Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/13

Click to flip

13 Cards in this Set

  • Front
  • Back
1. In a father-son-grandson business combination, which of the following is true?
a. The father company must have its realized income computed first
b. The computation of a company’s realized income has no effect on the realized income of other companies within a business combination
c. A father-son-grandson configuration does not require consolidation unless one company owns shares in all of the other companies
d. All companies solely in subsidiary positions must have their realized income computed first within the consolidation process
d. All companies solely in subsidiary positions must have their realized income computed first within the consolidation process
2. A subsidiary owns shares of its parent company. Which of the following is true concerning the treasury stock approach?
a. It is one of several options to account for mutual holdings available under current accounting standards
b. The original cost of the subsidiary’s investment is a reduction in consolidated stockholders’ equity
c. The subsidiary accrues income on its investment by using the equity method
d. The treasury stock approach eliminates these shares entirely within the consolidation process
b. The original cost of the subsidiary’s investment is a reduction in consolidated stockholders’ equity
3. On January 1, Stanton Company buys 10 percent of the outstanding shares of its parent, ProMart, Inc. Although the total book value and fair values of ProMarts net assets equaled $4 million, the price paid for these shares was $420,000. During the year, ProMart reported $510,0000 of operating income (no subsidiary income was included) and paid dividends of $140,000. How are these shares of the parent owned by the subsidiary reported at December 31?
a. An investment balance of $457,000 is eliminated for consolidation purposes
b. Consolidated stockholders equity is reduced by $457,000
c. An investment balance of $437,000 is eliminated for consolidation purposes
d. Consolidated stockholders equity is reduced by $420,000
d. Consolidated stockholders equity is reduced by $420,000
4. Which of the following is correct for two companies that want to file a consolidated tax return as an affiliated group?
a. One company must hold at least 51 percent of the other company’s voting stock
b. One company must hold at least 65 percent of the other company’s voting stock
c. One company must hold at least 80 percent of the other company’s voting stock
d. They cannot file unless one company owns 100 percent of the others voting stock
c. One company must hold at least 80 percent of the other company’s voting stock
5. How does the amortization of tax-deductible goodwill affect the computation of a parent company’s income taxes?
a. It is deductible expense only if the parent owns at least 80 percent of subsidiary’s voting stock
b. It is deductible only as impairments are recognized
c. It is a deductible item over a 15 year period
d. It is deductible only if a consolidated tax return is filed
c. It is a deductible item over a 15 year period
6. Which of the following is not a reason for two companies to file separate tax returns?
a. The parent owns 68 percent of the subsidiary
b. They have no intra-entity transactions
c. Intra-entity dividends are tax-free only on separate returns
d. Neither company historically has had an operating loss
c. Intra-entity dividends are tax-free only on separate returns
7. Bassett Company owns 80 percent of Crimson and Crimson owns 90 percent of Damson, Inc. Operating income totals for the current year follow; they contain no investment income. None of these acquisitions required amortization expense. Included in Damson’s income is a $40,000 unrealized gain on intra-entity transfers to Crimson.
Bassett Crimson Damson
Operating income $300,000 $200,000 $200,000
What is Bassett’s accrual-based income for the year?
a. $575,200
b. $588,000
c. $596,400
d. $604,000
a. $575,200
8. Alder Corporation holds 80 percent of Beech, which, in turn, owns 80 percent of Cherry. Operating income figures (excluding investment income) and unrealized upstream gains included in the income for the current year follow:
Alder Beach Cherry
Operating income $525,000 $315,000 $280,000
Unrealized gains -0- $19,000 $50,000
What is the noncontrolling interest’s share of consolidated net income?
a. $105,200
b. $119,000
c. $142,000
d. $163,800
c. $142,000
9. Phelps, Inc. owns 85 percent of Satallite Corporation’s voting stock. The acquisition price exceeded book and fair value by $80,000 and was appropriately attributed to goodwill. Satellite holds 20 percent of Phelp’s voting stock. The price paid for the shares by Satellite equaled 20 percent of the parent’s book value and net fair values of its assets and liabilities.
During the current year, Phelps reported operating income of $160,000 and dividend income from Satellite of $27,000. At the same time, Satellite reported operating income of $50,000 and dividend income from Phelps of $14,000.
What is the noncontrolling interest in Satellite’s net income under the treasury stock approach?
a. $31,500
b. $29,400
c. $9,600
d. $7,500
c. $9,600
Pike, Inc. owns 60 percent of Stark Company. During the current year, Stark reported net income of $200,000 but paid a total cash dividend of only $40,000. What deferred income tax liability must be recognized in the consolidated balance sheet? Assume the tax rate is 30 percent.
a. $5,760
b. $9,600
c. $12,840
d. $28,800
a. $5,760
11. Plumas, Inc. owns 85 percent of Santa Cruz Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $100,000 merchandise costing $70,000 to the subsidiary, which still held 20 percent of this merchandise at the end of the year. Assume that the tax rate is 25 percent and that separate tax returns are filed. What deferred income tax asset is created?
a. -0-
b. $300
c. $1,500
d. $7,500
c. $1,500
12. What would be the answer to problem (11) if a consolidated tax return were filed?
a. -0-
b. $300
c. $1,500
d. $7,500
a. -0-
13. Hastoon Company purchases all of Zedner Company for $420,000 in cash. On that date, the subsidiary has net assets with a $400,000 fair value but a $300,000 book value and tax basis. The tax rate is 30 percent. Niether company has reported any deferred income tax assets of liabilities. What amount of goodwill should be recognized on the date of acquisition?
a. $20,000
b. $36,000
c. $50,000
d. $120,000
c. $50,000