E) $ 7,200.
42. Compute accrual-based consolidated income before income tax.
A) $280,000.
B) $245,000.
C) $200,000.
D) $255,200.
E) $290,200.
Less: Combined intra-entity gross profit deferrals $25,000 + $10,000
(35,000)
Consolidated net income
$ 245,000
[QUESTION]
REFER TO: 07-09
43. 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.
44. 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.
45. 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.
47. Compute Cody’s undistributed earnings for 2018.
A) $ 62,500.
B) $125,000.
C) $ 87,500.
D) $100,000.
E) $ 70,000.
48. Compute the income tax liability of White for 2018.
A) $93,600.
B) $91,350.
C) $94,500.
D) $90,900.
E) $90,000.
49. Compute White’s deferred income taxes for 2018.
A) $ 6,000.
B) $ 2,250.
C) $ 3,150.
D) $11,250.
E) $21,000.
50. 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.
51. Under current U.S. 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.
52. Strong Company has had poor operating results in recent years and has a $160,000 net operating loss
carryforward. Leader Corp. 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.
53. In a father-son-grandson 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) 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 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.
54. 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.
55. 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.
56. 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.
57. On January 1, 2018, a subsidiary buys 8 percent of the outstanding voting stock of its parent
58. On January 1, 2018, a subsidiary buys 12 percent of the outstanding voting stock of its parent
59. 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.
60. 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.
61. Why might a consolidated group 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) All of these answer choices are correct.
62. 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.
63. What is Gamma’s accrual-based net income for 2018?
A) $ 76,000.
B) $ 80,000.
C) $ 96,000.
D) $100,000.
E) $104,000.
64. What is Beta’s accrual-based net income for 2018?
A) $200,000.
B) $276,800.
C) $280,000.
D) $296,000.
E) $300,000.
65. What is Alpha’s accrual-based net income for 2018?
A) $564,000.
B) $564,800.
C) $572,200.
D) $580,000.
E) $600,000.
66. What is the net income attributable to the noncontrolling interest in Gamma for 2018?
A) $ 0.
B) $ 9,600.
C) $10,000.
D) $19,200.
E) $20,000.
67. What is the total net income attributable to the noncontrolling interests for 2018?
A) $ 0.
B) $ 9,600.
C) $10,000.
D) $19,200.
E) $20,000.
68. 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.
69. What is Pi’s accrual-based net income for 2018?
A) $152,000.
B) $ 16,000.
C) $192,000.
D) $200,000.
E) $208,000.
70. What is Sigma’s accrual-based income for 2018?
A) $400,000.
B) $592,000.
C) $540,000.
D) $572,800.
E) $600,000.
71. What is Delta’s accrual-based net income for 2018?
A) $1,091,520.
B) $1,115,520.
C) $1,168,000.
D) $1,168,520.
E) $1,200,000.
72. What is the net income attributable to the noncontrolling interest in Pi for 2018?
A) $ 0.
B) $ 9,600.
C) $10,000.
D) $19,200.
E) $20,000.
73. What is the net income attributable to the noncontrolling interest in Sigma for 2018?
A) $55,240.
B) $56,420.
C) $57,280.
D) $59,420.
E) $60,000.
74. What is the total net income attributable to the noncontrolling interest for 2018?
A) $55,240.
B) $66,020.
C) $67,280.
D) $76,280.
E) $76,480.
75. 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.
76. What is consolidated net income?
A) $229,500.
B) $237,000.
C) $245,000.
D) $232,500.
E) $240,000.
77. 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.
78. Reggie, Inc. owns 70 percent 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 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.
79. Pear, Inc. owns 80 percent 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 percent 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.
80. 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.
81. 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.