Professional Documents
Culture Documents
com
CHAPTER 6
319
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
(b) Consolidated net income = [($100,000 + $40,000) 70%] ($40,000 70% 80% 20%
30%) = $96,656
Distribution to NCI = ($40,000 20%) 70% = $5,600
Distribution to controlling interest = {[$100,000 + ($40,000 80%)] 70%} ($40,000 70%
80% 20% 30%) = $91,056
7. (a) Taxes would not be paid on this intercompany profit. Taxes are based on consolidated income
after the elimination of the profit.
(b) Taxes will have been paid on this intercompany profit. The taxes paid become a deferred tax
asset (DTA) and are amortized over the period of depreciation. The following adjustment is
needed in the period of sale:
Deferred Tax Asset ($50,000 30%) ................. 15,000
Provision for Income Tax ................................. 15,000
At each period-end, the DTA would be converted to a tax expense as follows:
Provision for Income Tax ($15,000 5) ............. 3,000
Deferred Tax Asset .......................................... 3,000
320
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
EXERCISES
EXERCISE 6-1
321
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
322
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
EXERCISE 6-2
323
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
324
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
EXERCISE 6-3
(2) The cash from shares sold to the NCI shareholders, $90,000 (1,000 shares $90), would
appear as cash flow in the financing activities section. The 1,000 shares purchased by the
parent would not appear in the cash flow statement.
(3) The bonds were held by parties outside the consolidated company. They are now retired by
the consolidated company. The $102,000 would appear as a cash outflow in the financing
activities section of the cash flow statement.
(4) This is a transaction within the consolidated company, and it would have no impact on the
consolidated statement of cash flows.
EXERCISE 6-4
Maria Company:
Provision for Income Tax ........................................................... 21,000
Income Tax Payable ............................................................ 21,000
30% $70,000 = $21,000.
Tuft Company:
Optional entry to record tax effect of subsidiary tax:
Subsidiary Investment Income ................................................... 16,800
Investment in Maria Company ............................................. 16,800
80% $21,000 tax.
Provision for Income Tax ........................................................... 33,000
Income Tax Payable ............................................................ 31,720
Deferred Tax Liability ........................................................... 1,280
325
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
EXERCISE 6-5
Consolidated
Deko Farwell Dr. Cr. Income
Sales ......................... $(300,000) $(120,000) (IS)$50,000 $(370,0
Cost of goods sold .... 200,000 90,000 (IS) $50,000
(EI) 2,400 (BI) 8,000 234,400
Gain on machine ....... (5,000) (F1) 5,000 0
Expenses .................. 40,000 20,000 (F2) 1,000 59,000
Amortization of patent (A1) 9,375 9,375
Income before tax ..... $ (65,000) $(10,000) $ (67,225
Tax provision............. 20,730
Net income ................ $ (46,495)
To NCI....................... 309
To controlling ............ $ 46,186
326
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
Tax provision:
Consolidated income before tax..................................... $67,225
Add nondeductible patent amortization on NCI.............. 1,875
Taxable income .............................................................. $69,100
Tax at 30% ..................................................................... $20,730
327
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
EXERCISE 6-6
Consolidated
Dunker Fennig Dr. Cr. Income
Sales ......................... $(300,000) $(120,000) (IS)$50,000 $(370,0
Cost of goods sold .... 200,000 90,000 (IS) $50,000
(EI) 2,400 (BI) 8,000 234,400
Gain on machine ....... (5,000) (F1) 5,000 0
Expenses .................. 40,000 20,000 (F2) 1,000 59,000
Amortization of patent (A1) 9,375 9,375
Income before tax ..... $ (65,000) $(10,000) $ (67,225
Tax provision............. 20,939
Net income ................ $ (46,286)
To NCI....................... 309
To controlling ............ $ 45,977
328
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
Tax provision:
Consolidated income before tax..................................... $67,225
Add nondeductible patent amortization on NCI.............. 1,875
Taxable income .............................................................. $69,100
First tax at 30% .............................................................. $20,730
Second tax (from controlling IDS) .................................. 209
Total tax provision .......................................................... $20,939
329
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Exercises
EXERCISE 6-7
Adjustments to income:
Sales .......................................................................................... 15,000
Cost of Goods Sold .............................................................. 15,000
Cost of Goods Sold .................................................................... 600
