84. Tate, Inc. owns 80 percent of Jeffrey, Inc. During the current year, Jeffrey
sold merchandise costing $60,000 to Tate for $75,000. At the end of the year, 10
percent of this merchandise was still being held. The tax rate is 30 percent.
Assuming that a consolidated income tax return is being filed, what deferred
income tax asset is created?
85. Horse Corporation acquires all of Pony, Inc. for $300,000 cash. On that
date, Pony has net assets with fair value of $250,000 but a book value and tax
basis of $200,000. The tax rate is 40 percent. 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?
86. Dog Corporation acquires all of Cat, Inc. for $400,000 cash. On that date,
Cat has net assets with fair value of $350,000 but a book value and tax basis of
$325,000. The tax rate is 30 percent. 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?
87. Britain Corporation acquires all of English, Inc. for $800,000 cash. On that
date, English has net assets with fair value of $750,000 but a book value and tax
basis of $500,000. The tax rate is 35 percent. 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?
88. What configuration of corporate ownership is described as a father-son-
grandson relationship?
89. What ownership structure is referred to as a
connecting affiliation
?
Describe briefly or illustrate with a diagram.
90. What ownership pattern is referred to as
mutual ownership
? Describe
briefly or illustrate with a diagram.
91. What are the essential criteria for including a subsidiary within an
affiliated
group
?
indirectly.
92. X Co. owned 80% of Y Corp., and Y Corp. owned 15% of X Co. Under the
treasury stock approach
, how would the dividends paid by X Co. to Y Corp. be
handled on a
consolidation worksheet
?
93. What term is used to describe a parent and subsidiaries that are eligible to
file a
consolidated income tax return
?
94. What method is used in consolidation to account for a subsidiary’s
ownership of shares of its parent corporation?
95. What are the benefits or advantages of filing a
consolidated income tax
return
?
96. How is the amortization of goodwill treated for income tax purposes? How
does the amortization of goodwill affect
deferred income taxes
?
97. C Co. currently owns 80% of D Co. and several other subsidiaries. C Co. is
interested in gaining control of H Co. Why might C Co. allow D Co. to acquire H
Co., rather than purchasing H Co. directly?
98. Gamma Co. owns 80% of Delta Corp., and Delta Corp. owns 15% of Gamma
Co. The two companies use the
treasury stock approach
to account for mutual
ownership. How should Delta Corp.’s ownership interest in Gamma Co. be
accounted for in the consolidation?
99. Explain how the
treasury stock approach
treats shares of the parent’s
common stock that are owned by the subsidiary and the rationale behind the
approach.
100. T Corp. owns several subsidiaries that are eligible for inclusion on a
consolidated income tax return, but T Corp. decided that each company in the
group will file a separate return. Under what conditions would there be minimal
advantage in filing a
consolidated income tax return
?
101. Under what conditions must a
deferred income tax asset
be recorded?
102. B Co. owned 70% of the voting common stock of C Corp.; C Corp. owned
20% of B Co. For 2011, B Co. and C Corp. reported net income (not including the
investment) of $600,000 and $300,000, respectively. B Co. and C Corp. paid
dividends of $80,000 and $60,000, respectively.
Required:
Prepare a schedule showing B Co.’s share of
consolidated net
income
for 2011
using the
treasury stock approach
.
103. Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull’s
common stock. In 2011, Jull and Solaver reported operating income (not including
income from the investment) of $300,000 and $80,000, respectively. Jull and
Solaver paid dividends of $120,000 and $50,000, respectively.
Required:
Under the
treasury stock approach
, what is the
non-controlling interest in Solaver
Co.’s net income
?
104. Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull’s
common stock. In 2011, Jull and Solaver reported operating income (not including
income from the investment) of $300,000 and $80,000, respectively. Jull and
Solaver paid dividends of $120,000 and $50,000, respectively.
Required:
Under the
treasury stock approach
, what is Jull’s
controlling interest in Solaver
Co.’s net income
?
105. Kurton Inc. owned 90% of Luvyn Corp.’s voting common stock. The
consideration paid exceeded book value by $110,000. Of this amount, one half is
attributable to a patent and is to be amortized over 5 years. Luvyn held 20% of
Kurton’s voting common stock which cost $28,000 more than fair value.
During the current year, Kurton reported operating income of $224,000 and
dividend income from Luvyn of $37,800. At the same time, Luvyn reported
operating income of $70,000 and dividend income from Kurton of $19,600.
Required:
Using the
treasury stock approach
, prepare a schedule to show what is reported
as the
non-controlling interest in Luvyn Corp.’s net income
.