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Question;7.;Dills Company purchased an 80% interest in the;common stock of Sarah Company for $860,000 on January 1, 20X7. The price was;$90,000 in excess of the book value of the underlying equity, and the excess;was attributed to a patent with a 10-year life.;During 20X9, Dills Company and Sarah Company reported the;following internally generated income before tax:...................................;Sales;Dills Co.;Sarah Co.;$;300,000;$120,000;Cost of goods;sold......................;(200,000);(90,000);Gain on;machine.........................;10,000;--;Expenses................................;(40,000);(20,000).......................Incomebeforetax;$;70,000;$ 10,000;=========;========;Sarah Company sold goods to Dills Company for $60,000. Dills;Company had $30,000 of Sarah Company goods in its beginning inventory and;$12,000 of Sarah Company's goods in its ending inventory. Sarah Company sells;goods to Dills Company at cost plus 20%.;Dills;Company sold a new machine to Sarah Company on January 1, 20X9, for $40,000.;The cost of the machine was $30,000. It has a 5-year life.;The firms;file separate tax returns. Both are subject to a 30% tax rate. Dills Company;receives an 80% dividend deduction.;Required;Prepare a;consolidated income statement for 20X9. Include income distribution for both;firms.;6-24;Chapter;6;6-25;Chapter 6;8.;On January 1, 20X8, Paul Company purchased 80% of;the common stock of Smith Company for $300,000. On this date Smith had total;owners' equity of $350,000. Any excess of cost over book value is attributed to;a patent, to be amortized over 10 years.;During 20X8, Paul has appropriately accounted for its investment;in Smith using the simple equity method.;During;20X8, Paul sold merchandise to Smith for $50,000, of which $10,000 is held by;Smith on December 31, 20X8. Paul's gross profit on sales is 40%.;During 20X8, Smith sold some land to Paul at a gain of $10,000.;Paul still holds the land at year end.;Paul and Smith qualify as an affiliated group for tax purposes;and thus will file a consolidated tax return. Assume a 30% corporate income tax;rate.;Required;Complete the Figure 6-3 worksheet for consolidated financial;statements for the year ended December 31, 20X8.;9.;On January 1, 20X1, Parent Company purchased 75% of;the common stock of Subsidiary Company for $252,000. On this date Subsidiary;had total owners' equity of $300,000. Any excess of cost over book value is;attributed to a patent, to be amortized over 15 years.;During 20X1, Parent has appropriately accounted for its investment;in Subsidiary using the simple equity method.;During;20X1, Parent sold merchandise to Subsidiary for $50,000, of which $10,000 is;held by Subsidiary on December 31, 20X1. Parent's gross profit on sales is 40%.;During 20X1, Subsidiary sold some land to Parent at a gain of;$10,000. Parent still holds the land at year end.;Parent and;Subsidiary do not qualify as an affiliated group for tax purposes and thus will;file separate tax returns. Assume a 30% corporate income tax rate and an 80%;dividends-received deduction.;Required;Complete the Figure 6-4 worksheet for consolidated financial;statements for the year ended December 31, 20X1.;6-27;10.;On January 1, 20X1, Parent Company acquired 100% of;the common stock of Subsidiary Company in a stock exchange. On this date;Subsidiary had total owners' equity of $550,000 and book value approximated;fair value.;During 20X1 and 20X2, Parent has appropriately accounted for its;investment in Subsidiary using the simple equity method.;On January;1, 20X2, Parent held merchandise acquired from Subsidiary for $75,000. During;20X2, Subsidiary sold merchandise to Parent for $100,000, of which $25,000 is;held by Parent on December 31, 20X2. Subsidiary's usual gross profit on;affiliated sales is 50%.;On December;31, 20X1, Parent sold to Subsidiary some equipment with a cost of $75,000 and a;book value of $30,000. The sales price was $32,000. Subsidiary is depreciating;the equipment over a 5-year life, assuming no salvage value and using the;straight-line method.;Parent and Subsidiary qualify as an affiliated group for tax;purposes and thus will file a consolidated tax return. Assume a 30% corporate;income tax rate.;Required;Complete the Figure 6-5 worksheet for consolidated financial;statements for the year ended December 31, 20X2.;6-29;6-30;Chapter 