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Question;19.;For two or more corporations to file a consolidated;tax return, the parent must own what percentage of the voting power of all classes;of stock and what percentage of the fair value of all the outstanding stock of;the corporation?;a.;90%;b.;80%;c.;70%;d. 60%;20. In calculating the voting;power and market value for two or more corporations to file a consolidated tax return;preferred stock is included only if it;a.;is entitled to vote.;b.;is not limited and not preferred as to dividends.;c.;does have redemption rights beyond its issue price;plus a reasonable redemption or liquidation premium and is convertible into the;other class of stock.;d. meets any the above;conditions.;21. Consolidated;firms that meet the tax law requirements to be an affiliated group;a.;must file a consolidated return.;b.;must receive permission of the Internal Revenue;Service to file separately.;c.;may elect to file as a single entity or as a;consolidated group.;d. cannot change the method of;filing in the future.;22.;When an affiliated group elects to be taxed as a;single entity, taxable income is calculated based on;a.;consolidated income as determined on the;consolidated worksheet.;b.;each firms separate income.;c.;each firms separate income with adjustments for;intercompany transactions.;d. none of the above.;6-6;Chapter 6;23. For companies that meet the;requirements of an affiliated firm filing separately, the parent may exclude;how much of the dividends received from reported income?;a.;100%;b.;80%;c.;70%;d. 20%;24. For ownership interest of at;least 20% but less than 80%, the parent may exclude how much of the dividends;received from its reported income when filing separately?;a.;100%;b.;80%;c.;70%;d. 20%;25. For ownership interest of;less than 20%, the parent may exclude how much of the dividends received from;its reported income when filing separately?;a.;100%;b.;80%;c.;70%;d. 20%;26.;Company P purchased an 80% interest in Company S on;January 1, 20X3, for $800,000. On the purchase date, Company S stockholders;equity was $800,000. Any excess of cost over book value was attributed to a;patent with a 10-year remaining life. In 20X3, Company P reported internally;generated net income before taxes of $150,000. Company S reported a net income;before taxes of $50,000. The firms file a consolidated tax return at a 30% tax;rate. The controlling share of consolidated net income;is __________.;a.;$140,000;b.;$121,800;c.;$133,000;d. $152,000;6-7;Chapter 6;27.;Company P purchased an 80% interest in Company S on;January 1, 20X3, for $700,000. On the purchase date, Company S stockholders;equity was $800,000. Any excess of cost over book value was attributed to a;patent with a 15-year life. In 20X3, Company P reported internally generated;net income before taxes of $80,000. Company S reported a net income before;taxes of $40,000. The firms file separate tax returns at a 30% tax rate. Assume;an 80% dividend exclusion rate on intercompany dividends. The controlling share;of consolidated net income is;a.;$81,200;b.;$79,280;c.;$78,480;d. $74,256;28. Which of the following;statements is true?;a. When an;affiliated group elects separate taxation, an additional tax needs to be;calculated.;b.;An affiliated group filing a consolidated tax return;may record on its own books its share of the consolidated provision for income;tax.;c.;Nonaffiliated tax filing is less complex than filing;a consolidated tax return since there is no impact of intercompany transactions;when separate returns are filed.;d. With regard;to prior years, subsidiary income, no deferred tax liability needs to be;recognized when the cost method is used.;29.;How will the investor's investment account be;affected by the investor's share of the earnings of the investee after the date;of acquisition under each of the following accounting methods?;Cost Method;Equity Method;a.;No effect;No effect;b.;Increase;Increase;c.;Increase;No effect;d. No effect;Increase;30.;Company P purchased a 30% interest in the Company S;for $345,000 on January 1, 20X1. At that time, Company S had stockholders;equity of $1,000,000. Any excess cost over book value was attributed to a;patent with a 15-year life. During 20X1, Company S earned $60,000 and paid;dividends of $15,000. What is the balance in the investment account on December;31, 20X1, using the sophisticated equity method?;a.;$363,000;b.;$360,000;c.;$355,500;d. $349,500;6-8;Chapter 6;31.;Company P owns a 30% interest in Company S and accounts;for the investment under the sophisticated equity method. The investment was;purchased at underlying book value, and there is no excess of cost or book;value. Company S sells merchandise to Company P at cost plus 25%. Intercompany;sales during 20X1 were $100,000. There were $20,000 worth of such goods in;Company P's beginning inventory and $30,000 worth of such goods in Company P's;ending inventory. Company S's reported income for 20X1 is $40,000, and no;dividends were paid. What amount will Company P record as investment income in;20X1?;a.;$12,000;b.;$11,400;c.;$9,750;d. $4,500;32.;Company P Company uses the equity method to account;for its January 1, 20X1, purchase of 30% of Company S's common stock. On;January 1, 20X1, the market values of Tun's FIFO inventory and land exceed;their book values. How do these excesses of market values over book values;affect Company P's reported equity in Tun's Company S's 20X1 earnings?;Inventory Excess;Land Excess;a.;Decrease;Decrease;b.;Decrease;No effect;c.;Increase;Increase;d. Increase;No effect;33.;Company P purchased a 30% interest in Company S on;January 1, 20X1, for $100,000. The price was equal to the book value of the;equity acquired. The reported income (loss) and dividends paid by the Company S;are as follows;Year;Income;Dividends;(loss);Paid..................................20X1;$ 5,000;$5,000;20X2..................................;(270,000);0;20X3..................................;(100,000);0;20X4..................................;50,000;5,000;Investment;income reported in 20X4 under the sophisticated equity method would be;a.;$15,000;b.;$13,500;c.;$5,500;d. $0;6-9;Chapter 6;34.;Company P uses the sophisticated equity method of;accounting for its 30% investment in Company S's common stock. During 20X9;Company S reported earnings of $650,000 and paid dividends of $150,000. Assume;that all the undistributed earnings of Company S will be distributed as;dividends in future periods. The dividends received from Flax are eligible for;the 80% dividends received deduction. Company P's 20X9, tax rate is 30%. Tax;rates after 20X9 are 25%. In its December 31, 20X9, balance sheet, the increase;in the deferred tax liability from these transactions would;be __________.;a.;$7,500;b.;$9,000;c.;$150,000;d. $30,000;35.;Assume that Company P purchases a 10% common stock;interest in Company S for $12,000 on January 1, 20X2, and an additional 20%;interest on January 1, 20X3, for $26,000. There was no excess of cost or book;value on either investment. The balance sheets of Company, S which pays no;dividends, follow:...........;Total assets;12/31/X3;12/31/X2;01/01/X2;$160,000;$130,000;$120,000;Common stock...........;$100,000;$100,000;$100,000;Retained earnings......;60,000;30,000;20,000...........Totalequity;$160,000;$130,000;$120,000;========;========;========;For 20X3, Company P reports investment income;of __________.;a. $18,000;b.;$12,000;c.;$9,000;d. $6,000;36.;Company P acquired 30% of Company S's common stock;on January 1, 20X8, for $100,000. Company P's 30% interest constitutes;significant influence. There is no excess of cost over book value. During 20X8;Company S earned $40,000 and paid dividends of $25,000. During 20X9, Company S;earned $50,000 and paid dividends of $15,000 on April 1 and $15,000 on October;1. On July 1, 20X9, Company P sold half of its interest in Company S for;$66,000 cash. The gain on the sale of the investment in Company P's 20X9 income;statement should be __________.;a.;$16,000;b.;$13,700;c.;$12,250;d. $10,000


Paper#44372 | Written in 18-Jul-2015

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