Concept explainers
a
Consolidation income tax issues:The legal structure of an acquisition can result in 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.
the complete a consolidated balance sheet worksheet as on December 31, 20X9.
b
Consolidation income tax issues: The legal structure of an acquisition can result in 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.
the preparation of consolidated balance sheet as of December 31, 20X9.
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Advanced Financial Accounting
- Enron Corporation acquired by Walt Corporation. Walt acquired 75 percent ownership on January 1, 2018, for $200,250. At that date, Enron reported common stock outstanding of $90,000 and retained earnings of $135,000, and the fair value of the non-controlling interest was $66,750. The differential is assigned to equipment, which had a fair value $42,000 more than book value and a remaining economic life of seven years at the date of the business combination. Enron reported net income of $45,000 and paid dividends of $18,000 in 2018. Prepare and explain the journal entries recorded by Walt during 2018 on its books if it accounts for its investment in Enron using the equity method.arrow_forwardPeanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The following transactions occurred between Peanut Company and Snoopy Company in 20X8 and 20X9:Snoopy Co. sold equipment to Peanut Co. for a $42,000 gain on December 31, 20X8. Snoopy Co. had originally purchased the equipment for $140,000 and it had a carrying value of $28,000 on December 31, 20X8. At the time of the purchase, Peanut Co. estimated that the equipment still had a seven-year remaining useful life.Peanut sold land costing $90,000 to Snoopy Company on June 28, 20X9, for…arrow_forwardOn January 1, 2021 Pail corp acquired 80 percent of Sand Company's stock fo 640,000 cash. The fair value of the noncontrolling interest at that date was determined to be 160,000. For the year ended December 31 2021 Pail reported dividends of 46,000 on its general ledger. Sand reported devidends of 37000 on its general ledger. What amount of dividends would be reported on 12/31/21 consolidated statement of retained earnings?arrow_forward
- Stick Company reports net assets with a book value and fair value of $204,000. Paste Corporation acquires 75 percent ownership for $153,000. Paste reports net assets with a book value of $512,000 and a fair value of $633,000 at that time, excluding its investment in Stick. Required: For each of the following, compute the amounts that would be reported immediately after the combination under current accounting practice: Consolidated net identifiable assets. Noncontrolling interest.arrow_forwardItem 7 On January 1, 20X1, the Husky Corporation acquired 90% of the Spartan Company’s voting stock for $2,700,000. Spartan’s net assets had a book value of $2,450,000; the fair value of Spartan’s building was $325,000 greater than its book value. The book value of Husky’s net assets immediately after the acquisition of Spartan totaled $6,850,000.What is total stockholders’ equity on the January 1, 20X1 consolidated balance sheet? Multiple Choice $9,300,000 $6,850,000 $7,150,000 $7,120,000arrow_forwardPie Corporation acquired 75 percent of Slice Company’s common stock on December 31, 20X5, at underlying book value. The book values and fair values of Slice’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 25 percent of the total book value of Slice. Slice provided the following trial balance data at December 31, 20X5: Debit Credit Cash $ 27,600 Accounts Receivable 65,650 Inventory 89,400 Buildings and Equipment (net) 213,000 Cost of Goods Sold 105,700 Depreciation Expense 23,500 Other Operating Expenses 31,220 Dividends Declared 14,100 Accounts Payable $ 33,080 Notes Payable 113,000 Common Stock 84,600 Retained Earnings 125,000 Sales 214,490 Total Assets $ 570, Total Liabilities & Equity $170 $ 570,170 Required: a. How much did Pie pay to purchase its shares of Slice? (Round your answer to nearest whole dollar amount.) b. If consolidated financial statements are prepared at December 31, 20X5, what amount will be assigned to…arrow_forward
- Pie Corporation acquired 60 percent of Slice Company’s common stock on December 31, 20X5, at underlying book value. The book values and fair values of Slice’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 40 percent of the total book value of Slice. Slice provided the following trial balance data at December 31, 20X5: Debit Credit Cash $ 27,600 Accounts Receivable 64,900 Inventory 91,600 Buildings and Equipment (net) 216,000 Cost of Goods Sold 103,300 Depreciation Expense 24,450 Other Operating Expenses 31,060 Dividends Declared 15,800 Accounts Payable $ 32,000 Notes Payable 127,000 Common Stock 94,800 Retained Earnings 130,000 Sales 190,910 Total $ 574,710 $ 574,710 Required: How much did Pie pay to purchase its shares of Slice? Note: Round your answer to nearest whole dollar amount. If consolidated financial statements are prepared at December 31, 20X5, what amount…arrow_forwardPaste Corporation acquired 70 percent of Stick Company's stock on January 1, 20X9, for $105,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Stick Company. The companies reported the following stockholders’ equity balances immediately after the acquisition: Paste Corporation Stick Company Common Stock $ 120,000 $ 30,000 Additional Paid-in Capital 230,000 80,000 Retained Earnings 290,000 40,000 Total $ 640,000 $ 150,000 Paste and Stick reported 20X9 operating incomes of $90,000 and $35,000 and dividend payments of $30,000 and $10,000, respectively. Required: Compute the amount reported as net income by each company for 20X9, assuming Paste uses equity-method accounting for its investment in Stick. Compute consolidated net income for 20X9.arrow_forwardOn 1 January 20X1 Tall plc acquired 80% of ordinary shares of Small plc for a price of £30,000, when Small plc’s net assets had fair value of £12,000. The non-controlling interest (NCI) in Small plc was consolidated at its fair value of £6,000. At 31 December 20X1, Tall plc’s directors decided to take a goodwill impairment of £1,000. Tall plc’s IFRS consolidated statement of financial position at 31 December 20X1 reports goodwill (related to the investment in Small plc) for an amount of: a. £14,000 b. £13,000 c. £15,000 d. £7,000arrow_forward
- Chur Company acquired a 40% interest in Flip company for 1,700,000 on January 1, 2020. The shareholders equity of FLip company on Janaury 1 and December 31, 2020 us presented below: January 1 December 31 Share capital 3,000,000 3,000,000 Revaluation surplus - 1,300,000 Retained earnings 1,000,000 1,500,000 On January 1, 2020 all the identifiable assets and liabilities of Flip company were recorded at fair value. Flip company reported profit before income tax of 1,000,000 and paid dividends of 150,000 to shareholders during the current year. The revaluation surplus is the result of the revaluation of land recognized by Flip company on December 31, 2020. Flip presents OCI net of applicable income tax. Additionally, depreciation is provided by Flip Company on the diminishing balance method whereas Chur company uses straight line. Had Flip company used…arrow_forwardOn January 1, 20x1, Puno Inc. acquired 80% interest in Dong Company. During 20x2, Puno and Dong reported net income of P800,000 and P340,000, respectively. Puno declared dividend of P250,000 and Dong P120,000. On the date of business combination, the fair value of inventory and equipment of Dong Company were more than its book value by P100,000 and P200,000. The equipment has a remaining life of 5 years. What is the consolidated net income attributable to Puno Inc.?arrow_forwardQ7- On January 1, 20X8, Zeta Company acquired 85 percent of Theta Company's common stock for $100,000 cash. The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Theta at that date. What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination assigned to the noncontrolling interest? a- None b- 15 percent c- 100 percent d- Cannot be determined With calculations pleasearrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning