Question 1

Company A holds 70 percent of the voting shares of Company B.During 2008,Company B sold land with a book value of $125,000 to Company A for $150,000.Company A continues to hold the land at the end of the year.The companies file separate tax returns and are subject to a 40 percent tax rate.Assume that Company A uses the basic equity method in accounting for its investment in Company B.
-Assume the Company A holds the land at the end of 2009.The eliminating entry relating to the intercorporate sale of land to be entered in the consolidation workpaper prepared at the end of 2009 will include a debit to Retained Earnings for:

Accepted Answer

The elimination entry is required because Company A purchased land from Company B, which results in a transfer of income from Company B to Company A. Since Company A holds the land at the end of the year, the elimination entry should be made to remove the effects of the intercorporate sale from the consolidated financial statements.

To calculate the elimination entry, we need to determine the tax effect of the intercorporate sale on Company B. The gain on the sale for tax purposes is calculated as the selling price ($150,000) minus the tax basis ($125,000), which equals $25,000. Since Company B is subject to a 40% tax rate, the tax effect is $10,000 ($25,000 x 40%).

The elimination entry will include a debit to Retained Earnings (or Investment in Company B) for the portion of Company A's share of the intercorporate gain that is not yet realized. Since Company A owns 70% of Company B, its share of the gain is $7,000 ($10,000 x 70%). However, Company A has only realized 30% of this gain ($2,100), so the remaining $4,900 ($7,000 - $2,100) should be eliminated. This results in a debit to Retained Earnings for $10,500 ($4,900 / 0.70).

Therefore, the correct answer is D) $10,500.

Question 2

Company A owns 85 percent of Company B's stock and 80 percent of Company C's stock.All acquisitions were made at book value.The fair values of noncontrolling interests at the time of acquisition were equal to the proportionate share of the book values of the companies.The companies file a consolidated tax return each year and in 2009 paid a total tax of $112,000.Each company is involved in a number of intercompany inventory transfers each period.Information on the companies' activities for 2009 is as follows:
Company A does not record income tax expense on income from subsidiaries because a consolidated tax return is filed.
 
-Based on the information provided,what amount of income tax expense should be assigned to Company C?

Accepted Answer

The answer of Company A owns 85 percent of Company...

Question 3

Assume that New Life uses the direct method of computing cash flows from operating activities.Based on the preceding information,what amount will be reported by the company as cash payments to suppliers for 2009?

Accepted Answer

Under the direct method, the cash payment to suppliers is calculated by adding up all the purchases made during the period and deducting any changes in accounts payable. 
Cash payments to suppliers can be calculated as:
Purchases = $500,000 - $60,000 + $10,000 = $450,000
Cash payments to suppliers = Purchases - decrease in accounts payable = $450,000 - $98,000 = $352,000
Therefore, the correct answer is D) $352,000.

Question 4

Locus Corporation acquired 80 percent ownership of Stereo Company on January 1,2006,at underlying book value.At that date,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Stereo Company.Consolidated balance sheets at January 1,2008,and December 31,2008,are as follows:
The consolidated income statement for 2008 contained the following amounts:
Locus and Stereo paid dividends of $25,000 and $15,000,respectively,in 2008.
Required:
1)Prepare a workpaper to develop a consolidated statement of cash flows for 2008 using the
   indirect method of computing cash flows from operations.
2)Prepare a consolidated statement of cash flows for 2008.

Accepted Answer

The answer of Locus Corporation acquired 80 percent ownership of...

Question 5

Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30,2008 for $225,000.At that date,the fair value of the noncontrolling interest was $25,000.On January 1,2008,Trigger reported the following stockholders' equity balances:
Trigger reported net income of $80,000 in 2008,earned uniformly throughout the year,and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,2008.Catalyst reported retained earnings of $250,000 on January 1,2008,and had 2008 income of $120,000 from its separate operations.Catalyst paid dividends of $50,000 on December 31,2008.Catalyst accounts for its investment in Trigger Corporation using the basic equity method.
 
-Based on the information provided,what is the consolidated net income reported for the year 2008?

Accepted Answer

The correct consolidated net income reported for the year 2008 is $140,000.

Question 6

Company A holds 70 percent of the voting shares of Company B.During 2008,Company B sold land with a book value of $125,000 to Company A for $150,000.Company A continues to hold the land at the end of the year.The companies file separate tax returns and are subject to a 40 percent tax rate.Assume that Company A uses the basic equity method in accounting for its investment in Company B.
-Assume the Company A holds the land at the end of 2009.Based on the information given,the eliminating entry relating to the intercorporate sale of land to be entered in the consolidation workpaper prepared at the end of 2009 will include:

Accepted Answer

The answer of Company A holds 70 percent of the...

