EBK ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 8220102796096
Author: Christensen
Publisher: YUZU
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Chapter 10, Problem 10.29P
a
To determine
Consolidation income tax issues:the legal structure of an acquisition can result in a taxable or non-taxable transactions. In taxable transaction, the assets acquired and liabilities assumed will have tax basis equal to the fair market values because the subsidiary is required to recognize all inherent gains and losses for tax purposes. In order to avoid this many acquisitions are structured to avoid classification as taxable transaction.
Any difference arising out of fair market value and tax basis should be recorded as
When companies in the consolidated group files separate tax returns, intercompany income accruals and dividend transfers must be considered in computing income tax expense for the period. When an investor and investee files separate tax returns, the investor is taxed on the dividends received from the investee rather than on the amount of investment income reported.
Requirement 1
the complete a consolidated
a
Expert Solution
Answer to Problem 10.29P
Total consolidation value as per consolidated work sheet $1,477,400
Explanation of Solution
A power and B company Consolidated balance sheet work paper December 31, 20X9
| Eliminations | |||||
| A | B | Debit | Credit | consolidation | |
| Cash | 44,400 | 20,000 | 64,400 | ||
| Accounts receivable | 120,000 | 60,000 | 180,000 | ||
| Inventory | 170,000 | 120,000 | 20,000 | ||
| 25,000 | 245,000 | ||||
| Land | 90,000 | 30,000 | 120,000 | ||
| Buildings and equipment | 500,000 | 300,000 | 30,000 | 830,000 | |
| Investment in B’s common stock | 280,000 | 280,000 | |||
| 8,000 | |||||
| 10,000 | |||||
| 20,000 | 38,000 | ||||
| 1,204,400 | 530,000 | 1,477,400 | |||
| 180,000 | 80,000 | 80,000 | 340,000 | ||
| Accounts payable | 70,000 | 20,000 | 90,000 | ||
| Wages payable | 80,000 | 30,000 | 110,000 | ||
| Bonds payable | 200,000 | 200,000 | |||
| Common stock | 100,000 | 150,000 | 150,000 | 100,000 | |
| 574,400 | 250,000 | 250,000 | |||
| 8,400 | |||||
| 15,000 | |||||
| 21,000 | 530,000 | ||||
| Non-controlling interest | 3,600 | 120,000 | |||
| 9,000 | 107,400 | ||||
| 1,204,400 | 530,000 | 525,000 | 525,000 | 1,477,400 |
b
To determine
Consolidation income tax issues: the legal structure of an acquisition can result in a taxable or non-taxable transactions. In taxable transaction, the assets acquired and liabilities assumed will have tax basis equal to the fair market values because the subsidiary is required to recognize all inherent gains and losses for tax purposes. In order to avoid this many acquisitions are structured to avoid classification as taxable transaction.
Any difference arising out of fair market value and tax basis should be recorded as
When companies in the consolidated group files separate tax returns, intercompany income accruals and dividend transfers must be considered in computing income tax expense for the period. When an investor and investee files separate tax returns, the investor is taxed on the dividends received from the investee rather than on the amount of investment income reported.
Requirement 2
the preparation of consolidated balance sheet as of December 31, 20X9.
b
Expert Solution
Answer to Problem 10.29P
Income from non-controlling interest for 20X5 is $1,137,400
Explanation of Solution
A Powder corporation and subsidiary
Consolidated balance sheet
December 31, 20X9
| Amount $ | Amount $ | |
| Cash | 64,400 | |
| Accounts receivable | 180,000 | |
| Inventory | 245,000 | |
| Land | 120,000 | |
| Buildings and equipment | 830,000 | |
| Less: Accumulated | (340,000) | 490,000 |
| Deferred tax asset | 38,000 | |
| Total assets | 1,137,400 | |
| Accounts payable | 90,000 | |
| Wages payable | 110,000 | |
| Bonds payable | 200,000 | |
| Controlling interest: | ||
| Common stock | 100,000 | |
| Retained earnings | 530,000 | |
| Total controlling interest | 630,000 | |
| Add non-controlling interest | 107,400 | |
| Total stockholders’ equity | 737,400 | |
| Total liabilities and equity | 1,137,400 |
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Students have asked these similar questions
James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31 consolidated income statement, how should James account for Mark-Right’s revenues and expenses that occurred before April 1?a. Include 100 percent of Mark-Right’s revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income.b. Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals.c. Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses.d. Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income.
