GOLD Company has a 70% interest in Silver Company allowing GOLD to exercise control over the financial and operating decisions of Silver. Also, GOLD is a venturer in Olympics, Inc., with Bronze Company as its co-venturer. The following transactions transpired during the year: (1) GOLD sold goods to Silver (2) GOLD purchased goods from Bronze (3) GOLD invested additional capital to Olympics, Inc. (4) One of GOLD's executive directors serves in the board of directors of Bronze and was paid P50,000 as per-diem on attending BRONZE's annual stockholders' meeting.

GOLD Company has a 70% interest in Silver Company allowing GOLD to exercise control over the financial and operating decisions of Silver. Also, GOLD is a venturer in Olympics, Inc., with Bronze Company as its co-venturer. The following transactions transpired during the year: (1) GOLD sold goods to Silver (2) GOLD purchased goods from Bronze (3) GOLD invested additional capital to Olympics, Inc. (4) One of GOLD's executive directors serves in the board of directors of Bronze and was paid P50,000 as per-diem on attending BRONZE's annual stockholders' meeting.

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter14: Choice Of Business Entity—operations And Distributions

Section: Chapter Questions

Problem 63IIP

See similar textbooks

Similar questions

Amos and Thomas form the Show Corporation during the current year. Amos owns 40% of Show's stock, Thomas owns 20%, and Arthur owns the remaining 40%. Amos paid $50,000 for his interest, and Thomas paid $25,000. Amos and Thomas are responsible for Show's daily operations and serve as co-chief executive officers. During the current year, Show Corporation has an operating income of $60,000 and pays out $10,000 in dividends. Assume that Show Corporation is organized as an S corporation. In its second year of operations, Show has an operating loss of $40,000 and pays out $20,000 in dividends. On December 31, Amos gives a 10% interest in Show (i.e., ¼ of his interest) to his son, Buddy. At the end of the second year, Amos's adjusted basis is $---- and Buddy's adjusted basis is $f---- in the Show stock.
Nuland International Corporation recently acquired 40 percent of Scott Trading Company and approximately accounts for this investment under the equity method. Nuland's corporate controller is in process of determining the company's operating segments for purposes of preparing financial statements for the current year. He has determined that the investment in Scott meets the definition of an operating segment (i.e., Scott earns revenues and incurs expenses, Nuland's chief operating officer reviews Scott's operating results, and Scott provides Nuland with a complete set of financial statements). However, because Nuland does not control Scott, the controller is not sure whether the investment in Scott can be considered a separate operating segment. Required Search current U.S. authoritative accounting literature to determine whether an equity method investment can be treated as an operating segment for financial reporting purposes. If so, explain the conditions under which this would be…
Lauralee, Inc. owns a 30% interest in Eastwood Co., giving it representation on the investee’s board of directors. At the beginning of the year, the Equity Investment was carried on Lauralee’s balance sheet at $500,000. During the year, Eastwood reported net income of $250,000 and paid Lauralee a dividend of $50,000. In addition, Lauralee sold inventory to Eastwood, recording a gross profit of $20,000 on the sale. At the end of the year, 50% of the merchandise remained unsold by Eastwood. Required: a. Prepare the equity method journal entry to defer the unrealized inventory gross profit.b. How much equity income should Lauralee report from Eastwood during the year?c. What is the balance in the Equity Investment at the end of the year?
Tree, Inc., has held a 10 percent interest in the stock of Limb Company for several years. Because of the level of ownership, this investment has been accounted for using the fair- value method. At the beginning of the current year, Tree acquires an additional 70 percent interest, which provides the company with control over Limb. In preparing consolidated financial statements for this business combination, how does Tree account for the previous 10 percent ownership interest?
On January 1, 2020, Ridge Road Company acquired 25 percent of the voting shares of Sauk Trail, Inc., for $3,700,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail’s board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail’s board, which gave it the ability to significantly influence Sauk Trail’s operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail’s assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 160,000 $ 160,000 Computing equipment 5,450,000 6,500,000 Patented technology 150,000 4,100,000 Trademark 200,000 2,100,000 Liabilities (235,000 ) (235,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a…
