned 80% of Maroon Corporation. Maroon owned 90% of Eckston Incorporated. Separate company net incomes for 2024 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 gross profit on intra-entity transfers to Maroon. The accrual-based net income of Beagle is calculated to be A) $706,670. B) $755,980. C) $805,280. D) $838,150. E) $815,770.
C) $805,280.
Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Incorporated, all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2024, follows: What is Gamma's accrual-based net income for 2024? A) $76,000 B) $80,000 C) $96,000 D) $100,000 E) $104,000
C) $96,000
Loeffler Company owned 60% of Chevelle Corporation and 40% of Scott Corporation, and Chevelle owned 35% of Scott.What percentage of Scott's income is attributed to Loeffler's ownership interest? A) 100% B) 75% C) 61% D) 40% E) 74%
C) 61%
On January 1, 2024, a subsidiary bought 8% 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 in the consolidated balance sheet at December 31, 2024? 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 $300,000. E) There is no effect on the consolidated balance sheet because the effects have been eliminated.
C) Consolidated stockholders' equity is reduced by $350,000.
On January 1, 2023, 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, 2024, 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: What would be included in a consolidation worksheet entry for 2024? A) Debit treasury stock, $135,000 B) Credit treasury stock, $135,000 C) Debit treasury stock, $150,000 D) Credit treasury stock, $150,000 E) Debit common stock, $150,000
C) Debit treasury stock, $150,000
On January 1, 2024, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2025, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup's acquisition of Harley:Consideration transferred for 80% interest, January 1, 2025: $1,000,000Harley's reported book value, January 1, 2025: 1,200,000Excess 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 Harley and Buttercup: What would be included in a consolidation worksheet entry for 2025? A) Debit treasury stock, $150,000 B) Credit treasury stock, $150,000 C) Debit treasury stock, $187,500 D) Credit treasury stock, $187,500 E) Debit common stock, $187,500
C) Debit treasury stock, $187,500
Riley Corporation owned 90% of Brady Incorporated, while Brady owned 10% of the outstanding common shares of Riley. No goodwill or other allocations were recognized in connection with either of these acquisitions. Riley reported net income of $255,000 for 2024 whereas Brady recognized $87,000 during the same period. No investment income was included within either of these income totals.How would the 10% investment in Riley owned by Brady be presented in the consolidated balance sheet? C) The 10% investment would be eliminated and the same dollar amount would appear as treasury stock in the consolidated balance sheet. E) Riley would treat the shares owned by Brady as if they had been repurchased on the open market, and a treasury stock account would be set up on Riley's books recording the shares at their fair value on the date of combination.
C) The 10% investment would be eliminated and the same dollar amount would appear as treasury stock in the consolidated balance sheet.
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.
C) The treasury stock approach is required to reflect parent shares held by the subsidiary.
Hardford Corporation held 80% of Inglestone Incorporated, which, in turn, owned 80% of Jade Company. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow: The net income attributable to the noncontrolling interest of Inglestone is calculated to be A) $106,950. B) $102,640. C) $114,530. D) $106,960. E) $103,680.
D) $106,960.
Britain Corporation acquires all of English, Incorporated for $800,000 cash. On that date, English has net assets with a fair value of $750,000 but a book value and tax basis of $500,000. The tax rate is 35%. 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? A) $47,542 B) $117,850 C) $125,000 D) $137,500 E) $250,000
D) $137,500
Strong Company has had poor operating results in recent years and has a $160,000 net operating loss carryforward. Leader Corporation pays $700,000 to acquire Strong and is optimistic about its future profitability potential. The book value and fair value of Strong's identifiable net assets is $500,000 at date of acquisition. Strong's tax rate is 30%, and Leader's tax rate is 40%. What is goodwill resulting from this business acquisition? A) $40,000 B) $88,000 C) $104,000 D) $152,000 E) $248,000
D) $152,000
Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Incorporated, all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2024, follows: What is the net income attributable to the noncontrolling interest in Gamma for 2024? A) $0 B) $9,600 C) $10,000 D) $19,200 E) $20,000
D) $19,200
Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Incorporated, all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2024, follows: What is the total net income attributable to the noncontrolling interests for 2024? A) $0 B) $9,600 C) $10,000 D) $19,200 E) $20,000
D) $19,200
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, follows: What is the net income attributable to the noncontrolling interest in Pi for 2024? A) $0 B) $9,600 C) $10,000 D) $19,200 E) $20,000
D) $19,200
Clark Company, a U.S. corporation, sold inventory on December 1, 2024, with payment of 12,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: For what amount should Sales be credited on December 1? A) $18,310 B) $19,760 C) $23,712 D) $21,972 E) $21,216
D) $21,972
1) Beagle Company owned 80% of Maroon Corporation. Maroon owned 90% of Eckston Incorporated. Separate company net incomes for 2024 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 gross profit on intra-entity transfers to Maroon. The accrual-based net income of Eckston is calculated to be A) $234,000. B) $211,000. C) $221,000. D) $224,000. E) $246,000.