Inventory .............................................................................. 600
Depreciation ExpenseMachine ............................................... 5,000
Accumulated DepreciationMachine .................................. 5,000
Accumulated DepreciationMachine ........................................ 1,000
Depreciation ExpenseMachine ......................................... 1,000
Tax:
Deferred Tax Asset** ................................................................. 755
Provision for Tax .................................................................. 755
**Increase in Deferred Tax Assets:
Total Controlling NCI
Machine gain realized (30% $1,000) ................................... $(300) $(180) $(120)
Secondary tax ($1,000 70% 60% 30% 20%) ............. (25) (25)
Inventory (30% $600) .......................................................... 180 180
Machine depreciation (30% $5,000 60%
parent share) ........................................................................ 900 900
Total .................................................................................. $ 755 $ 875 $(120)
330
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEMS
PROBLEM 6-1
331
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
332
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-2
333
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
334
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-3
335
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
336
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-4
Subsidiary calculations:
$56,000 $4,000 preferred dividends
BEPS = = $4.33
12,000
$52,000 + $4,000 preferred dividends
DEPS = = $4.12
12,000 + 1,600 a
a
Preferred stock is dilutive, $4,000 1,600 = $2.50
Shares = 800 preferred shares 2 shares of common
Consolidated calculations:
$55,000 $500 preferred dividends + (9,600 b $4.33)
BEPS =
20,000
$55,000 $500 + $41,568
=
20,000
= $4.80
b
12,000 Sunny shares 80% interest
337
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-5
Eliminations Consolidated
and Income
Delta Morgan Adjustments Statement
Sales ..................................... $(1,000,000)$(600,000)(IS) $50,000 $(1,550,000)
Less cost of goods sold ........ 800,000 375,000 (IS) (50,000)
(BI) (1,425)
(EI) 2,430 1,126,005
Gross profit ........................... $ (423,995)
Expenses .............................. 80,000 185,000 (F2) (8,000)
(A) 2,500 259,500
Income before tax ................. $ (164,495)
Less provision for tax ........... 49,498
Consolidated net income ...... $ (114,997)
Less NCI ............................... (5,083)
Controlling interest ................ $ (109,914)
Tax provision:
Consolidated income before tax..................................... $164,495
Add, amortization applicable to NCI, 20% $2,500 ...... 500
Taxable income .............................................................. $164,995
Tax provision at 30%...................................................... $ 49,498
338
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
339
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-6
340
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
341
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
342
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-7
343
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
344
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
345
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
346
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-8
347
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
348
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
349
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
350
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-9
351
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
352
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
353
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
354
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-10
355
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
DTA/DTL adjustments:
To beginning retained earnings: Parent Sub
Subsidiary transactions:
Beginning inventory............................................ $ 4,000 $ 2,800 $ 1,200
Remaining fixed asset profit ...............................
Total ................................................................... $ 4,000 $ 2,800 $ 1,200
First tax .............................................................. $ 1,200 $ 840 $ 360
Second tax [20% 30% ($2,800 $840)] ...... $ 118 $ 118
Parent transactions:
Beginning inventory............................................ $
Remaining fixed asset profit ............................... 12,000 $12,000
Total ................................................................... $12,000 12,000
First tax .............................................................. 3,600 3,600
Increase (Decrease) in retained earnings and DTA . $ 4,918 $ 4,558 $ 360
To current year:
Subsidiary transactions:
Beginning inventory............................................ $ (4,000) $ (2,800) $(1,200)
Ending inventory ................................................ 8,000 5,600 2,400
Fixed asset sale .................................................
Realized fixed asset ...........................................
