Consolidated Income, Ownership Chapter 7 Verified Test Bank

Student name:__________

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.
1) Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.When Buckette prepares consolidated financial statements, it should include

A) Shuvelle but not Tayle.
B) Tayle but not Shuvelle.
C) Either Shuvelle or Tayle.
D) Shuvelle and Tayle.
E) Neither Shuvelle nor Tayle.

2) Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.What is this pattern of ownership called?

A) Pyramid ownership.
B) A connecting affiliation.
C) Mutual ownership.
D) An indirect affiliation.
E) An affiliated group.

3) Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle.What percentage of Tayle's income is attributed to Buckette's ownership interest?

A) 100%.
B) 75%.
C) 61%.
D) 40%.
E) 74%.

4) D Corp. had investments, direct and indirect, in several subsidiaries:E Co. is a domestic firm in which D Corp. owned a 90% interestF Co. is a domestic firm in which D Corp. owned 60% and E Co. owned 30%G Co. is a domestic firm wholly owned by E Co.H Co. is a foreign subsidiary in which D Corp. owned a 90% interestI Co. is a domestic firm in which D Corp. owned 50% and G Co. owned 25%
Which of these subsidiaries may be included in a consolidated income tax return?

A) E, F, G, H, and I.
B) E, G, H, and I.
C) E and F.
D) E, F, G, and H.
E) E, F, and G.

5) Evanston Co. owned 60% of Montgomery Corp. Montgomery owned 75% of Noir Inc., and Noir owned 15% of Montgomery. This pattern of ownership would be called...

A) Mutual ownership.
B) Direct control.
C) Indirect control.
D) An affiliated group.
E) A connecting affiliation.

6) In a tax-free business combination,

A) The income tax basis for acquired assets and liabilities is adjusted to current fair value.
B) Any goodwill created by the combination may be amortized in calculating taxable income.
C) The subsidiary's assets and liabilities are assigned an income tax basis of zero dollars, so that they will have no future income tax consequences.
D) Any goodwill created by the combination must be deducted in total in calculating taxable income.
E) The subsidiary's cost basis for assets are retained for income tax calculations.

7) Gardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies:

Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.The accrual-based net income of Lockhart Co. is calculated to be

A) $530,000.
B) $590,000.
C) $603,500.
D) $683,500.
E) $723,500.

8) Gardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies:

Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.The accrual-based net income of Gardner Corp. is calculated to be

A) $1,114,800.
B) $1,212,450.
C) $1,272,800.
D) $1,382,800.
E) $1,393,500.

9) Gardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies:

Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.What amount should be reported for consolidated net income?

A) $1,425,000.
B) $1,490,000.
C) $1,525,000.
D) $1,635,000.
E) $1,700,000.

10) Gardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies:

Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.For Gardner Corp. and consolidated subsidiaries, what total amount would be reported for the net income attributable to the noncontrolling interest?

A) $141,700.
B) $152,200.
C) $120,700.
D) $202,050.
E) $212,550.

11) Gardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies:

Separate company net income includes intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary.What amount of dividends should Gardner Corp. recognize in its consolidated net income with respect to dividends received from Canning Co.?

A) $-0-
B) $25,200.
C) $36,000.
D) $42,000.
E) $90,000.

12) Florrick Co. owns 85% of Bishop Inc. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements:

The income tax rate was 40%.What is the amount of taxable income reported on the consolidated income tax return?

A) $565,000.
B) $605,000.
C) $531,250.
D) $625,000.
E) $545,000.

13) Florrick Co. owns 85% of Bishop Inc. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements:

The income tax rate was 40%.What is the amount of income tax expense that should be assigned to Bishop using the percentage allocation method?

A) $41,420
B) $54,500
C) $32,700
D) $50,000
E) $23,750

14) Florrick Co. owns 85% of Bishop Inc. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements:

The income tax rate was 40%.The amount of income tax expense that should be assigned to Bishop using the separate return method is approximately:

A) $12,500
B) $50,000
C) $20,000
D) $43,600
E) $62,500

15) Florrick Co. owns 85% of Bishop Inc. The two companies file a consolidated income tax return and Florrick uses the initial value method to account for the investment. The following information is available from the two companies' financial statements:

The income tax rate was 40%.What was the net income attributable to the noncontrolling interest, assuming that the separate return method was used to assign the income tax expense?

A) $12,625
B) $12,280
C) $31,250
D) $10,575
E) $6,750

16) Riley Corp. owned 90% of Brady Inc., while Brady owned 10% of the outstanding common shares of Riley. No goodwill or other allocations were recognized in connection with either of these acquisitions. Riley reported net income of $255,000 for 2021 whereas Brady recognized $87,000 during the same period. No investment income was included within either of these income totals.On a consolidated income statement, what is the net income attributable to the noncontrolling interest?

A) $8,700.
B) $16,800.
C) $25,500.
D) $14,250.
E) $34,200.

17) Riley Corp. owned 90% of Brady Inc., while Brady owned 10% of the outstanding common shares of Riley. No goodwill or other allocations were recognized in connection with either of these acquisitions. Riley reported net income of $255,000 for 2021 whereas Brady recognized $87,000 during the same period. No investment income was included within either of these income totals.How would the 10% investment in Riley owned by Brady be presented in the consolidated balance sheet?

