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Baxter, Inc., owns 90 percent of Wisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin, in turn, holds 60 percent o

During this same period, Wisconsin sold merchandise to Baxter for $100,000 although the original cost was only $70,000. At y

The initial value method was used to record each of these investments. None of the companies holds any other investments.

Using the following separate income statements, determine the figures that would appear on a consolidated income statemen

Baxter Wisconsin Cleveland


Sales (1,000,000) (450,000) (280,000)
Cost of goods sold 670,000 280,000 190,000
Expenses 110,000 60,000 30,000
Dividend income:
Wisconsin (36,000) 0 0
Cleveland (4,000) (12,000) 0
Net income (260,000) (122,000) (60,000)

INTRA-ENTITY GROSS PROFITJ:


Cleveland ($12,000 remaining inventory × 25% markup) = 3,000
Wisconsin ($40,000 remaining inventory × 30% markup) = 12,000

NONCONTROLLING INTERESTS:
Cleveland:
Operating income (sales minus cost of goods sold and expenses) 60,000
Defer intra-entity gross profit (above) (3,000)
Accrual-based net income—Cleveland 57,000
Outside ownership 20%
Noncontrolling interest in Cleveland's net income 11,400

Wisconsin:
Operating income (sales minus cost of goods sold and expenses) 110,000
Defer intra-entity
Investment income gross
(60%profit (above) accrual-based
of Cleveland's (12,000)
income of $57,000) 34,200
Accrual-based net income—Wisconsin 132,200
Outside ownership 10% 13,220

TOTAL NONCONTROLLING INTERESTS: $24,620 ($11,400 + $13,220) 24,620

CONSOLIDATED TOTALS:
Sales = $1,590,000 (add the three book values and eliminate intra-entity 1,590,000
Cost of goods sold 1,015,000
Expenses 200,000
Dividend income 0
Consolidated net income 375,000
Noncontrolling interests in subsidieir's income 24,620
Controlling interest in colodiated net income 350,380

Explanation
INTRA-ENTITY GROSS PROFIT:
Cleveland ($12,000 remaining inventory × 25% markup) = $3,000
Wisconsin ($40,000 remaining inventory × 30% markup) = $12,000

NONCONTROLLING INTERESTS:

CLEVELAND:

TOTAL NONCONTROLLING INTERESTS: $24,620 ($11,400 + $13,220)

CONSOLIDATION TOTALS

Sales = $1,590,000 (add the three book values and eliminate intra-entity transfers of $40,000 and $100,000)
Cost of goods sold = $1,015,000 (add the three book values, eliminate intra-entity transfers of $40,000 and $100,000, and defe
Expenses = $200,000 (add the three book values)
Dividend income = 0 (eliminated for consolidation purposes)
Consolidated net income = $375,000 (consolidated revenues less consolidated cost of goods sold and expenses)
Net income attributable to noncontrolling interest = $24,620 (above)
Net income attributable to Baxter Company = $350,380 (consolidated net income less noncontrolling interest share)
nsin, in turn, holds 60 percent of Cleveland's outstanding stock. No excess amortization resulted from these acquisitions. During the curren

nal cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still on hand.

s holds any other investments.

a consolidated income statement:


nd $100,000)
$40,000 and $100,000, and defer [add] intra-entity gains of $3,000 and $12,000)

ld and expenses)

rolling interest share)


acquisitions. During the current year, Cleveland sold a variety of inventory items to Wisconsin for $40,000 although the original cost was $3
hough the original cost was $30,000. Of this total, Wisconsin still held $12,000 in inventory (at transfer price) at year-end.
https://www.coursehero.com/file/pjvbpk/3-Assume-that-Garrison-owns-70-percent-of-Robertsons-voting-stock-What-total/

Garrison holds a controlling interest in Robertson's outstanding stock. For the current year, the following information has been

Garrison Robertson
Separate operating income 300,000 200,000
(includes $50,000 intra-entity gross profit in ending inventory)
Dividends paid 32,000 50,000
Tax rate 40% 40%

Garrison uses the initial value method to account for the investment in Robertson. Garrison's separate operating income figur

a. Assume that Garrison owns 80 percent of Robertson's voting stock. On a consolidated tax return, what amount of income ta
b. Assume that Garrison owns 80 percent of Robertson's voting stock. On separate tax returns, what total amount of income t
c. Assume that Garrison owns 70 percent of Robertson's voting stock. What total amount of income tax expense does a conso
d. Assume that Garrison holds 60 percent of Robertson's voting stock. On a separate income tax return, what amount of incom

a. Taxes to be paid 180,000


b. Total taxes to be paid 200,000
c. Total expense to be reported 186,720
d. Total income taxes payable 122,400
a. The affiliated group would be taxed on its operating income of $450,000 (the $50,000 unrealized gain is deferred). Intra-enti
and dividends are not relevant because a consolidated return is filed
450,000 180,000
pay $120,000 or 40% of its $300,000 operating income. The unrealized gain is not deferred because separate returns are being
Intra-entity dividends are not taxable because the parties still qualify as an affiliated group even though separate returns are b
80,000 120,000

c. Robertson must report an income tax expense of $80,000 or 40% of its $200,000 operating income. Garrison records its exp
80,000 250,000
120,000 100,000
84,000
6,720
at a 40% rate, the tax on the dividends would amount to $2,400 ($6,000 × 40%). The total income taxes payable by Garrison is
($120,000 + $2,400).
120,000
30,000
2,400

a.
The affiliated group would be taxed on its operating income of $450,000 (the $50,000 intra-entity gain is deferred). Intra-entit

b. Total taxes to be paid are $200,000. Robertson would have to pay $80,000 or 40% of its $200,000 operating income. Garriso

c. Robertson must report an income tax expense of $80,000 or 40% of its $200,000 operating income.