D) $224,000.
Paris, Incorporated owns 80% of the voting stock of Stance, Incorporated. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance's dividend income from Paris was $5,000.What is consolidated net income? A) $229,500 B) $237,000 C) $245,000 D) $232,500 E) $240,000
D) $232,500
Brandon Company, a U.S. corporation, sold inventory on credit to a British company on April 8, 2024. Brandon received payment of 40,000 British pounds on May 8, 2024. The exchange rate was £1 = $1.56 on April 8 and £1 = 1.45 on May 8. What amount of foreign exchange gain or loss should be recognized?Note: Round to the nearest dollar. A) $10,200 loss B) $10,200 gain C) $4,400 gain D) $4,400 loss E) No gain or loss should be recognized.
D) $4,400 loss
Florrick Company owns 85% of Bishop Incorporated. The two companies file a consolidated income tax return, and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements: The income tax rate was 40%.The amount of income tax expense that should be assigned to Bishop using the separate return method is approximately A) $12,500. B) $50,000. C) $20,000. D) $43,600. E) $62,500.
D) $43,600.
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, follows: What is Sigma's accrual-based income for 2024? A) $400,000 B) $592,000 C) $540,000 D) $572,800 E) $600,000
D) $572,800
Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence also owns 30% of Ross. Separate company net incomes for 2024 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess 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 net income attributable to the noncontrolling interest in Ross for 2024. A) $92,000 B) $77,400 C) $75,000 D) $64,500 E) $69,000
D) $64,500
Paris, Incorporated owns 80% of the voting stock of Stance, Incorporated. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance's dividend income from Paris was $5,000.What will be reported as the net income attributable to the noncontrolling interest of Stance? A) $6,500 B) $8,000 C) $9,000 D) $7,500 E) $1,000
D) $7,500
Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follows, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. What is the income 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
D) $73,500
Loeffler Company owned 60% of Chevelle Corporation and 40% of Scott Corporation, and Chevelle owned 35% of Scott. When Loeffler prepares consolidated financial statements, it should include A) Chevelle but not Scott. B) Scott but not Chevelle. C) Either Chevelle or Scott. D) Chevelle and Scott. E) Neither Chevelle nor Scott.
D) Chevelle and Scott
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.
D) Domestic subsidiaries greater than 80% ownership may file a consolidated tax return.
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.
D) In a mutual ownership, the subsidiary owns a portion of the parent's stock.
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.
D) One company holds 83 percent of the other company's voting stock.
Under current United States tax law for consolidated tax returns, A) one entity in the group can use another entity's net operating loss carryforward to its advantage. B) the parent can use the net operating loss carryforward of another entity in the group. C) a net operating loss carryforward if an entity will be unusable when consolidated tax returns are prepared. D) a net operating loss carryforward of an entity in the group can only be used by that entity. E) since the tax return is for all entities in one consolidated group, the net operating loss carryforward of one entity must be pro-rated to all other entities in the group.
D) a net operating loss carryforward of an entity in the group can only be used by that entity.
Curtis Company purchased inventory on December 1, 2023. Payment of 250,000 stickles was to be made in sixty days. Also on December 1, Curtis signed a contract to purchase §250,000 in sixty days. The spot rate was §1 = 0.33682, and the 60-day forward rate was §1 = $0.36842. On December 31, the spot rate was §1 = 0.32438, and the 30-day forward rate was §1 = 0.36386.At what amount should the Forward Contract account be recorded on December 1? A) $90,965 B) $84,205 C) $81,095 D) $92,105 E) $0
E) $0
Clark Stone purchases raw material from its foreign supplier, Rinne Clay, on May 8. Payment of 1,500,000 foreign currency units (FC) is due in 30 days. May 31 is Clark's fiscal year-end. The pertinent exchange rates were as follows: How much US $ will it cost Clark to finally pay the payable on June 7? A) $1,850,000 B) $1,500,000 C) $1,770,000 D) $1,740,000 E) $1,680,000
E) $1,680,000
Clark Company, a U.S. corporation, sold inventory on December 1, 2024, with payment of 12,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: What amount of foreign exchange gain or loss should be recorded on December 31? A) $756 gain B) $756 loss C) $0 D) $1,740 loss E) $1,740 gain
E) $1,740 gain
Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follows, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. Under the separate return method, income tax expense that will be assigned to Hill is closest to: A) $24,000. B) $22,857. C) $24,874. D) $21,874. E) $21,000.