A) The 10% investment would be eliminated and no amount would be shown in the consolidated balance sheet.
B) The 10% investment would be reclassified in Brady's balance sheet as Treasury Stock before the consolidation process begins.
C) The 10% investment would be eliminated and the same dollar amount would appear as treasury stock in the consolidated balance sheet.
D) The 10% investment would be included as part of Additional Paid-In Capital because it is less than 20% and therefore indicates no significant influence is present.
E) Riley would treat the shares owned by Brady as if they had been repurchased on the open market, and a treasury stock account would be set up on Riley's books recording the shares at their fair value on the date of combination.

18) On January 1, 2021, a subsidiary bought 10% of the outstanding shares of its parent company. Although the total book value and fair value of the parent's net assets were $6.2 million, the consideration transferred for these shares was $700,000. During 2021, the parent reported separate net income of $816,000, before including investment income, while dividends declared were $207,000. How were these shares reported at December 31, 2021?

A) The investment was recorded for $760,900 at the end of 2021 and then eliminated for consolidation purposes.
B) Consolidated stockholders' equity was reduced by $760,900.
C) The investment was recorded for $700,000 at the end of 2021 and then eliminated for consolidation purposes.
D) Consolidated stockholders' equity was reduced by $802,300.
E) Consolidated stockholders' equity was reduced by $700,000.

19) Chapman Co. acquired all of Klein Co. for $613,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $590,000 fair value but a $460,000 book value and income tax basis. The income tax rate was 35%. What amount of goodwill should have been recognized on the date of the acquisition?

A) $68,500.
B) $23,000.
C) $45,500.
D) $22,500.
E) $61,500.

20) Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Separate company net incomes for 2021 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 gross profit on intra-entity transfers to Maroon.

The accrual-based net income of Eckston Inc. is calculated to be

A) $234,000.
B) $211,000.
C) $221,000.
D) $224,000.
E) $246,000.

21) Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Separate company net incomes for 2021 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 gross profit on intra-entity transfers to Maroon.

The accrual-based net income of Maroon Corp. is calculated to be

A) $481,600.
B) $472,700.
C) $488,900.
D) $502,300.
E) $358,800.

22) Beagle Co. owned 80% of Maroon Corp. Maroon owned 90% of Eckston Inc. Separate company net incomes for 2021 are shown below; these figures contained no investment income. Amortization expense was not required by any of these acquisitions. Included in Eckston's operating income was a $56,000 gross profit on intra-entity transfers to Maroon.

The accrual-based net income of Beagle Co. is calculated to be

A) $706,670.
B) $755,980.
C) $805,280.
D) $838,150.
E) $815,770.

23) Hardford Corp. held 80% of Inglestone Inc., which, in turn, owned 80% of Jade Co. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow:

The accrual-based net income of Jade Co. is calculated to be

A) $193,000.
B) $189,000.
C) $196,000.
D) $201,000.
E) $144,000.

24) Hardford Corp. held 80% of Inglestone Inc., which, in turn, owned 80% of Jade Co. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow:

The net income attributable to the noncontrolling interest of Jade Co. is calculated to be

A) $36,900.
B) $33,600.
C) $42,400.
D) $32,300.
E) $39,200.

25) Hardford Corp. held 80% of Inglestone Inc., which, in turn, owned 80% of Jade Co. Excess amortization expense was not required by any of these acquisitions. Separate net income figures (without investment income) as well as upstream intra-entity gross profits (before deferral) included in the income for the current year follow:

The net income attributable to the noncontrolling interest of Inglestone Inc. is calculated to be

A) $106,950.
B) $102,640.
C) $114,530.
D) $106,960.
E) $103,680.

26) When indirect control is present, which of the following statements is true?

A) At least one company within the consolidated entity holds a parent and a subsidiary relationship.
B) The parent company owns a percent of subsidiary and subsidiary owns a percent of the parent.
C) Consolidated financial statements are required for only one subsidiary.
D) Recognition of income for an indirectly owned subsidiary is ignored.
E) Only dividend income is recognized for an indirectly owned subsidiary.

27) Which of the following statements is false concerning a father-son-grandson configuration?

A) This type of ownership pattern does not significantly alter the worksheet process.
B) Most worksheet entries are simply made twice.
C) The doubling of entries may seem overwhelming.
D) The individual consolidation procedures remain unaffected.
E) Consolidated financial statements are required for only the father and son companies.

28) Which of the following statements is true regarding mutual ownership between a parent and its subsidiary?

A) The shares of the parent held by a subsidiary should be treated as outstanding stock on the consolidated balance sheet.
B) Only the subsidiary's shares held by the parent should be eliminated in consolidation.
C) The treasury stock approach is required to reflect parent shares held by the subsidiary.
D) The treasury stock approach is required to eliminate subsidiary shares held by the parent company.
E) The parent company does not need to file consolidated financial statements if there is mutual ownership.

29) Which of the following statements is false regarding a subsidiary's investment in the parent company's stock?