4
Peanut Company acquired 80 percent of Snoopy Company's outstanding common stock for $300,000 on January 1, 20X8, when the
book value of Snoopy's net assets was equal to $375,000. Peanut uses the eguity method to account for Investments. The following
trial balance summarizes the financial position and operations for Peanut and Snoopy as of December 31, 20X9:
Peanut Company
Snoopy Company
Credit
Debit
Credit
Debit
$ 272,000
$ 77,000
82, 000
Cash
Accounts Receivable
200, eee
Inventory
193,e00
319,800
216,e00
706,000
118,000
Investment in Snoopy Company
Land
81,000
Buildings and Equipment
199, 000
155,000
13,000
54, 250
34,000
Cost of Goods Sold
375,000
Depreciation Expense
Selling & Administrative Expense
Dividends Declared
47,000
221,000
224,e00
$ 487,000
$ 39,e00
Accumulated Depreciation
Accounts Payable
Bonds Payable
55,000
39,e00
137,000
79,250
Common Stock
Retained Earnings
491,000
682,400
187,e00
158,eee
319, e00
Sales
844,000
Income from Snoopy Company
77,400
Total
$2,773,800…
ABC Company acquired 85% of DEF Company on April 1. On its December 31, consolidated income statement, how should ABC account for DEF Company’s revenues and expenses that occurred before April 1A. Include 100% of DEF’s revenues and expenses and deduct the pre-acquisition portion as non-controlling interest in net income.B. Deduct 15% of the net combined revenues and expenses relating to the pre-acquisition period from consolidated net income.C. Exclude 100% of the pre-acquisition revenues and 100% of the pre-acquisition expensesD. Exclude 15% of the pre-acquisition revenues and 15% of the pre-acquisition expenses from consolidated expenses.
Chapter 10 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
Ch. 10 - Prob. 10.1QCh. 10 - Why are dividend payments to noncontrolling...Ch. 10 - Prob. 10.3QCh. 10 - Why are changes in inventory balances not shown in...Ch. 10 - Prob. 10.5QCh. 10 - How is an increase in inventory included in the...Ch. 10 - What portion of the sales of an acquired company...Ch. 10 - Prob. 10.8QCh. 10 - Prob. 10.9QCh. 10 - Prob. 10.10Q
Ch. 10 - Prob. 10.11QCh. 10 - Prob. 10.12QCh. 10 - Prob. 10.13QCh. 10 - Prob. 10.14QCh. 10 - How do interperiod income tax allocation...Ch. 10 - How does the use of interperiod tax allocation...Ch. 10 - Prob. 10.17QCh. 10 - Prob. 10.18QCh. 10 - Prob. 10.19QCh. 10 - When a subsidiary’s convertible bond is treated as...Ch. 10 - Prob. 10.21QCh. 10 - What effect does the presence of a noncontrolling...Ch. 10 - Prob. 10.3CCh. 10 - Consolidated Cash Flows Analysis The consolidated...Ch. 10 - Prob. 10.1ECh. 10 - Prob. 10.2ECh. 10 - Prob. 10.3ECh. 10 - Prob. 10.4ECh. 10 - Prob. 10.5ECh. 10 - Direct Method Cash Flow Statement Using the data...Ch. 10 - Prob. 10.7ECh. 10 - Prob. 10.8ECh. 10 - Prob. 10.9ECh. 10 - Prob. 10.10ECh. 10 - Prob. 10.11ECh. 10 - Prob. 10.12ECh. 10 - Prob. 10.13ECh. 10 - Prob. 10.14ECh. 10 - Prob. 10.15ECh. 10 - Effect of Convertible Preferred Stock on Earnings...Ch. 10 - Prob. 10.17PCh. 10 - Prob. 10.18PCh. 10 - Prob. 10.19PCh. 10 - Prob. 10.20PCh. 10 - Prob. 10.21PCh. 10 - Prob. 10.22PCh. 10 - Prob. 10.23PCh. 10 - Prob. 10.24PCh. 10 - Prob. 10.25PCh. 10 - Prob. 10.26PCh. 10 - Prob. 10.27PCh. 10 - Prob. 10.29PCh. 10 - Prob. 10.30PCh. 10 - Prob. 10.31PCh. 10 - Earnings per Share with Convertible Securities...Ch. 10 - Comprehensive Earnings per Share Mighty...
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