Question 1

How much should the Parminter's Investment in Sanchez-Common Stock, change during 2011?

Accepted Answer

B)($30,000 - $5,000)× 80%

Question 2

Use the following information to answer the question(s) below.
On January 1, 2011, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation for $7,000,000 when Salter's stockholders' equity was as follows:
  There were no preferred dividends in arrears on January 1, 2011. There are no book value/fair value differentials.
-Salter has a 2011 net loss of $200,000.No dividends are declared or paid in 2011.What is the change in Pardy's Investment in Salter for the year ending December 31, 2011?

Accepted Answer

D)
Salter's net loss $(200,000)
Preferred dividend 10% × $1,000,000 (100,000)
Total Loss to common stockholders (300,000)
Pardy's ownership percentage 70%
Pardy's share of the loss on investment $(210,000)

Question 3

Assume a company's preferred stock is cumulative with a call provision and has dividends in arrears.The amount of stockholders' equity allocated to preferred stockholders is equal to the number of shares outstanding times the

Accepted Answer

D

Question 4

A subsidiary has dilutive securities outstanding that include convertible bonds payable.The bonds are convertible into the parent's common stock.When calculating consolidated diluted earnings per share, the convertible bonds will affect

Accepted Answer

The convertible bonds payable will affect both the numerator and the denominator of the consolidated diluted earnings per share calculation because if the bonds were to be converted into common stock, they would increase both the number of shares outstanding (denominator) and the net income available to common shareholders (numerator).

Question 5

Palmer Company owns a 25% interest in Sad, Incorporated, a domestic company.Sad had net income of $60,000 and paid dividends of $20,000.Palmer's tax rate is 35%.For simplicity, assume that Sad's undistributed earnings are Palmer's only temporary timing difference.Assume Sad qualifies for the 80% dividend received deduction.Which of the following statements is correct?

Accepted Answer

The answer of Palmer Company owns a 25% interest in...

Question 6

When a subsidiary has preferred stock that is convertible into subsidiary common stock, the parent's equity in the subsidiary's diluted earnings is calculated by the number of

Accepted Answer

The answer of When a subsidiary has preferred stock that...

Question 7

Use the following information to answer the question(s) below.
On January 1, 2011, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation for $7,000,000 when Salter's stockholders' equity was as follows:
  There were no preferred dividends in arrears on January 1, 2011. There are no book value/fair value differentials.
-Assume Salter's net income for 2011 is $220,000.No dividends are declared or paid in 2011.What is the change in Pardy's Investment in Salter for the year ending December 31, 2011?

Accepted Answer

A)Salter's net income $220,000
Less: Income to the preferred stockholders (100,000)
Income to the common stockholders 120,000
Pardy's ownership percentage 70%
Pardy's share of the income $84,000

Question 8

Palm owns a 70% interest in Sable, a domestic subsidiary.Sable is not part of Palm's affiliated group.Palm will pay taxes on

Accepted Answer

Under the U.S. tax code, a domestic corporation that receives dividends from another domestic corporation in which it owns less than 80% but at least 20% of the stock by vote or value is entitled to a dividends received deduction (DRD) of 65% of the dividends. This effectively means the corporation will pay taxes on 35% of the dividends received. However, since the question specifies that Palm will pay taxes (implying the focus is on the taxable portion), and the general understanding of such phrasing aligns with the taxable portion rather than the deduction, the correct interpretation aligns with the standard DRD rules but was inaccurately framed in the options provided. Given the options available and the typical understanding of tax obligations on dividends received by a corporation from a domestic subsidiary in which it has a significant but not complete ownership, the closest correct option based on standard tax treatment would be to pay taxes on a portion of the dividends, with the specific percentages provided in the options not accurately reflecting standard tax code but suggesting a scenario where Palm pays taxes on a part of the dividends received. Thus, the selection is made based on the available options and the understanding that Palm is taxed on a portion of the dividends, with the specific choice reflecting the necessity to choose from the provided options rather than an exact match to standard tax code percentages.