Garrison records its expense based on the revenue recognized during the period. Thus, the expense is computed on an operati

d. Garrison will pay $120,000 in connection with its operating income ($300,000 × 40%) and $2,400 because of the dividends r
ons-voting-stock-What-total/

ollowing information has been gathered about these two companies:

parate operating income figure does not include dividend income for the current year.

rn, what amount of income tax is paid?


what total amount of income tax is paid?
me tax expense does a consolidated income statement recognize?
return, what amount of income tax does Garrison have to pay?

ed gain is deferred). Intra-entity income

use separate returns are being filed.


though separate returns are being filed

ome. Garrison records its expense based on the revenue recognized during the period. Thus, the expense is computed on an operating inc

e taxes payable by Garrison is $122,400


y gain is deferred). Intra-entity income and dividends are not relevant because a consolidated return is filed.

000 operating income. Garrison would pay $120,000 or 40% of its $300,000 operating income. The intra-entity gain is not deferred becaus

nse is computed on an operating income of $250,000 (the net intra-entity gain is not recognized in this period) along with equity income f

00 because of the dividends received from Robertson. Garrison will receive $30,000 in dividends based on its 60% ownership. Of this tota
computed on an operating income of $250,000 (the net unrealized gain is not recognized in this period) along with equity income from Ro
tity gain is not deferred because separate returns are being filed. Intra-entity dividends are not taxable because the parties still qualify as a

d) along with equity income from Robertson of $84,000 (70% of that company's $120,000 after-tax income). Garrison will record an incom

s 60% ownership. Of this total, only $6,000 (20%) is taxable. Thus, at a 40% rate, the tax on the dividends would amount to $2,400 ($6,000
ng with equity income from Robertson of $84,000 (70% of that company's $120,000 after-tax income). Garrison will record an income tax e
use the parties still qualify as an a ffiliated group even though separate returns are being filed.

. Garrison will record an income tax expense of $100,000 in connection with the operating income ($250,000 × 40%) and $6,720 resulting

ould amount to $2,400 ($6,000 × 40%). The total income taxes payable by Garrison is $122,400 ($120,000 + $2,400).
son will record an income tax expense of $100,000 in connection with the operating income ($250,000 × 40%) and $6,720 resulting from it
0 × 40%) and $6,720 resulting from its equity income ($84,000 × 20% × 40%). Total expense to be reported amounts to $186,720 for Garris
%) and $6,720 resulting from its equity income ($84,000 × 20% × 40%). Total expense to be reported amounts to $186,720 for Garrison and
mounts to $186,720 for Garrison and Robertson ($80,000 + $100,000 + $6,720).
s to $186,720 for Garrison and Robertson ($80,000 + $100,000 + $6,720).
https://oneclass.com/homework-help/accounting/126329-chesterfield-company-holds-cash.en.html

Chesterfield Company holds cash of $60,000, inventory worth $110,000, and a building worth $140,000. Unfortunately, the co

In a Chapter 7 bankruptcy, how much money will the holder of the bond expect to receive?

Total amount received by bond holders

cash 60,000 A/P 190,000 cash


inventory 110,000 Note Payable 90,000 (secured by inventory) inventory
building 140,000 Liabilities 22,800 priority building
310,000 Bond Payable 170,000 (secured by building) total assets
472,800
free assets: a/p
cash 60,000 note pay
inventory 20,000 liab prio
total assets left 80,000 bond pay

12,000

liabilities with priority 22,800 42,000


free assetsw after payment of liabilities with priority 57,200

unsecured liabilities:
accounts payable 190,000
bonds payable (excess value of secured by building) 30,000
total 220,000

percentage of unsecured liabilities to be paid 0.26


holder of bond expect to receive:
value of security (building) 140,000
26% of remaining 30,000 7,800
total collected 147,800
00. Unfortunately, the company also has accounts payable of $190,000, a note payable of $90,000 (secured by the inventory), liabilities w

52,000
94,000
132,000
278,000

182,000
82,000 secured by inv 94,000
13,000
154,000 sec. by build 132,000

13,000

22,000
the inventory), liabilities with priority of $22,800, and a bond payable of $170,000 (secured by the building).
The Larisa Company is exiting bankruptcy reorganization with the following accounts:

Book Value Fair Value


Receivables 80,000 90,000
Inventory 200,000 210,000
Buildings 300,000 400,000
700,000
Liabilities 300,000 300,000
Common stock 330,000 264,000 66,000
Additional paid-in capital 20,000
Retained earnings (deficit) -70,000

The company's assets have a $760,000 reorganization value. As part of the reorganization, the company's owners transferred

Prepare the journal entry that is necessary to adjust the company's records to fresh start accounting. 

Receivables 10,000
Inventory 10,000
Buildings 100,000
Goodwill 60,000
Retained earnings -70,000
Additional paid-in capital 110,000
e company's owners transferred 80 percent of the outstanding stock to the creditors.

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