1) Describe the basic procedure for computing in-come income tax provisions for
interim financial state-ments statements – unless not rolled to this line.
2) On December 31, 2013, Pinta Company purchased 80% of the outstanding common
stock of Snead Company for cash. At the time of acquisition, Snead Company’s balance
sheet was as follows:
Current assets$ 1,680,000
Plant and equipment1,580,000
Land 280,000
Total assets$3,540,000
Liabilities$ 1,320,000
Common stock, $10 par value1,440,000
Other contributed capital700,000
Retained earnings 240,000
Total$3,700,000
Treasury stock at cost, 5,000 shares <160,000>
Total equities$3,540,000
Required:
Prepare the elimination entry(s) required for the preparation of a consolidated balance
sheet workpaper on December 31, 2013, assuming the purchase price of the stock was
$1,670,000. Any difference between the value implied by the purchase price of the
investment and the book value of net assets acquired relates to subsidiary land.
3) Distinguish among fully secured, partially se-cured, and unsecured claims of
creditors.
4) Itchy Companys actual earnings for the first two quarters of 2014 and its estimate
during each quarter of its annual earnings are:
Actual first-quarter earnings$ 800,000
Actual second-quarter earnings1,020,000
First-quarter estimate of annual earnings2,700,000
Second-quarter estimate of annual earnings2,830,000
Itchy Company estimated its permanent differences between accounting income and
taxable income for 2014 as:
Environmental violation penalties$ 45,000
Dividend income exclusion320,000
These estimates did not change during the second quarter. The combined state and
federal tax rate for Itchy Company for 2014 is 40%.
Required:
Prepare journal entries to record Itchy Companys provisions for income taxes for each
of the first two quarters of 2014.
5) Under the economic entity concept, the net as-sets assets of the subsidiary are
included in the consolidated financial statements at the total fair value that is implied by
the price paid by the parent company for its controlling interest. What practical or
conceptual problems do you see in this approach to valuation?