Required:
113. On January 1, 2011, Youder Inc. bought 120,000 shares of Nopple Co. for
$384,000, giving Youder 30% ownership and the ability to apply significant
influence to the operating and financing decisions of Nopple. Youder anticipated
holding this investment for an indefinite time. In making this acquisition, Youder
paid an amount equal to the book value for these shares. The fair value of each
asset and liability was the same as its book value. Dividends and income for
Nopple for 2011 were as follows:
Required:
Assume a 40% income tax rate. Prepare all necessary journal entries for Youder
for 2011 beginning at acquisition and ending at tax accrual.
114. Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an
investment accounted for by the equity method. During 2011, Dice earned
operating income (not including income from its investment in Spalding) of
$370,000. For this same period, Spalding reported net income of $160,000 and
paid cash dividends of $60,000. Dice has an effective income tax rate of 35% and
anticipates holding its investment in Spalding for an indefinite period.
Required:
(A.) What income tax expense journal entry would Dice Inc. record at the end of
2011?
(B.) If Dice expects to sell its interest in Spalding in the near future, how does
that decision change the 2011 income tax expense journal entry?
115. Dotes, Inc. owns 40% of Abner Co. Dotes accounts for its investment using
the equity method. Abner follows a policy of paying dividends equal to 30% of its
income each year. During the current year, Abner reported net income of
$216,000. Dotes has an effective income tax rate of 32%.
Required:
What journal entry would Dotes record at the end of the current year for income
taxes relating to the investment in Abner? Assume the investment is to be held
for an indefinite time and that all amounts are to be rounded to the nearest
dollar.
116.
Patton’s operating income excludes income from the investment in Stevens, but
includes $150,000 of unrealized gains on intra-entity transfers of inventory.
Patton uses the initial value method to account for the investment in Stevens.
Assume Patton owns 90 percent of the voting stock of Stevens and files a
consolidated income tax return. What amount of income taxes would be paid?
117.
Patton’s operating income excludes income from the investment in Stevens, but
includes $150,000 of unrealized gains on intra-entity transfers of inventory.
Patton uses the initial value method to account for the investment in Stevens.
Assume Patton owns 90 percent of the voting stock of Stevens and they each file
separate income tax returns. What amount of total income tax would be paid?
118.
Patton’s operating income excludes income from the investment in Stevens, but
includes $150,000 of unrealized gains on intra-entity transfers of inventory.
Patton uses the initial value method to account for the investment in Stevens.
How much will the consolidated group save if it decides to file a consolidated
income tax return?
119. For each of the following situations, select the best answer concerning
accounting for income taxes in combinations:
(A) May file a consolidated income tax return.
(B) May not a file consolidated income tax return.
(C) Must file a consolidated income tax return.
_____1. Parent company owns 85% of the voting stock of the subsidiary, and there
are significant intercompany transactions.
_____2. Subsidiary is a foreign corporation.
_____3. Parent company owns 90% of the voting stock of the subsidiary, but there
are no intercompany inventory transactions.
_____4. Parent company owns 75% of the voting stock of the subsidiary but there
are no intercompany inventory transactions.
_____5. Parent company owns 90% of the voting stock of the subsidiary, and there
are intercompany inventory transactions with transferred goods in ending
inventory.
_____6. Parent company owns 75% of the voting stock of the subsidiary and there
are intercompany inventory transactions with transferred goods in ending
inventory.