Question 7

Electric Corporation holds 80 percent of Utility Company's voting common shares,acquired at book values,but none of its preferred shares.At the date of acquisition,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Utility Company.Summary balance sheets for the companies on December 31,2008,are as follows:
Neither of the preferred issues is convertible.Electric's preferred pays a 8 percent annual dividend,and Utility's preferred pays a 12 percent dividend.Utility reported net income of $30,000 and paid a total of $10,000 of dividends in 2008.Electric reported income from its separate operations of $70,000 and paid total dividends of $25,000 in 2008.
 
-Based on the preceding information,what is the amount of earnings available to common shareholders reported in the consolidated financial statements for the year?

Accepted Answer

The answer of Electric Corporation holds 80 percent of Utility...

Question 8

Electric Corporation holds 80 percent of Utility Company's voting common shares,acquired at book values,but none of its preferred shares.At the date of acquisition,the fair value of the noncontrolling interest was equal to 20 percent of the book value of Utility Company.Summary balance sheets for the companies on December 31,2008,are as follows:
Neither of the preferred issues is convertible.Electric's preferred pays a 8 percent annual dividend,and Utility's preferred pays a 12 percent dividend.Utility reported net income of $30,000 and paid a total of $10,000 of dividends in 2008.Electric reported income from its separate operations of $70,000 and paid total dividends of $25,000 in 2008.
 
-Based on the preceding information,what is the consolidated earnings per share for 2008?

Accepted Answer

To calculate consolidated earnings per share, we need to first find the consolidated net income, and then divide it by the weighted average number of outstanding common shares.

Consolidated net income = (Electric's income from separate operations + Utility's income - Electric's preferred dividends - Utility's preferred dividends - Noncontrolling interest) * (1 - Noncontrolling interest)
Consolidated net income = ($70,000 + $30,000 - ($100,000 * 0.08) - ($200,000 * 0.12) - ($20,000 * 0.20)) * (1 - 0.20)
Consolidated net income = $71,600

Weighted average number of outstanding common shares = (Electric's outstanding common shares + Noncontrolling interest's share of Utility's outstanding common shares) * (1 - Noncontrolling interest)
Weighted average number of outstanding common shares = (80,000 + (20,000 * 0.20)) * (1 - 0.20)
Weighted average number of outstanding common shares = 80,640

Consolidated earnings per share = Consolidated net income / Weighted average number of outstanding common shares
Consolidated earnings per share = $71,600 / 80,640
Consolidated earnings per share = $0.8875
Consolidated earnings per share = $4.14 (rounded to the nearest cent)

Question 9

Flyer Corporation holds 90 percent of Kite Company's common shares but none of its preferred shares.On the date of acquisition,the fair value of the noncontrolling interest was equal to 10 percent of the book value of Kite Company.Summary balance sheets for the companies on December 31,2008,are as follows:
Flyer's preferred pays a 8 percent annual dividend,and Kite's preferred pays a 10 percent dividend.Kite's preferred shares can be converted into 20,000 shares of common stock at any time.Kite reported net income of $35,000 and paid a total of $10,000 of dividends in 2008.Flyer reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 2008.
 
-Based on the information provided,what is the basic earnings per share for the consolidated entity for 2008?

Accepted Answer

The basic earnings per share for the consolidated entity for 2008 is 5.04, as indicated in the provided options.

Question 10

Boycott Company holds 75 percent ownership of Fred Corporation.The consolidated balance sheets as of December 31,2008,and December 31,2009,are as follows:
The 2009 consolidated income statement contained the following amounts:
Boycott acquired its investment in Fred on January 1,2006,for $120,000.At that date,the fair value of the noncontrolling interest was $40,000,and Fred reported net assets of $130,000.A total of $20,000 of the differential was assigned to goodwill.The remainder of the differential was assigned to equipment with a remaining life of 10 years from the date of
   combination.Boycott sold $100,000 of bonds on December 31,2009,to assist in generating additional funds.Fred reported net income of $20,000 for 2009 and paid dividends of $10,000.Boycott reported 2009 equity-method net income of $75,000 paid dividends of $20,000 for the year.
Required:
1)Prepare a workpaper to develop a consolidated statement of cash flows for 2009 using the indirect method of computing cash flows from operations.
2)Prepare a consolidated statement of cash flows for 2009.

Accepted Answer

The answer of Boycott Company holds 75 percent ownership of...

Question 11

Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30,2008 for $225,000.At that date,the fair value of the noncontrolling interest was $25,000.On January 1,2008,Trigger reported the following stockholders' equity balances:
Trigger reported net income of $80,000 in 2008,earned uniformly throughout the year,and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,2008.Catalyst reported retained earnings of $250,000 on January 1,2008,and had 2008 income of $120,000 from its separate operations.Catalyst paid dividends of $50,000 on December 31,2008.Catalyst accounts for its investment in Trigger Corporation using the basic equity method.
 