Total ................................................................... $ 4,000 $ 2,800 $ 1,200
First tax .............................................................. $ 1,200 $ 840 $ 360
Second tax [20% 30% ($2,800 $840)] ...... $ 118 $ 118
Parent transactions:
Beginning inventory............................................ $
Ending inventory ................................................
Fixed asset sale .................................................
Remaining fixed asset profit ............................... (4,000)
Total ................................................................... $ (4,000)
First tax .............................................................. $ (1,200) $ (1,200)
Increase (Decrease) in DTA .................................... $ 118 $ (242) $ 360
356
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
357
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
358
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-11
359
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
360
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
DTA/DTL adjustments:
To beginning retained earnings: Parent Sub
Subsidiary transactions:
Beginning inventory............................................ $ 3,600 $ 2,880 $ 720
Remaining fixed asset profit ...............................
Amortizations (80%) ........................................... 12,000 12,000
Total ................................................................... $15,600 $14,880 $ 720
First tax .............................................................. $ 6,240 $ 5,952 $ 288
Second tax [20% 40% ($14,880 $5,952)] . $ 714 $ 714
Parent transactions:
Beginning inventory............................................ $
Remaining fixed asset profit ............................... 32,000
Total ................................................................... $32,000
First tax .............................................................. 12,800 12,800
Total retained earnings adjustments ........................ $19,754 $19,466 $ 288
To current year:
Subsidiary transactions:
Beginning inventory............................................ $ (3,600) $ (2,880) $(720)
Ending inventory ................................................ 4,800 3,840 960
Fixed asset sale .................................................
Realized fixed asset ...........................................
Amortizations (80%) ........................................... 12,000 12,000
Total ................................................................... $13,200 $12,960 $ 240
First tax .............................................................. $ 5,280 $ 5,184 $ 96
Second tax [20% 40% ($12,960 $5,184)] . $ 622 $ 622
Parent transactions:
Beginning inventory............................................ $
Ending inventory ................................................
Fixed asset sale .................................................
Remaining fixed asset profit ............................... (8,000)
Total ................................................................... $ (8,000)
First tax .............................................................. $ (3,200) $ (3,200)
Total adjustment to provision ................................... $ 2,702 $ 2,606 $ 96
361
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
362
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
363
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
PROBLEM 6-12
364
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
365
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
DTA/DTL adjustments:
To beginning retained earnings: Parent Sub
Subsidiary transactions:
Beginning inventory............................................ $ 4,800 $ 3,840 $ 960
Remaining fixed asset profit ...............................
Amortizations (80%) ........................................... 24,000 24,000
Total ................................................................... $28,800 $27,840 $ 960
First tax .............................................................. $11,520 $11,136 $ 384
Second tax [20% 40% ($27,840 $11,136)] $ 1,336 $ 1,336
Parent transactions:
Beginning inventory............................................ $
Remaining fixed asset profit ............................... 24,000
Total ................................................................... $24,000
First tax .............................................................. 9,600 9,600
Total RE adjustments............................................... $22,456 $22,072 $ 384
To current year:
Subsidiary transactions:
Beginning inventory............................................ $ (4,800) $ (3,840) $ (960)
Ending inventory ................................................ 3,000 2,400 600
Fixed asset sale ................................................. 25,000 20,000 5,000
Realized fixed asset ........................................... (5,000) (4,000) $(1,000)
Amortizations (80%) ........................................... 12,000 12,000
Total ................................................................... $30,200 $26,560 $ 3,640
First tax .............................................................. $12,080 $10,624 $ 1,456
Second tax [20% 40% ($26,560 $10,624)] $ 1,275 $ 1,275
Parent transactions:
Beginning inventory............................................ $
Ending inventory ................................................ 6,000
Fixed asset sale .................................................
Remaining fixed asset profit ............................... (8,000)
Total ................................................................... $ (2,000)
First tax .............................................................. $ (800) $ (800)
Total adjustment to provision ................................... $12,555 $11,099 $1,456
366
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
367
To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Ch. 6Problems
368