On January 1, 2020, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $2,700,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail's board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail's board, which gave it the ability to significantly influence Sauk Trail's operating and investing activities. The January 1, 2020, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 110,000 $ 110,000 Computing equipment 5,000,000 5,700,000 Patented technology 100,000 4,000,000 Trademark 150,000 2,000,000 Liabilities (185,000 ) (185,000 ) Also, as of January 1, 2020, Sauk Trail’s computing equipment had a…
On January 1, 2017, Ridge Road Company acquired 20 percent of the voting shares of Sauk Trail, Inc., for $3,400,000 in cash. Both companies provide commercial Internet support services but serve markets in different industries. Ridge Road made the investment to gain access to Sauk Trail's board of directors and thus facilitate future cooperative agreements between the two firms. Ridge Road quickly obtained several seats on Sauk Trail's board which gave it the ability to significantly influence Sauk Trail's operating and investing activities. The January 1, 2017, carrying amounts and corresponding fair values for Sauk Trail's assets and liabilities follow: Carrying Amount Fair Value Cash and receivables $ 145,000 $ 145,000 Computing equipment 5,315,000 6,260,000 Patented technology 135,000 4,070,000 Trademark 185,000 2,070,000 Liabilities (220,000 ) (220,000 ) Also as of January 1, 2017, Sauk Trail's computing equipment had a…
On July 31, 2005, Paley Corporation transferred all right, title, and interest in several of its current research and development projects to Carla Saye, sole stockholder of Saye Company, in exchange for 55 of the 100 shares of Saye Company common stock owned by Carla Saye. On the same date, Martin Morgan, who is not related to Paley Corporation, Saye Company, or Carla Saye, acquired for $45,000 cash the remaining 45 shares of Saye Company common stock owned by Carla Saye. Carla Saye notified the directors of Paley Corporation of the sale of common stock to Morgan. Because Paley had recognized as expense the costs related to the research and development when the costs were incurred, Paley’s controller prepared the following journal entry to record the business combination with Saye Company:Investment in Saye Company Common Stock (55 x $1,000)………55,000Gain on Disposal of Intangible Assets …………………………………….55,000To record transfer of research and development projects to Carla Saye in…
AA, a domestic corporation, invested ₱1,000,000 in 10,000 common shares of stock of BB, another domestic corporation. The investment represents 20% of the outstanding shares of BB. During the year, BB declared property dividends of 20,000 common shares of investment in common stock of CC Corporation. The par value of CC's share is ₱10 per share. At time of declaration, the fair market value of the share was ₱15 per share but when AA received the property dividend, the fair market value was ₱16. How much is the taxable dividend income of AA?
The Crump Companies, Inc. has ownership interests in several public companies. At the beginning of 2021, the company’s ownership interest in the common stock of Silken Properties increased to the point that it became appropriate to begin using the equity method of accounting for the investment. The balance in the investment in equity securities account was $31 million at the time of the change. Accountants working with company records determined that the balance in an investment in equity affiliate account would have been $48 million if the equity method had been used previously.Required:1. Will Crump apply the new method retrospectively or apply the new method prospectively?2. Suppose Crump is changing from the equity method rather than to the equity method. Will Crump apply the new method retrospectively or prospectively?
Duke Corporation owns a 70 percent equity interest in Salem Company, a subsidiary corporation. During the current year, a portion of this stock is sold to an outside party. Before recording this transaction, Duke adjusts the book value of its investment account. How would the parent record the sales transaction?
Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $427,000. Amortization of excess fair value associated with the 30% ownership is $9,600 per year. In 2021, Lindman earns an income of $145,000 and declares cash dividends of $72,500. Previously, in 2020, Lindman had sold inventory costing $41,600 to Matthew for $52,000. Matthew consumed all but 25 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $60,800 to Matthew for $80,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022. What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman? What is the equity method balance in the Investment in Lindman account at the end of 2021?