Put owned all of the stock of Call when the two corporations were formed a decade ago. The group immediately elected to file on a consolidated basis. Now, Call's management team has purchased the company from the parent and intends to carry on and expand the business into new markets. When Call left the Put consolidated group, the group held a post-2020 NOL carryforward of $5,000,000, of which $2,000,000 was attributable to Call's operations under formulas approved by all of the parties. Call will generate $700,000 in taxable income on each of its first five years' worth of separate returns. Ignore any special rules applied under the CARES Act for NOLS incurred in 2018-2020. a. Select either "Yes" or "No" to indicate which of the following happens to the consolidated group's NOL carryforward. Call takes its apportioned NOL carryforwards when it leaves the group. All NOL carryforwards remain with Put. Neither Call nor Put is entitled to any of the NOL carryforwards due to § 382. Yes X X X X 700,000 ✓ No No ✓ ✓ b. Compute Call's separate taxable income for its first five tax years. Neither SRLY (separate return limitation year) nor §382 limitations apply. Year 1: $ Year 2: $ Year 3: $ Year 4: $ Year 5: $

Put owned all of the stock of Call when the two corporations were formed a decade ago. The group immediately elected to file on a consolidated basis. Now, Call's management team has purchased the company from the parent and intends to carry on and expand the business into new markets. When Call left the Put consolidated group, the group held a post-2020 NOL carryforward of $5,000,000, of which $2,000,000 was attributable to Call's operations under formulas approved by all of the parties. Call will generate $700,000 in taxable income on each of its first five years' worth of separate returns. Ignore any special rules applied under the CARES Act for NOLS incurred in 2018-2020. a. Select either "Yes" or "No" to indicate which of the following happens to the consolidated group's NOL carryforward. Call takes its apportioned NOL carryforwards when it leaves the group. All NOL carryforwards remain with Put. Neither Call nor Put is entitled to any of the NOL carryforwards due to § 382. Yes X X X X 700,000 ✓ No No ✓ ✓ b. Compute Call's separate taxable income for its first five tax years. Neither SRLY (separate return limitation year) nor §382 limitations apply. Year 1: $ Year 2: $ Year 3: $ Year 4: $ Year 5: $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Queen owns 100% of Royal Corporation. Royal Corporation was originally formed as a C corporation but has since elected to be treated as an S corporation. At the end of 2020, before considering any distributions, Royal Corporation's accumulated adjustments account (AAA) balance was $55,000 and its accumulated earnings and profits from its years as a C corporation was $20,000. On December 31, Royal Corporation distributed $80,000 to Queen. What is the amount and character of income Queen must recognize on the distribution if her stock basis before considering the distribution was $100,000? What is Queen's stock basis after accounting for the distribution?
Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2019, Padre transferred equipment to Sonora for $95,000. The equipment had cost $130,000 originally but had a $50,000 book value and five-year remaining life at the date of transfer. Depreciation expense is computed according to the straight-line method with no salvage value. Consolidated financial statements for 2021 currently are being prepared. What worksheet entries are needed in connection with the consolidation of this asset? Assume that the parent applies the partial equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Belden, Inc., acquires 30 percent of the outstanding voting shares of Sheffield, Inc., on January 1, 2020, for $316,000, which gives Belden the ability to significantly influence Sheffield. Sheffield has a net book value of $812,000 at January 1, 2020. Sheffield’s asset and liability accounts showed carrying amounts considered equal to fair values, except for a copyright whose value accounted for Belden’s excess cost over book value in its 30 percent purchase. The copyright had a remaining life of 16 years at January 1, 2020. No goodwill resulted from Belden’s share purchase. Sheffield reported net income of $180,000 in 2020 and $254,000 of net income during 2021. Dividends of $94,000 and $72,000 are declared and paid in 2020 and 2021, respectively. Belden uses the equity method. On its 2021 comparative income statements, how much income would Belden report for 2020 and 2021 in connection with the company’s investment in Sheffield? If Belden sells its entire investment in…
Padre, Incorporated, buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2024, for $791,520 cash. At the acquisition date, Sierra's total fair value, including the noncontrolling interest, was assessed at $989,400, although Sierra's book value was only $638,000. Also, several individual items on Sierra's financial records had fair values that differed from their book values as follows: Account Land Buildings and equipment (10-year remaining life) Copyright (20-year remaining life) Notes payable (due in 8 years) Book Value $ 65,200 295,000 Fair Value $ 307,200 276,000 104,000 (187,000) 218,000 (172,600) For internal reporting purposes, Padre, Incorporated, employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2024, for both companies. Account Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of Sierra Net income Retained earnings,…
Clark Corp. owned 75% of the voting common stock of Andrew Co. On January 3, 2020, Andrew sold a parcel of land to Clark. The land had a book value of $36,000 and was sold to Clark for $52,000. Andrew’s reported net income for 2020 was $123,000. Assuming there are no excess amortizations associated with the consolidation, and no other intra-entity asset transfers, what is net income attributable to the noncontrolling interest?