6;11.;On January 1, 20X1, Proud Company purchased 90% of;the common stock of Slattery Company for $573,000, in a taxable combination. On;this date Slattery had total owners' equity of $550,000, including retained;earnings of $300,000.;On January;1, 20X1, the only tangible asset of Slattery which was undervalued was;equipment, which was worth $20,000 more than book value. The equipment has a;remaining life of 6 years and is depreciated using the straight-line method.;The excess purchase price, if any, is attributed to a patent to be amortized;over 15 years.;During 20X1 and 20X2, Proud has appropriately accounted for its;investment in Slattery using the cost method.;On January;1, 20X2, Slattery held merchandise acquired from Proud for $20,000. During;20X2, Proud sold merchandise to Slattery for $75,000, of which $15,000 is held;by Slattery on December 31, 20X2. Proud's usual gross profit on affiliated;sales is 40%.;On December;31, 20X1, Slattery sold to Proud some equipment with a cost of $40,000 and a;book value of $20,000. The sales price was $32,000. Proud is depreciating the;equipment over a 4-year life, assuming no salvage value and using the;straight-line method.;Proud and Slattery qualify as an affiliated group for tax;purposes and thus will file a consolidated tax return. Assume a 30% corporate;income tax rate.;Required;Complete the Figure 6-6 vertical worksheet for consolidated;financial statements for the year ended December 31, 20X2.;6-31;12. On January;1, 20X1, Proud Company purchased 90% of the common stock of Slattery Company;for $573,000, in a taxable combination. On this date Slattery had total owners;equity of $550,000.;On January;1, 20X1, the only tangible asset of Slattery which was undervalued was;equipment, which was worth $20,000 more than book value. The equipment has a;remaining life of 6 years and is depreciated using the straight-line method.;The excess purchase price, if any, is attributed to a patent to be amortized;over 15 years.;During 20X1 and 20X2, Proud has appropriately accounted for its;investment in Slattery using the simple equity method.;On January;1, 20X2, Slattery held merchandise acquired from Proud for $20,000. During;20X2, Proud sold merchandise to Slattery for $75,000, of which $15,000 is held;by Slattery on December 31, 20X2. Proud's usual gross profit on affiliated;sales is 40%.;On December;31, 20X1, Slattery sold to Proud some equipment with a cost of $40,000 and a;book value of $20,000. The sales price was $32,000. Proud is depreciating the;equipment over a 4-year life, assuming no salvage value and using the;straight-line method.;Proud and Slattery qualify as an affiliated group for tax;purposes and thus will file a consolidated tax return. Assume a 30% corporate;income tax rate.;Required;Complete the Figure 6-7 worksheet for consolidated financial statements;for the year ended December 31, 20X2.;6-33;13. On January;1, 20X1, Proud Company purchased 90% of the common stock of Slattery Company;for $573,000, in a taxable combination. On this date Slattery had total owners;equity of $550,000.;On January;1, 20X1, the only tangible asset of Slattery which was undervalued was;equipment, which was worth $20,000 more than book value. The equipment has a;remaining life of 6 years and is depreciated using the straight-line method.;The excess purchase price, if any, is attributed to a patent to be amortized;over 15 years.;During 20X1 and 20X2, Proud has appropriately accounted for its;investment in Slattery using the cost method.;On January;1, 20X2, Slattery held merchandise acquired from Proud for $20,000. During;20X2, Proud sold merchandise to Slattery for $75,000, of which $15,000 is held;by Slattery on December 31, 20X2. Proud's usual gross profit on affiliated;sales is 40%.;On December;31, 20X1, Slattery sold to Proud some equipment with a cost of $40,000 and a;book value of $20,000. The sales price was $32,000. Proud is depreciating the;equipment over a 4-year life, assuming no salvage value and using the;straight-line method.;Proud and Slattery qualify as an affiliated group for tax;purposes and thus will file a consolidated tax return. Assume a 30% corporate;income tax rate.;Required;Complete the Figure 6-8 worksheet for consolidated financial;statements for the year ended December 31, 20X2.;6-35

 

Paper#44374 | Written in 18-Jul-2015

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