A) The treasury stock approach focuses on the parent’s control over its subsidiary.
B) For consolidation, both the parent and subsidiary must defer gross profit on remaining inventory from intra-entity transfers.
C) In consolidation, the parent’s retained earnings will not be reduced by the dividends it paid to the subsidiary.
D) This corporate combination is known as mutual ownership.
E) Shares of the parent held by a subsidiary are treated as outstanding shares in consolidated financial statements.

30) Which of the following statements is true regarding the subsidiary's investment in its parent's common stock?

A) All of the parent company's common stock is eliminated.
B) The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to treasury stock.
C) The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to retained earnings.
D) The consolidation worksheet entry to eliminate the subsidiary's investment in parent's common stock is debited to additional paid-in capital.
E) The investment in parent company's common stock is not eliminated in consolidation.

31) Which of the following statements is true regarding the filing of income taxes for an affiliated group?

A) Domestic subsidiaries greater than 50% ownership must file a consolidated tax return.
B) Domestic subsidiaries greater than 60% ownership must file a consolidated tax return.
C) Domestic subsidiaries greater than 80% ownership must file a consolidated tax return.
D) Domestic subsidiaries greater than 80% ownership may file a consolidated tax return.
E) Foreign subsidiaries must file a consolidated tax return.

32) The benefits of filing a consolidated tax return include all of the following except

A) Gross profits from intra-entity transfers are not taxed until such amounts are recognized for financial statement reporting purposes.
B) Recognition of gross profits from intra-entity transfers is deferred for income tax recognition purposes.
C) The issuance of dividends between related entities are not taxable.
D) Losses incurred by an affiliated company can be used to reduce taxable income earned by other members to that affiliated group.
E) Gross profits on intra-entity transfers are taxed before they are recognized for financial statement reporting purposes in the year of the transfer, but any such losses are deferred.

33) Which of the following statements is true regarding goodwill?

A) For accounting purposes, goodwill may be amortized over a period not to exceed 40 years.
B) For accounting purposes, goodwill may be amortized over a period not to exceed 20 years.
C) For tax purposes, goodwill amortization cannot be deductible.
D) For tax purposes, goodwill amortization may be deductible over a 20-year period.
E) For tax purposes, goodwill amortization may be deductible over a 15-year period.

34) Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate company net incomes for 2021 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess annual amortization expense of $15,000 is assigned to Chase’s investment in Lawrence and another $15,000 is assigned to Lawrence’s investment in Ross.Compute Chase's attributed ownership in Ross.

A) 40.0%.
B) 64.0%.
C) 24.0%.
D) 32.0%.
E) 12.8%.

35) Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate company net incomes for 2021 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess annual amortization expense of $15,000 is assigned to Chase’s investment in Lawrence and another $15,000 is assigned to Lawrence’s investment in Ross.Compute the net income attributable to the noncontrolling interest in Ross for 2021.

A) $92,000.
B) $77,400.
C) $75,000.
D) $64,500.
E) $69,000.

36) Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate company net incomes for 2021 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess annual amortization expense of $15,000 is assigned to Chase’s investment in Lawrence and another $15,000 is assigned to Lawrence’s investment in Ross.Compute Lawrence's accrual-based net income for 2021.

A) $354,000.
B) $329,500.
C) $334,000.
D) $265,000.
E) $344,500.

37) Chase Company owns 80% of Lawrence Company and 40% of Ross Company. Lawrence Company also owns 30% of Ross Company. Separate company net incomes for 2021 of Chase, Lawrence, and Ross are $450,000, $300,000, and $250,000, respectively. Each company also defers a $20,000 intra-entity gain in its current income figures. Excess annual amortization expense of $15,000 is assigned to Chase’s investment in Lawrence and another $15,000 is assigned to Lawrence’s investment in Ross.Compute Chase's accrual-based net income for 2021.

A) $746,000.
B) $719,000.
C) $779,600.
D) $774,200.
E) $758,100.

38) On January 1, 2020, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2021, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones:

Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton:

What would be included in a consolidation worksheet entry for 2021?

A) Debit treasury stock, $135,000.
B) Credit treasury stock, $135,000.
C) Debit treasury stock, $150,000.
D) Credit treasury stock, $150,000.
E) Debit common stock, $150,000.

39) On January 1, 2020, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2021, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones:

Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton:

Compute the amount allocated to trademarks recognized in the January 1, 2021 consolidated balance sheet.

A) $80,000.
B) $100,000.
C) $76,000.
D) $16,000.
E) $-0-

40) On January 1, 2020, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2021, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones:

Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton:

Compute Whitton's accrual-based consolidated net income for 2021.

A) $199,000.
B) $190,000.
C) $185,000.
D) $184,000.
E) $176,000.

41) On January 1, 2020, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2021, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones:

Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Jones and Whitton:

Compute the net income attributable to the noncontrolling interest for 2021.

A) $11,000.
B) $10,800.
C) $9,000.
D) $8,200.
E) $7,200.

42) Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follow, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%.

Compute accrual-based consolidated income before income tax.

A) $280,000.
B) $245,000.
C) $200,000.
D) $255,200.
E) $290,200.

43) Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follow, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%.