Question 9

Palmquist Corporation and its 80%-owned subsidiary, Sadler Corporation, are members of an affiliated group.They do not file consolidated tax returns.Sadler had $3,000,000 of income and paid $1,000,000 dividends in 2010.Palmquist and Sadler had 35% income tax rates.What amount of Sadler's dividends is taxable to Palmquist in 2010?

Accepted Answer

The answer of Palmquist Corporation and its 80%-owned subsidiary, Sadler...

Question 10

What should be the noncontrolling interest share, common in the consolidated financial statements of Parminter for the year ending December 31, 2011?

Accepted Answer

A)($25,000 × 20%)

Question 11

When a parent acquires the preferred stock of a subsidiary, there will be a constructive retirement and

Accepted Answer

The answer of When a parent acquires the preferred stock...

Question 12

Use the following information to answer the question(s) below.
On January 1, 2011, Pardy Corporation acquired a 70% interest in the common stock of Salter Corporation for $7,000,000 when Salter's stockholders' equity was as follows:
  There were no preferred dividends in arrears on January 1, 2011. There are no book value/fair value differentials.
-What is the implied goodwill for Salter based on Pardy's purchase price for Salter on January 1, 2011?

Accepted Answer

D)
Stockholders' equity $11,000,000
Less: Preferred stockholders' equity (10,000 × $110)1,100,000
Common stockholders' equity 9,900,000
Cost of 70% interest acquired $7,000,000
Implied fair value of investment ($7,000,000/0.7)10,000,000
Common stockholders' equity 9,900,000
Goodwill $100,000

Question 13

Use the following information to answer the question(s) below.
On January 1, 2011, Pamplin Corporation stockholders' equity consisted of $1,000,000 of $10 par value Common Stock, $750,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings. On January 1, 2011, Pamplin purchased 90% of the outstanding common stock of Sage Corporation for $1,500,000 with all excess purchase cost assigned to goodwill. The stockholders' equity of Sage on this date consisted of $800,000 of $100 par value, 8% cumulative, preferred stock callable at $105, $900,000 of $10 par value common stock and $500,000 of Retained Earnings. Sage's net income for 2011 was $100,000.
On January 1, 2011, no preferred dividends are in arrears. No dividends are declared or paid in 2011. In a separate transaction on January 1, 2011, Pamplin purchased 70% of Sage's preferred stock for $600,000.
-What is the goodwill on the consolidated balance sheet for Pamplin and Subsidiaries on December 31, 2011 based on Pamplin's purchase of Sage's common stock?

Accepted Answer

To find the goodwill on the consolidated balance sheet, we first need to calculate the consolidated total assets and liabilities:

Total Assets = $1,500,000 + ($800,000 * 0.9) + ($900,000 * 0.9) = $3,190,000
Total Liabilities = 0

Next, we need to calculate the consolidated total stockholders' equity:

Common Stock = $1,000,000 + ($900,000 * 0.9) = $1,810,000
APIC = $750,000 + ($600,000 * 0.7) = $1,110,000
Retained Earnings = $3,000,000 + ($500,000 * 0.9) + $100,000 = $3,450,000
Preferred Stock = ($800,000 * 0.1) + ($600,000 * 0.7) = $620,000

Total Stockholders' Equity = $6,990,000

Now we can calculate the goodwill:

Goodwill = Purchase Price - (Fair Value of Net Assets Acquired)
Fair Value of Net Assets Acquired = ($800,000 * 0.1 * 0.9) + ($900,000 * 0.9) + ($500,000 * 0.9) = $1,365,000
Purchase Price = $1,500,000
Goodwill = $1,500,000 - $1,365,000 = $135,000
Since all excess purchase cost was assigned to goodwill, the amount of goodwill is $135,000 * 0.9 (due to Pamplin owning 90% of Sage's common stock) = $121,500.

We then need to calculate the total goodwill on the consolidated balance sheet:

Total Goodwill = $121,500 + ($800,000 * 0.1 * 0.7) = $121,500 + $56,667 = $178,167

Finally, we need to adjust for the minority interest in Sage's stockholders' equity:

Minority Interest = ($800,000 * 0.1 * 0.3) + ($900,000 * 0.3) + ($500,000 * 0.3) = $255,000

Goodwill on the Consolidated Balance Sheet = Total Goodwill - Minority Interest
Goodwill on the Consolidated Balance Sheet = $178,167 - $255,000 = -$76,833 (Negative value due to minority interest)

Therefore, the correct answer is D) $306,667.