-Based on the information provided,what is the amount of consolidated retained earnings as of December 31,2008?

Accepted Answer

Consolidated retained earnings = Catalyst's retained earnings + Trigger's share of income - Trigger's dividends paid to both controlling and noncontrolling interests.
Catalyst's retained earnings on January 1, 2008 = $250,000
Catalyst's net income in 2008 = $120,000
Catalyst's dividends paid in 2008 = $50,000
Therefore, Catalyst's retained earnings on December 31, 2008 = $320,000
Trigger's share of income = $80,000 x 90% = $72,000
Trigger's dividends paid to both the controlling interest and noncontrolling interest = $40,000 ($10,000 on June 30 and $30,000 on December 31)
Trigger's share of consolidated retained earnings = $72,000 - $40,000 = $32,000
Consolidated retained earnings = $320,000 + $32,000 = $352,000
However, we need to subtract the fair value of the noncontrolling interest in Trigger as of the acquisition date from consolidated retained earnings, since that amount is not attributable to the controlling interest. 
Fair value of noncontrolling interest in Trigger = $25,000
Consolidated retained earnings as of December 31, 2008 = $352,000 - $25,000 = $327,000
Therefore, the answer is C) $338,000.

Question 12

Using the data presented in question 38:
1)Prepare a workpaper to develop a consolidated statement of cash flows for 2008 using the direct method of computing cash flows from operations.
2)Prepare a consolidated statement of cash flows for 2008.

Accepted Answer

The answer of Using the data presented in question 38:
1)Prepare...

Question 13

Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30,2008 for $225,000.At that date,the fair value of the noncontrolling interest was $25,000.On January 1,2008,Trigger reported the following stockholders' equity balances:
Trigger reported net income of $80,000 in 2008,earned uniformly throughout the year,and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,2008.Catalyst reported retained earnings of $250,000 on January 1,2008,and had 2008 income of $120,000 from its separate operations.Catalyst paid dividends of $50,000 on December 31,2008.Catalyst accounts for its investment in Trigger Corporation using the basic equity method.
 
-Based on the information provided,what is the balance of Catalyst's investment in Trigger Corporation as of December 31,2008?

Accepted Answer

The balance of Catalyst's investment in Trigger Corporation as of December 31, 2008, is $216,000.

Question 14

Company A holds 70 percent of the voting shares of Company B.During 2008,Company B sold land with a book value of $125,000 to Company A for $150,000.Company A continues to hold the land at the end of the year.The companies file separate tax returns and are subject to a 40 percent tax rate.Assume that Company A uses the basic equity method in accounting for its investment in Company B.
-Based on the information given,which eliminating entry relating to the intercorporate sale of land is to be entered in the consolidation workpaper prepared at the end of 2008?

Accepted Answer

The eliminating entry is to eliminate the gain on the sale of land from Company B's income and to record the land at its fair value in the consolidated financial statements.

Question 15

Company A owns 85 percent of Company B's stock and 80 percent of Company C's stock.All acquisitions were made at book value.The fair values of noncontrolling interests at the time of acquisition were equal to the proportionate share of the book values of the companies.The companies file a consolidated tax return each year and in 2009 paid a total tax of $112,000.Each company is involved in a number of intercompany inventory transfers each period.Information on the companies' activities for 2009 is as follows:
Company A does not record income tax expense on income from subsidiaries because a consolidated tax return is filed.
 
-Based on the information provided,what amount of income tax expense should be assigned to Company A?

Accepted Answer

The answer of Company A owns 85 percent of Company...

Question 16

Company A owns 85 percent of Company B's stock and 80 percent of Company C's stock.All acquisitions were made at book value.The fair values of noncontrolling interests at the time of acquisition were equal to the proportionate share of the book values of the companies.The companies file a consolidated tax return each year and in 2009 paid a total tax of $112,000.Each company is involved in a number of intercompany inventory transfers each period.Information on the companies' activities for 2009 is as follows:
Company A does not record income tax expense on income from subsidiaries because a consolidated tax return is filed.
 
-Based on the information provided,income to the controlling interest for 2009 is:

Accepted Answer

To calculate the income to the controlling interest, we need to first find the pre-tax income of each company. We can then use these numbers to calculate the consolidated pre-tax income and ultimately the income to the controlling interest.

For Company B:
Pre-tax income = Book value of assets - Book value of liabilities
Pre-tax income = $300,000 - $100,000 = $200,000

For Company C:
Pre-tax income = Book value of assets - Book value of liabilities
Pre-tax income = $400,000 - $200,000 = $200,000

To calculate the consolidated pre-tax income, we need to eliminate the intercompany transfers. Company B transferred $50,000 of inventory to Company A and Company C transferred $60,000 of inventory to Company A. Therefore, we need to deduct a total of $110,000 from the combined pre-tax income of all three companies.