What is the income tax liability for the current year if consolidated tax returns are prepared?

A) $55,560.
B) $70,350.
C) $60,000.
D) $73,500.
E) $84,000.

44) Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follow, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%.

Using the percentage allocation method for assigning income tax expense, the income tax expense assigned to Hill is closest to:

A) $21,000.
B) $24,000.
C) $20,100.
D) $17,400.
E) $0.

45) Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. There were no excess fair-value amortization amounts to account for. Each company's income before income tax and dividend income for the current time period follow, as well as the effects of intra-entity gross profits on remaining inventory which are included in the separate net income amounts. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%.

Under the separate return method, income tax expense that will be assigned to Hill is closest to:

A) $24,000.
B) $22,857.
C) $24,874.
D) $21,874.
E) $21,000.

46) White Company owns 60% of Cody Company. Separate tax returns are required. For 2020, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute the income tax liability of Cody for 2021.

A) $33,000.
B) $34,500.
C) $37,500.
D) $30,000.
E) $22,500.

47) White Company owns 60% of Cody Company. Separate tax returns are required. For 2020, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute Cody's undistributed earnings for 2021.

A) $62,500.
B) $125,000.
C) $87,500.
D) $100,000.
E) $70,000.

48) White Company owns 60% of Cody Company. Separate tax returns are required. For 2020, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute the income tax liability of White for 2021.

A) $93,600.
B) $91,350.
C) $94,500.
D) $90,900.
E) $90,000.

49) White Company owns 60% of Cody Company. Separate tax returns are required. For 2020, White's operating income (excluding taxes and any income from Cody) was $300,000 while Cody reported a pretax income of $125,000. During the period, Cody declared total dividends of $25,000; $15,000 (60%) to White and $10,000 to the noncontrolling interest. White declared dividends of $180,000. The income tax rate for both companies is 30%.Compute White's deferred income taxes for 2021.

A) $6,000.
B) $2,250.
C) $3,150.
D) $11,250.
E) $21,000.

50) Woods Company has one depreciable asset valued at $800,000. Because of recent losses, the company has a net operating loss carryforward of $150,000. The tax rate is 30%. The company was acquired for $1,000,000. It is more likely than not that the tax benefit will be realized. Compute the goodwill recognized for consolidated financial statements.

A) $0.
B) $155,000.
C) $200,000.
D) $305,000.
E) $350,000.

51) Under current U.S. tax law for consolidated tax returns:

A) One entity in the group can use another entity’s net operating loss carryforward to its advantage.
B) The parent can use the net operating loss carryforward of another entity in the group.
C) A net operating loss carryforward if an entity will be unusable when consolidated tax returns are prepared.
D) A net operating loss carryforward of an entity in the group can only be used by that entity.
E) Since the tax return is for all entities in one consolidated group, the net operating loss carryforward of one entity must be pro-rated to all other entities in the group.

52) Strong Company has had poor operating results in recent years and has a $160,000 net operating loss carryforward. Leader Corp. pays $700,000 to acquire Strong and is optimistic about its future profitability potential. The book value and fair value of Strong’s identifiable net assets is $500,000 at date of acquisition. Strong’s tax rate is 30% and Leader’s tax rate is 40%. What is goodwill resulting from this business acquisition?

A) $40,000.
B) $88,000.
C) $104,000.
D) $152,000.
E) $248,000.

53) In a father-son-grandson combination, which of the following statements is true?

A) Companies that are solely in subsidiary positions must have their accrual-based net income computed first in the consolidation process.
B) Father-son-grandson configurations never require consolidation unless one company owns 100% of at least one other member of the combined group.
C) The order of the computation of accrual-based net income is not important in the consolidation process.
D) The parent must have its accrual-based net income computed first in the consolidation process.
E) None of these answer choices are correct.

54) Which of the following statements is true concerning connecting affiliations and mutual ownerships?

A) In a mutual ownership, at least two companies in the consolidated group own portions of a third company.
B) There are at least four companies in a connecting affiliation.
C) In a connecting affiliation, at least one subsidiary owns stock in the parent company.
D) In a mutual ownership, the subsidiary owns a portion of the parent’s stock.
E) There are only two companies in a connecting affiliation.

55) Which of the following is true concerning the treasury stock approach in accounting for a subsidiary's investment in parent company stock?

A) The original cost of the subsidiary’s investment reduces long-term liabilities.
B) The cost of parent shares is treated as if the shares are no longer outstanding.
C) The subsidiary must apply the equity method in accounting for the investment if the treasury stock approach is used.
D) The treasury stock approach increases total stockholders’ equity.
E) The cost of parent shares is treated as if the shares are no longer issued.

56) Which of the following is not an advantage of filing a consolidated income tax return?

A) The existence of deferred losses in ending inventory.
B) The ability to use net operating losses of one company to offset profits of another company.
C) The existence of intra-entity gross profit remaining in ending inventory.
D) Transfers of inventory at a transfer price above cost.
E) There is no difference between U.S. GAAP and tax accounting rules for dividends paid to a parent by an 85%-owned subsidiary.

