investor–parent company applies the equity method of accounting for the investment in the investee-subsidiary when the parent acquires: A) Th e firs t inv est me nt in the inv est ee' s co m mo n sto ck
B) At lea st 20 % of the inv est ee' s co m mo n sto ck C) Mo re tha n 50 % of the inv est ee' s co m mo n sto ck
D) At lea se 50 % of the inv est ee' s co m mo n sto ck 5 CORRECT The realized intercompany profit in the beginning inventories of Piedmont Corporation, parent company of Sturdwick Company, was $60,000, and the unrealized intercompany profit in Piedmont's ending inventories was $80,000. Piedmont and Sturdwick file separate income tax returns, and both affiliates are subject to income taxes at a rate of 40%. If the criteria for recording deferred tax assets without a valuation allowance are met, the working paper elimination of Piedmont Corporation and subsidiary should:
A) De bit Inc om e Ta xe s Ex pe ns e — St urd wic k for $2 4,0 00
B) De bit De fer red Inc om e Ta x As set — St urd wic k for $2 4,0 00
C) Cr edi t De fer red Inc om e Ta x Lia bili ty — Pie dm ont for $3 2,0 00 D) Do no ne of the for eg oin g Feedback: $60,000 x 0.40 = $24,000 6 CORRECT In a consolidated statement of cash flows, a parent company's gain or loss on
disposal of part of an investment in a subsidiary is displayed as: A) A ca sh flo w fro m fin an cin g act iviti es
B) An adj ust me nt to co ns oli dat ed net inc om e of the par ent co mp an y an d su bsi dia ry
C) A de cre as e in mi nor ity int ere st in net as set s of su bsi dia ry
D) An inc rea se in mi nor ity int ere st in net as set s of su bsi dia ry 7 CORRECT In the journal entry for a business combination, the combinor recognizes a deferred income tax liability if:
A) A por tio n of the cur ren t fair val ue of the co mb ine e's net as set s is not de du cti ble for inc om e tax es.
B) Th e co mb ine e ha d te mp ora ry diff ere nc es bet we en fin an cia l inc om e an d tax abl e inc om e pri or to the bu sin es s co mb ina tio n.
C) Th e affi liat ed gro up ex pe cts to file co ns oli dat ed inc om e tax ret urn s.
D) Th e bu sin es s co mb ina tio n wa s not a "ta x- fre e cor por ate reo rga niz ati on. " 8 CORRECT Estimated future tax effects of differences between the tax bases and amounts otherwise appropriate to assign to assets and liabilities are one of the variables in estimates of current fair values for a combinee in a business combination.
- Spring '08
- Trigraph, fal se, Tr ue, sto ck, oth er, int ere st