Consolidated pre-tax income = ($200,000 + $200,000 + (85% * $200,000) - $110,000 = $535,000

Since the companies file a consolidated tax return, we know that the tax expense of $112,000 was paid by the consolidated group. Therefore, the income to the controlling interest can be calculated as follows:

Income to controlling interest = Consolidated pre-tax income - Consolidated tax expense
Income to controlling interest = $535,000 - $112,000 = $423,000

However, we need to adjust this amount to account for the noncontrolling interests. The fair values of the noncontrolling interests were equal to the proportionate share of the book values of the companies. Therefore, we need to calculate the proportionate share of the book values for each company and deduct these amounts from the income to the controlling interest.

For Company B:
Proportionate share of book value = (1 - 0.85) * ($100,000) = $15,000

For Company C:
Proportionate share of book value = (1 - 0.80) * ($200,000) = $40,000

Adjusted income to controlling interest = $423,000 - $15,000 - $40,000 = $368,000

Finally, we need to divide the adjusted income to controlling interest by the percentage of Company A that is owned by the parent company.

Income to controlling interest = $368,000 / 0.85 = $433,647.06

Rounded to the nearest dollar, the income to the controlling interest for 2009 is $155,370.

Therefore, the best choice is A.

Question 17

Flyer Corporation holds 90 percent of Kite Company's common shares but none of its preferred shares.On the date of acquisition,the fair value of the noncontrolling interest was equal to 10 percent of the book value of Kite Company.Summary balance sheets for the companies on December 31,2008,are as follows:
Flyer's preferred pays a 8 percent annual dividend,and Kite's preferred pays a 10 percent dividend.Kite's preferred shares can be converted into 20,000 shares of common stock at any time.Kite reported net income of $35,000 and paid a total of $10,000 of dividends in 2008.Flyer reported income from its separate operations of $80,000 and paid total dividends of $25,000 in 2008.
 
-Based on the information provided,what is the diluted earnings per share for the consolidated entity for 2008?

Accepted Answer

The correct diluted earnings per share for the consolidated entity for 2008 is 4.33, as indicated in the provided options.

Question 18

Company A owns 85 percent of Company B's stock and 80 percent of Company C's stock.All acquisitions were made at book value.The fair values of noncontrolling interests at the time of acquisition were equal to the proportionate share of the book values of the companies.The companies file a consolidated tax return each year and in 2009 paid a total tax of $112,000.Each company is involved in a number of intercompany inventory transfers each period.Information on the companies' activities for 2009 is as follows:
Company A does not record income tax expense on income from subsidiaries because a consolidated tax return is filed.
 
-Based on the information provided,what amount of consolidated net income will be reported for the year 2009?

Accepted Answer

Consolidated net income is the sum of the net incomes of the parent company and its subsidiaries, minus any minority interest. In this case, the parent company's net income is $100,000, and the subsidiary's net income is $68,000. There is no minority interest, so the consolidated net income is $100,000 + $68,000 = $168,000.

Question 19

Assume that New Life uses the direct method of computing cash flows from operating activities.Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?

Accepted Answer

The answer of Assume that New Life uses the direct...

Question 20

Catalyst Corporation acquired 90 percent of Trigger Corporation's common stock on September 30,2008 for $225,000.At that date,the fair value of the noncontrolling interest was $25,000.On January 1,2008,Trigger reported the following stockholders' equity balances:
Trigger reported net income of $80,000 in 2008,earned uniformly throughout the year,and declared and paid dividends of $10,000 on June 30 and $30,000 on December 31,2008.Catalyst reported retained earnings of $250,000 on January 1,2008,and had 2008 income of $120,000 from its separate operations.Catalyst paid dividends of $50,000 on December 31,2008.Catalyst accounts for its investment in Trigger Corporation using the basic equity method.
 
-Based on the information provided,what is the consolidated income to the controlling interest reported for the year 2008?

Accepted Answer

The answer of Catalyst Corporation acquired 90 percent of Trigger...

Quiz 10: Additional Consolidation Reporting Issues

Assume that New Life uses the direct method of computing cash flows from operating activities.Based on the preceding information,what amount will be reported by the company as cash payments to suppliers for 2009?

Using the data presented in question 38: 1)Prepare a workpaper to develop a consolidated statement of cash flows for 2008 using the direct method of computing cash flows from operations. 2)Prepare a consolidated statement of cash flows for 2008.

Assume that New Life uses the direct method of computing cash flows from operating activities.Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?