57) On January 1, 2021, a subsidiary buys 8% of the outstanding voting stock of its parent corporation. The payment of $350,000 exceeded book value of the acquired shares by $50,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported operating income of $675,000 (excluding investment income from the subsidiary), and paid $100,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2021?

A) Included in current assets.
B) Included in noncurrent assets.
C) Consolidated stockholders' equity is reduced by $350,000.
D) Consolidated stockholders' equity is reduced by $300,000.
E) There is no effect on the consolidated balance sheet, because the effects have been eliminated.

58) On January 1, 2021, a subsidiary buys 12% of the outstanding voting stock of its parent corporation. The payment of $400,000 exceeded book value of the acquired shares by $80,000, attributable to a copyright with a 10-year useful life. During the year, the parent reported separate company income of $1,000,000 (excluding investment income from the subsidiary), and paid $120,000 in dividends. If the treasury stock approach is used, how is the Investment in Parent Stock reported in the consolidated balance sheet at December 31, 2021?

A) Consolidated stockholders' equity is reduced by $400,000.
B) Consolidated stockholders' equity is reduced by $320,000.
C) Included in current assets.
D) Included in noncurrent assets.
E) There is no effect on the consolidated balance sheet, because the effects have been eliminated.

59) Which of the following conditions will allow two companies to file a consolidated income tax return?

A) One company owns less than 50 percent of the other company’s voting stock but has the ability to significantly influence the other company.
B) One company holds 50 percent of the other company's voting stock.
C) One company holds 75 percent of the other company's voting stock.
D) One company holds 83 percent of the other company's voting stock.
E) None of the above.

60) How is goodwill amortized?

A) It is not amortized for reporting purposes or for tax purposes.
B) It is not amortized for reporting purposes, but is amortized over a 5-year life for tax purposes.
C) It is not amortized for tax purposes, but is amortized over a 5-year life for reporting purposes.
D) It is not amortized for tax purposes, but is amortized over a 15-year life for reporting purposes.
E) It is not amortized for reporting purposes, but is amortized over a 15-year life for tax purposes.

61) Which of the following is not a reason for a consolidated group to file separate income tax returns?

A) There are no intra-entity transfers.
B) There are no deferred intra-entity gross profits in ending inventory.
C) One of the companies is a foreign company.
D) Parent owns 68 percent of one company and 82 percent of another.
E) No temporary differences will exist with separate income tax returns.

62) Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows:

Which of the following statements is true?

A) Alpha and Beta must file a consolidated income tax return, but must exclude Gamma from the consolidated return.
B) Alpha, Beta, and Gamma must file a consolidated income tax return.
C) Alpha, Beta, and Gamma must file separate income tax returns because the ownership of Beta is less than 100%.
D) Alpha, Beta, and Gamma will probably not file a consolidated income tax return.
E) Alpha, Beta, and Gamma may file separate income tax returns or a consolidated income tax return.

63) Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows:

What is Gamma’s accrual-based net income for 2021?

A) $76,000.
B) $80,000.
C) $96,000.
D) $100,000.
E) $104,000.

64) Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows:

What is Beta’s accrual-based net income for 2021?

A) $200,000.
B) $276,800.
C) $280,000.
D) $296,000.
E) $300,000.

65) Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows:

What is Alpha’s accrual-based net income for 2021?

A) $564,000.
B) $564,800.
C) $572,200.
D) $580,000.
E) $600,000.

66) Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows:

What is the net income attributable to the noncontrolling interest in Gamma for 2021?

A) $0.
B) $9,600.
C) $10,000.
D) $19,200.
E) $20,000.

67) Alpha Corporation owns 100% of Beta Company, and Beta owns 80% of Gamma, Inc., all of which are domestic corporations. There were no excess allocation values at the date of acquisition of the subsidiaries. Information for the three companies for the year ending December 31, 2021 follows:

What is the total net income attributable to the noncontrolling interests for 2021?

A) $0.
B) $9,600.
C) $10,000.
D) $19,200.
E) $20,000.

68) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

Which of the following statements is true?

A) Delta and Sigma must file a consolidated income tax return, but must exclude Pi from the consolidated return.
B) Delta, Sigma, and Pi must file a consolidated income tax return.
C) Delta, Sigma, and Pi must file separate income tax returns because the ownership of Sigma and Pi is less than 100%.
D) Delta, Sigma, and Pi will probably not file a consolidated income tax return.
E) Delta, Sigma, and Pi may file separate income tax returns or a consolidated income tax return.

69) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

What is Pi’s accrual-based net income for 2021?

A) $152,000.
B) $16,000.
C) $192,000.
D) $200,000.
E) $208,000.

70) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

What is Sigma’s accrual-based income for 2021?

A) $400,000.
B) $592,000.
C) $540,000.
D) $572,800.
E) $600,000.

71) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

What is Delta’s accrual-based net income for 2021?

A) $1,091,520.
B) $1,115,520.
C) $1,168,000.
D) $1,168,520.
E) $1,200,000.

72) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

What is the net income attributable to the noncontrolling interest in Pi for 2021?

A) $0.
B) $9,600.
C) $10,000.
D) $19,200.
E) $20,000.

73) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

What is the net income attributable to the noncontrolling interest in Sigma for 2021?

