Ch10 - Ch10 Student: _ 1. Wedgwood Corporation owns 90...

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Ch10 Student: ___________________________________________________________________________ 1. Wedgwood Corporation owns 90 percent of the voting common stock of Lenox Company. In the 2003 consolidated cash flow statement, the net increase in cash was $84,000. Included in this amount were the following: -- Dividends paid to Wedgwood Corporation shareholders totaling $40,000. -- Dividends paid to noncontrolling shareholders totaling $15,000. -- A sale of land that produced a cash inflow of $30,000. The correct increase in cash that should be shown in the consolidated cash flows statement is: A. $99,000. B. $84,000. C. $59,000. D. $54,000. Missouri Industries has investments in several other corporations and is trying to decide whether to file a consolidated income tax return. . 2. Assume Missouri's common stock investments and the percentage of ownership are as follows: Which of the companies may be consolidated in Missouri's consolidated income tax return? I. Jefferson Corporation II. Madison Company III. Gallatin Company A. I, II. B. I, III. C. II, III. D. I, II, III. 3. Assume that Missouri's investments are such that all three companies (Jefferson, Madison, and Gallatin) qualify for inclusion in the consolidated tax return. How will dividends between the affiliated companies be treated when a consolidated income tax return is filed? A. The dividends create a temporary tax difference requiring the recognition of deferred taxes in the consolidated financial statements. B. Dividends are taxed; however, the tax rate used is reduced to 20 percent. C. Dividends received from affiliates are tax-exempt when a consolidated income tax return is filed. D. Dividends between affiliates are ignored for federal income tax purposes whether or not a consolidated income tax return is filed.
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4. Refer to the information given above. Assuming Missouri is able to file a consolidated income tax return with all three companies, how will profits from intercompany sales be treated in the consolidated income tax return? A. The selling company is required to pay tax on intercompany profits but receives a tax reduction when the profits are realized. B. Intercompany transfers receive the same tax treatment as sales to nonaffiliates. C. Intercompany transfers are ignored until realized through transactions with nonaffiliates. D. Intercompany transfers are tax exempt when a consolidated income tax return is filed. Edmond Company owns 70 percent of the common stock of Topeka Company, originally purchased at book value. Consolidated net income for the year ended December 31, 2008, is $1,200,000, and Topeka's net income is $300,000. Selected information about the separate accounts of Edmond and Topeka for the year 2008 is as follows: During 2008, Topeka sold equipment to an unrelated party at a gain of $10,000. Topeka had purchased the equipment from Edmond for $200,000 several years earlier and reported a book value of $110,000 at the time of sale. The original cost of the equipment to Edmond was $250,000 and Edmond recognized a gain of
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Ch10 - Ch10 Student: _ 1. Wedgwood Corporation owns 90...

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