Question 14

Palomba Corporation allocates consolidated income taxes to its 90%-owned subsidiary using the percentage allocation method.Under this method, consolidated income tax expense will be allocated to a subsidiary

Accepted Answer

The percentage allocation method involves allocating the consolidated income tax expense to the subsidiary based on its pretax income as a percentage of consolidated pretax income. So, the correct answer is B.

Question 15

Use the following information to answer the question(s) below.
On January 1, 2011, Pamplin Corporation stockholders' equity consisted of $1,000,000 of $10 par value Common Stock, $750,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings. On January 1, 2011, Pamplin purchased 90% of the outstanding common stock of Sage Corporation for $1,500,000 with all excess purchase cost assigned to goodwill. The stockholders' equity of Sage on this date consisted of $800,000 of $100 par value, 8% cumulative, preferred stock callable at $105, $900,000 of $10 par value common stock and $500,000 of Retained Earnings. Sage's net income for 2011 was $100,000.
On January 1, 2011, no preferred dividends are in arrears. No dividends are declared or paid in 2011. In a separate transaction on January 1, 2011, Pamplin purchased 70% of Sage's preferred stock for $600,000.
-For the year ending December 31, 2011, the amount of Pamplin's income from Sage (associated with the common stock investment in Sage)is

Accepted Answer

A)
Preliminary computations:
Total stockholders' equity (Sage)$2,200,000
Less: Preferred stockholders' equity
($800,000 × 1.05)840,000
Equals: Common stockholders' equity $1,360,000
Net income as given $100,000
Less: Preferred dividends ($800,000 × 8%)64,000
Income available to the common stockholders $36,000
Ownership percentage 90%
Income from Sage $32,400

Question 16

In computing consolidated diluted EPS, the replacement calculation replaces the parent's equity in subsidiary earnings with the

Accepted Answer

When computing consolidated diluted EPS, the replacement calculation replaces the parent's equity in subsidiary earnings with the parent's share of diluted EPS of the subsidiary. This takes into account the effect of any potentially dilutive instruments held by the subsidiary, which could impact the overall diluted EPS for the consolidated entity.

Question 17

Parnaby has 25,000 common stock shares outstanding and its 100%-owned subsidiary Sandal has 5,000 common stock shares outstanding.Parnaby and Sandal do not have any potentially dilutive securities outstanding.The separate net incomes for Parnaby and Sandal is $150,000 and $75,000 respectively.Diluted EPS for the consolidated company is

Accepted Answer

The answer of Parnaby has 25,000 common stock shares outstanding...

Question 18

If a parent company has controlling interest in a subsidiary which has no potentially dilutive securities outstanding, then in the calculation of consolidated diluted EPS, it will be necessary to

Accepted Answer

The answer of If a parent company has controlling interest...

Question 19

What should be the noncontrolling interest share, preferred in the consolidated financial statements of Parminter for the year ending December 31, 2011?

Accepted Answer

A)($5,000 × 20%)

Question 20

Pan Corporation has total stockholders' equity of $5,000,000 consisting of $1,000,000 of $10 par value Common Stock, $1,000,000 of Additional Paid-in Capital, and $3,000,000 of Retained Earnings.Pan owns 80% of Sailor Corporation's common stock purchased at book value, which equals fair value.Sailor has $900,000 of 10% cumulative preferred stock outstanding, with no preferred dividends in arrears.The preferred stock has no call price, redemption price or liquidation price.Pan acquired 60% of the preferred stock of Sailor for $500,000.After this transaction the balances in Pan's Retained Earnings and Additional Paid-in Capital accounts, respectively, are

Accepted Answer

The answer of Pan Corporation has total stockholders' equity of...

Quiz 10: Subsidiary Preferred Stock, Consolidated Earnings Per Share, and Consolidated Income Taxation