Padre holds 100 percent of the outstanding shares of Sonora. On January 1, 2016, Padre transferred equipment to Sonora for $95,000. The equipment had cost $130,000 originally but had a $50,000 book value and five-year remaining life at the date of transfer. Depreciation expense is computed according to the straight-line method with no salvage value. Consolidated financial statements for 2018 currently are being prepared. What worksheet entries are needed in connection with the consolidation of this asset? Assume that the parent applies the partial equity method.
Cairns owns 75 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton. On January 1, 2017, Hamilton sold $2,000,000 in 10-year bonds to the public at 110. The bonds had a cash interest rate of 8 percent payable every December 31. Cairns acquired 40 percent of these bonds at 92 percent of face value on January 1, 2019. Both companies utilize the straight-line method of amortization. Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) December 31, 2019 December 31, 2020 December 31, 2021
Cairns owns 75 percent of the voting stock of Hamilton, Inc. The parent’s interest was acquired several years ago on the date that the subsidiary was formed. Consequently, no goodwill or other allocation was recorded in connection with the acquisition. Cairns uses the equity method in its internal records to account for its investment in Hamilton.On January 1, 2014, Hamilton sold $1,000,000 in 10-year bonds to the public at 105. The bonds had a cash interest rate of 9 percent payable every December 31. Cairns acquired 40 percent of these bonds at 96 percent of face value on January 1, 2016. Both companies utilize the straight-line method of amortization. Prepare the consolidation worksheet entries to recognize the effects of the intra-entity bonds at each of the following dates.a. December 31, 2016b. December 31, 2017c. December 31, 2018
Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 2003, Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line depreciation for all depreciable assets. On December 31, 2008, Blue purchased the building from Black for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 2008 and 2009, respectively. Black reported net income of $30,000 and $45,000 for 2008 and 2009, respectively. 28. Based on the preceding information, the amount to be reported as consolidated net income for 2008 will be: A. $190,000. B. $170,000. C. $175,000. D. $150,000. 29. Based on the preceding information, the amount of income assigned to the controlling shareholders in the consolidated income statement for 2008 will be: A. $190,000. B. $170,000. C. $175,000. D. $150,000. 30. Based on the preceding information, the amount to be reported as consolidated net income for 2009 will be:…
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Incorporated, for $6.40 per share on January 1, 2023. The remaining 20 percent of Devine's shares also traded actively at $6.40 per share before and after Holtz's acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine's underlying accounts except that a building with a 5-year future life was undervalued by $62,000 and a fully amortized trademark with an estimated 10-year remaining life had a $67,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $260,000. Following are the separate financial statements for the year ending December 31, 2024: Holtz Corporation $ (787,000) 282,000 346,000 (16,000) Accounts Sales Cost of goods sold Operating expenses Dividend income Net income $ (175,000) Retained earnings, 1/1/24 $ (727,000) Net income (above) Dividends declared…
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.50 per share on January 1, 2020. The remaining 20 percent of Devine’s shares also traded actively at $7.50 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year future life was undervalued by $46,500 and a fully amortized trademark with an estimated 10-year remaining life had a $76,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $351,500. Following are the separate financial statements for the year ending December 31, 2021: HoltzCorporation Devine,Inc. Sales $ (786,000 ) $ (379,000 ) Cost of goods sold 291,000 118,000 Operating expenses 289,000 78,000 Dividend income (16,000 ) 0 Net income $ (222,000 )…