LOOSE-LEAF ADVANCED FINANCIAL ACCOUNTING
11th Edition
ISBN: 9780077722166
Author: Theodore E. Christensen, David M Cottrell
Publisher: McGraw-Hill Education
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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 balance sheet worksheet as on December 31, 20X9
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 | ||
| 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 | |||
| Accumulated | 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 depreciation | (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
King Company owns a 90 percent interest in the outstanding voting shares of Pawn Company. No excess fair-value amortization resulted from the acquisition. Pawn reports a net income of $110,000 for the current year. Intra-entity sales occur at regular intervals between the two companies. Intra-entity gross profits of $30,000 were present in the beginning inventory balances, whereas $60,000 in similar gross profits were recorded at year-end. What is the noncontrolling interest’s share of consolidated net income?
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Chapter 10 Solutions
LOOSE-LEAF 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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