E) $21,000.
Hardford Corporation held 80% of Inglestone Incorporated, which, in turn, owned 80% of Jade Company. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow: The net income attributable to the noncontrolling interest of Jade is calculated to be A) $36,900. B) $33,600. C) $42,400. D) $32,300. E) $39,200.
E) $39,200.
Florrick Company owns 85% of Bishop Incorporated. The two companies file a consolidated income tax return, and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements. The income tax rate was 40%.What is the amount of taxable income reported on the consolidated income tax return? A) $565,000 B) $605,000 C) $531,250 D) $625,000 E) $545,000
E) $545,000
Dog Corporation acquires all of Cat, Incorporated for $400,000 cash. On that date, Cat has net assets with a fair value of $350,000 but a book value and tax basis of $325,000. The tax rate is 30%. 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? A) $0 B) $50,000 C) $65,000 D) $66,400 E) $57,500
E) $57,500
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, follows: What is the total net income attributable to the noncontrolling interest for 2024? A) $55,240 B) $66,020 C) $67,280 D) $76,280 E) $76,480
E) $76,480
Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Incorporated, all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2024, 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.
E) Alpha, Beta, and Gamma may file separate income tax returns or a consolidated income tax return.
Which of the following statements is false concerning a parent-child-grandchild 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 parent and child companies
E) Consolidated financial statements are required for only the parent and child companies
On January 1, 2024, 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 $6.2 million, the consideration transferred for these shares was $700,000. During 2024, the parent reported separate net income of $816,000, before including investment income, while dividends declared were $207,000. How were these shares reported at December 31, 2024? A) The investment was recorded for $760,900 at the end of 2024 and then eliminated for consolidation purposes. B) Consolidated stockholders' equity was reduced by $760,900. C) The investment was recorded for $700,000 at the end of 2024 and then eliminated for consolidation purposes. D) Consolidated stockholders' equity was reduced by $802,300. E) Consolidated stockholders' equity was reduced by $700,000.
E) Consolidated stockholders' equity was reduced by $700,000.
Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Incorporated, all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2024, 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.
E) Delta, Sigma, and Pi may file separate income tax returns or a consolidated income tax return.
1) D Corporation had investments, direct and indirect, in several subsidiaries: · E Company is a domestic firm in which D Corporation owned a 90% interest · F Company is a domestic firm in which D Corporation owned 60%, and E Company owned 30% · G Company is a domestic firm wholly owned by E Company. · H Company is a foreign subsidiary in which D Corporation owned a 90% interest · I Company is a domestic firm in which D Corporation owned 50%, and G Company 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
E) E, F, and G
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.
E) For tax purposes, goodwill amortization may be deductible over a 15-year period.
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.
E) It is not amortized for reporting purposes, but is amortized over a 15-year life for tax purposes.
Which of the following is not a reason for a consolidated group to file separate income tax returns? A) There are no intra-entity transfers. B) There are no deferred intra-entity gross profits in ending inventory. C) One of the companies is a foreign company. D) Parent owns 68 percent of one company and 82 percent of another. E) No temporary differences will exist with separate income tax returns.
E) No temporary differences will exist with separate income tax returns.
Which of the following statements is false 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 defer gross profit on remaining inventory from intra-entity transfers. 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 mutual ownership. E) Shares of the parent held by a subsidiary are treated as outstanding shares in consolidated financial statements.
E) Shares of the parent held by a subsidiary are treated as outstanding shares in consolidated financial statements.
The benefits of filing a consolidated tax return include all of the following except A) gross profits from intra-entity transfers are not taxed until such amounts are recognized for financial statement reporting purposes. B) recognition of gross profits from intra-entity transfers is deferred for income tax recognition purposes. C) the issuance of dividends between related entities is 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) gross profits on intra-entity transfers are taxed before they are recognized for financial statement reporting purposes in the year of the transfer, but any such losses are deferred.
E) gross profits on intra-entity transfers are taxed before they are recognized for financial statement reporting purposes in the year of the transfer, but any such losses are deferred.
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 cost basis for assets is retained for income tax calculations.
E) the subsidiary's cost basis for assets is retained for income tax calculations.