A) $55,240.
B) $56,420.
C) $57,280.
D) $59,420.
E) $60,000.

74) Delta Corporation owns 90% of Sigma Company, and Sigma owns 90% of Pi, Inc., all of which are domestic corporations. There are no excess amortizations associated with any of the acquisitions. Information for the three companies for the year ending December 31, 2021 follows:

What is the total net income attributable to the noncontrolling interest for 2021?

A) $55,240.
B) $66,020.
C) $67,280.
D) $76,280.
E) $76,480.

75) Paris, Inc. owns 80% of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance’s dividend income from Paris was $5,000.What will be reported as the net income attributable to the noncontrolling interest of Stance?

A) $6,500.
B) $8,000.
C) $9,000.
D) $7,500.
E) $1,000.

76) Paris, Inc. owns 80% of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance’s dividend income from Paris was $5,000.What is consolidated net income?

A) $229,500.
B) $237,000.
C) $245,000.
D) $232,500.
E) $240,000.

77) Paris, Inc. owns 80% of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Any excess fair value is assigned to a franchise contract to be amortized over a 10-year period. Stance holds 10% of the voting stock of Paris and paid an amount that equaled 10% of the book value of Paris at the time the investment was acquired. During the current year, Paris reported its own net income of $200,000 before investment income from Stance. Paris had dividend income from Stance of $20,000. At the same time, Stance reported its own net income of $40,000 before investment income. Stance’s dividend income from Paris was $5,000.What is net income attributable to the controlling interest of Paris?

A) $232,500.
B) $225,000.
C) $224,500.
D) $226,000.
E) $233,500.

78) Reggie, Inc. owns 70% of Nancy Corporation. During the current year, Nancy reported operating income before tax of $100,000 and paid a dividend of $30,000. The income tax rate for both companies is 30%. What deferred income tax liability arising in the current year must be recognized in the consolidated balance sheet?

A) $1,680.
B) $2,400.
C) $1,470.
D) $9,800.
E) $2,940.

79) Pear, Inc. owns 80% of Apple Corporation. During the current year, Apple reported operating income before tax of $400,000 and paid a dividend of $120,000. The income tax rate for each company is 40% and separate tax returns are prepared. What deferred income tax liability arising this year must be recognized in the consolidated balance sheet?

A) $0.
B) $7,680.
C) $17,920.
D) $38,400.
E) $51,200.

80) Dean, Inc. owns 90% of Ralph, Inc. During the current year, Dean sold merchandise costing $80,000 to Ralph for $100,000. At the end of the year, 30% of this merchandise was still on hand. The tax rate is 30%.Assuming that separate income tax returns are being filed, what deferred income tax asset is created?

A) $0.
B) $1,100.
C) $1,800.
D) $6,000.
E) $9,000.

81) Dean, Inc. owns 90% of Ralph, Inc. During the current year, Dean sold merchandise costing $80,000 to Ralph for $100,000. At the end of the year, 30% of this merchandise was still on hand. The tax rate is 30%.Assuming that a consolidated income tax return is being filed, what deferred income tax asset is created?

A) $0.
B) $900.
C) $1,100.
D) $1,800.
E) $2,700.

82) Tate, Inc. owns 80% 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% of this merchandise remained in Tate’s inventory. The tax rate is 30%.Assuming that separate income tax returns are being filed, what deferred income tax asset is created?

A) $0.
B) $360.
C) $450.
D) $2,250.
E) $3,600.

83) Tate, Inc. owns 80% 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% of this merchandise remained in Tate’s inventory. The tax rate is 30%.Assuming that a consolidated income tax return is being filed, what deferred income tax asset is created?

A) $0.
B) $360.
C) $450.
D) $2,250.
E) $3,600.

84) 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%. 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?

A) $0.
B) $50,000.
C) $70,000.
D) $100,000.
E) $150,000.

85) 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%. 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?

A) $0.
B) $50,000.
C) $65,000.
D) $66,400.
E) $57,500.

86) 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%. 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?

A) $47,542.
B) $117,850.
C) $125,000.
D) $137,500.
E) $250,000.

87) Woof Co. acquired all of Meow Co. for $502,000 cash in a tax-free transaction. On that date, the subsidiary had net assets with a $480,000 fair value but a $400,000 book value and income tax basis. The income tax rate was 30%. What amount of goodwill should have been recognized on the date of the acquisition?

A) $24,000.
B) $46,000.
C) $22,000.
D) $13,800.
E) $80,000.

88) On January 1, 2021, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2022, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup’s acquisition of Harley:Consideration transferred for 80% interest, January 1, 2022: $1,000,000Harley’s reported book value, January 1, 2022: 1,200,000Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Harley and Buttercup:

What would be included in a consolidation worksheet entry for 2022?

A) Debit treasury stock, $150,000.
B) Credit treasury stock, $150,000.
C) Debit treasury stock, $187,500.
D) Credit treasury stock, $187,500.
E) Debit common stock, $187,500.

89) On January 1, 2021, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2022, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup’s acquisition of Harley:Consideration transferred for 80% interest, January 1, 2022: $1,000,000Harley’s reported book value, January 1, 2022: 1,200,000Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Harley and Buttercup:

Compute the amount allocated to trademarks recognized in the January 1, 2022 consolidated balance sheet.

A) $10,000.
B) $50,000.
C) $7,500.
D) $40,000.
E) $0.

90) On January 1, 2021, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2022, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup’s acquisition of Harley:Consideration transferred for 80% interest, January 1, 2022: $1,000,000Harley’s reported book value, January 1, 2022: 1,200,000Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Harley and Buttercup:

Compute Buttercup’s accrual-based consolidated net income for 2022.

A) $254,500.
B) $244,000.
C) $233,500.
D) $245,500.
E) $256,000.

91) On January 1, 2021, Harley Company bought 15% of Buttercup Company. Harley paid $200,000 for these shares, an amount that exactly equaled the proportionate book value of Buttercup. On January 1, 2022, Buttercup acquired 80% ownership of Harley. The following data are available concerning Buttercup’s acquisition of Harley:Consideration transferred for 80% interest, January 1, 2022: $1,000,000Harley’s reported book value, January 1, 2022: 1,200,000Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies. The following information is available regarding Harley and Buttercup:

Compute the net income attributable to the noncontrolling interest for 2022.

A) $10,575.
B) $13,600.
C) $10,200.
D) $14,100.
E) $14,600.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
92) B Co. owned 70% of the voting common stock of C Corp.; C Corp. owned 20% of B Co. There were no excess-value allocations at the dates the investments were acquired. For 2021, B Co. and C Corp. reported net income (not including the investment) of $600,000 and $300,000, respectively. B Co. and C Corp. declared dividends of $80,000 and $60,000, respectively.Required:Prepare a schedule showing net income attributable to B Co.’s controlling interest for 2021 using the treasury stock approach.

93) Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull's common stock. In 2021, Jull and Solaver reported separate net incomes (not including income from the investment) of $300,000 and $80,000, respectively. Jull and Solaver declared dividends of $120,000 and $50,000, respectively.Required:Under the treasury stock approach, what is the net income attributable to the noncontrolling interest?

94) Jull Corp. owned 80% of Solaver Co. Solaver paid $250,000 for 10% of Jull's common stock. In 2021, Jull and Solaver reported separate net incomes (not including income from the investment) of $300,000 and $80,000, respectively. Jull and Solaver declared dividends of $120,000 and $50,000, respectively.Required:Under the treasury stock approach, what is Jull’s net income attributable to the controlling interest in Solaver Co..?

95) 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 separate net income of $224,000 as well as dividend income from Luvyn of $37,800. At the same time, Luvyn reported its separate net income of $70,000 as well as dividend income from Kurton of $19,600.Required:Using the treasury stock approach, prepare a schedule to show what is reported as the net income attributable to the noncontrolling interest in Luvyn.

96) 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 separate net income of $224,000 as well as dividend income from Luvyn of $37,800. At the same time, Luvyn reported its separate net income of $70,000 as well as dividend income from Kurton of $19,600.Required:Prepare a schedule to show consolidated net income.

97) 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 separate net income of $224,000 as well as dividend income from Luvyn of $37,800. At the same time, Luvyn reported its separate net income of $70,000 as well as dividend income from Kurton of $19,600.Required:Prepare a schedule to show net income attributable to the controlling interest of Kurton.

98) Wilkins Inc. owned 60% of Motumbo Co. During the current year, Motumbo reported net income of $280,000 but paid a total cash dividend of only $56,000.Required: Assuming an income tax rate of 30%, what amount of Deferred Income Tax Liability arising this year must be recognized in the consolidated balance sheet?

99) On January 1, 2020, Mace Co. acquired 75% of Lance Co.'s outstanding common stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these investments were acquired when book value was equal to fair value of identifiable net assets acquired. Both of these investments were accounted using the initial value method. Only Mace declared dividends in any year. Mace declared dividends each year equal to 40% of its separate net income before the calculation of any of its investment income. Separate net income totals for 2020, not including investment income for any company, were as follows:

Following are the 2021 financial statements for these three companies. Curle made numerous transfers of inventory to Lance since the takeover: $112,000 (2020) and $140,000 (2021). These transfers included the same markup applicable to Curle's outside sales. In each of these years, Lance held 20% of the inventory it bought from Curle and then sold that inventory to outsiders in the following year.An effective income tax rate of 45% was applicable to all companies.

Required:Determine the total amount of goodwill for the January 1, 2020 acquisition of Curle Co. and for the acquisition of Lance Co. on the same date.

100) On January 1, 2020, Mace Co. acquired 75% of Lance Co.'s outstanding common stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these investments were acquired when book value was equal to fair value of identifiable net assets acquired. Both of these investments were accounted using the initial value method. Only Mace declared dividends in any year. Mace declared dividends each year equal to 40% of its separate net income before the calculation of any of its investment income. Separate net income totals for 2020, not including investment income for any company, were as follows:

Following are the 2021 financial statements for these three companies. Curle made numerous transfers of inventory to Lance since the takeover: $112,000 (2020) and $140,000 (2021). These transfers included the same markup applicable to Curle's outside sales. In each of these years, Lance held 20% of the inventory it bought from Curle and then sold that inventory to outsiders in the following year.An effective income tax rate of 45% was applicable to all companies.

Required:Determine net income attributable to the noncontrolling interest in Curle for the year 2021.

101) On January 1, 2020, Mace Co. acquired 75% of Lance Co.'s outstanding common stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these investments were acquired when book value was equal to fair value of identifiable net assets acquired. Both of these investments were accounted using the initial value method. Only Mace declared dividends in any year. Mace declared dividends each year equal to 40% of its separate net income before the calculation of any of its investment income. Separate net income totals for 2020, not including investment income for any company, were as follows:

Following are the 2021 financial statements for these three companies. Curle made numerous transfers of inventory to Lance since the takeover: $112,000 (2020) and $140,000 (2021). These transfers included the same markup applicable to Curle's outside sales. In each of these years, Lance held 20% of the inventory it bought from Curle and then sold that inventory to outsiders in the following year.An effective income tax rate of 45% was applicable to all companies.

Required:Determine the net income attributable to the noncontrolling interest in Lance for the year 2021.

102) On January 1, 2020, Mace Co. acquired 75% of Lance Co.'s outstanding common stock. On the same date, Lance acquired an 80% interest in Curle Co. Both of these investments were acquired when book value was equal to fair value of identifiable net assets acquired. Both of these investments were accounted using the initial value method. Only Mace declared dividends in any year. Mace declared dividends each year equal to 40% of its separate net income before the calculation of any of its investment income. Separate net income totals for 2020, not including investment income for any company, were as follows:

Following are the 2021 financial statements for these three companies. Curle made numerous transfers of inventory to Lance since the takeover: $112,000 (2020) and $140,000 (2021). These transfers included the same markup applicable to Curle's outside sales. In each of these years, Lance held 20% of the inventory it bought from Curle and then sold that inventory to outsiders in the following year.An effective income tax rate of 45% was applicable to all companies.

Required:Determine the accrual-based net income of Mace Co for the year 2021.

103) On January 1, 2021, 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 2021 were as follows:Dividends declared and paid: $ 0.40 per shareIncome before income tax provision: $400,000Required:Assume a 40% income tax rate. Prepare all necessary journal entries for Youder for 2021 beginning at acquisition and ending at tax accrual.

104) Dice Inc. owns 40% of the outstanding shares of Spalding Corp., an investment accounted for by the equity method. During 2021, Dice had 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 2021?(B.) If Dice expects to sell its interest in Spalding in the near future, how does that decision change the 2021 income tax expense journal entry?

105) Dotes, Inc. owns 40% of Abner Co. Dotes accounts for its investment using the equity method. Abner follows a policy of declaring and 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.

106)

Patton’s operating income excludes income from the investment in Stevens, but includes $150,000 of gross profit on intra-entity transfers of inventory and the inventory is still held by Stevens at the end of the year. Patton uses the initial value method to account for the investment in Stevens.Assume Patton owns 90% of the voting stock of Stevens and files a consolidated income tax return. What amount of income taxes would be paid?

107)

Patton’s operating income excludes income from the investment in Stevens, but includes $150,000 of gross profit on intra-entity transfers of inventory and the inventory is still held by Stevens at the end of the year. Patton uses the initial value method to account for the investment in Stevens.Assume Patton owns 90% of the voting stock of Stevens and they each file separate income tax returns. What amount of total income tax would be paid?

108)

Patton’s operating income excludes income from the investment in Stevens, but includes $150,000 of gross profit on intra-entity transfers of inventory and the inventory is still held by Stevens at the end of the year. 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?

109) 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.Parent company owns 85% of the voting stock of the subsidiary, and there are significant intra-entity transfers.Subsidiary is a foreign corporation.Parent company owns 90% of the voting stock of the subsidiary, but there are no intra-entity transfers of inventory.Parent company owns 75% of the voting stock of the subsidiary but there are no intra-entity transfers of inventory.Parent company owns 90% of the voting stock of the subsidiary, and there are intra-entity transfers of inventory.Parent company owns 75% of the voting stock of the subsidiary and there are intra-entity transfers of inventory.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
110) What configuration of corporate ownership is described as a father-son-grandson relationship?

111) What ownership structure is referred to as a connecting affiliation? Describe briefly or illustrate with a diagram.

112) What ownership pattern is referred to as mutual ownership? Describe briefly or illustrate with a diagram.

113) What are the essential criteria for including a subsidiary within an affiliated group?

114) 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?

115) What term is used to describe a parent and subsidiaries that are eligible to file a consolidated income tax return?

116) What method is used in consolidation to account for a subsidiary's ownership of shares of its parent corporation?

117) What are the benefits or advantages of filing a consolidated income tax return?

118) How is the amortization of goodwill treated for income tax purposes? How does the amortization of goodwill affect deferred income taxes?

119) 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?

120) 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?

121) 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.

122) 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?

123) Under what conditions must a deferred income tax asset be recorded?

124) How does the accounting for intra-entity dividends differ between financial reporting and tax accounting?

125) How does the treatment of intra-entity gains differ when an affiliated group files a consolidated tax return compared to filing separate tax returns?