Question 1

What was the pre-tax gain or loss to Duff Inc. on the intercompany sale of the bonds?

Accepted Answer

B

Question 2

What is the amount of the amortization of the acquisition differential during 2019?

Accepted Answer

The acquisition differential was recorded as $88,000 - $80,000 = $8,000. This amount should be amortized over the remaining useful life of the assets acquired. Since the company provided no information about the useful life of the assets, we can assume the straight-line method of amortization over 10 years, which will be $8,000 / 10 = $800 per year. The acquisition was made in 2019, so the amount of the amortization for 2019 will be $800. Therefore, the correct answer is option B.

Question 3

What was the pre-tax gain or loss to Paddy Inc. on the intercompany purchase of the bonds?

Accepted Answer

The pre-tax gain to Paddy Inc. on the intercompany purchase of the bonds is $20,000. This is because Paddy Inc. purchased the bonds at a discount to their face value, and the difference between the purchase price and the face value is recognized as a gain.

Question 4

What is the total amount of unrealized profit (after-tax) remaining at the end of 2018?

Accepted Answer

The unrealized profit (before tax) remaining at the end of 2018 is $15,000 - $10,000 = $5,000. Since the tax rate is 40%, the after-tax unrealized profit would be $5,000 * (1 - 0.4) = $3,000. Therefore, the correct choice is C, $9,000 ($3,000 for A, $3,000 for B, and $3,000 for C).

Question 5

What amount would be shown on Duff's 2017 Consolidated Statement of Financial Position under bonds payable?

Accepted Answer

The total amount of bonds payable shown in the 2016 statement was $100,000. In 2017, Duff issued $15,000 of new bonds (increasing the amount to $115,000) and repaid $4,000 of the existing bonds (decreasing the amount to $111,000), so the correct answer is option B.

Question 6

The amount of non-controlling interest in Jay's 2019 Consolidated Net Income would be:

Accepted Answer

The answer of The amount of non-controlling interest in Jay's...

Question 7

What would be the journal entry to record the dividends declared by King Corp during the year?

Accepted Answer

When dividends are declared, the correct entry is to debit Dividends Receivable and credit Dividend Income, reflecting the income earned from the declared dividends.

Question 8

What is the balance in the Investment in Stempy account at the end of 2019?

Accepted Answer

To find the balance in the Investment in Stempy account at the end of 2019, we need to add the beginning balance ($150,000) to the net income for the year ($244,960).

$150,000 + $244,960 = $394,960.

However, we also need to add in the 50% share of Stempy's income, which is $50,000.

$394,960 + $50,000 = $444,960.

Therefore, the balance in the Investment in Stempy account at the end of 2019 is $444,960 (option C).

Question 9

What would be the pre-tax gain or loss to the combined entity on the intercompany sale of the bonds?

Accepted Answer

The answer of What would be the pre-tax gain or...

Question 10

What is the total amount of unrealized profit (after-tax) remaining at the end of 2019?

Accepted Answer

The unrealized profit at the end of 2019 is calculated as the difference between the market value of the investment ($92,000) and the cost basis ($66,000), which is $26,000. Since the question states "after-tax", we can assume that the taxes on the unrealized profit have not been paid, so the remaining amount is still $26,000. Therefore, the correct answer is B.

Question 11

How much intercompany (after-tax) profit was realized during 2019 on Stempy's 2019 sale of assets to Rin?

Accepted Answer

The assets sold by Stempy to Rin had a book value of $4,000 and were sold for $6,000. The gain on the sale was $2,000. Since the transaction was an intercompany sale, this gain must be eliminated in consolidation. Therefore, Stempy's intercompany profit on the sale of assets to Rin was $2,000, which is the difference between the original gain of $2,000 and the elimination of that gain in consolidation. Since the question asks for after-tax profit, we would need more information about the tax status of Stempy and Rin to calculate this amount.

Question 12

How much intercompany (after-tax) profit was realized during 2019 from Rin's 2018 sale of assets to Stempy?

Accepted Answer

The answer of How much intercompany (after-tax) profit was realized...

Question 13

The controlling interest (attributable to the shareholders of Jay) in Jay's 2019 Consolidated Net Income would be:

Accepted Answer

The controlling interest is calculated as the parent company's ownership percentage multiplied by the consolidated net income. In this case, Jay owns 80% of Jay's, so the controlling interest is 80% x $45,000 = $36,000. However, the question asks for the controlling interest attributable to the shareholders of Jay, which means we need to subtract the non-controlling interest. The non-controlling interest is 20% x $45,000 = $9,000. Therefore, the controlling interest attributable to the shareholders of Jay is $36,000 - $9,000 = $27,000.

Question 14

What amount of interest expense, excluding amortization of the bond discount, (if any) would have to be eliminated in 2017 as a result of the intercompany sale of the bonds?

Accepted Answer

The answer of What amount of interest expense, excluding amortization...

Question 15

The amount of income tax expense appearing on Jay's 2019 Consolidated Income Statement would be:

Accepted Answer

The correct answer is A because the amount of income tax expense appearing on Jay's 2019 Consolidated Income Statement would be $24,860. This is calculated by taking the net income of $124,300 and multiplying it by the tax rate of 20%.

Question 16

The amount of Miscellaneous Revenues/Expense appearing on Jay's 2019 Consolidated Income Statement would be:

Accepted Answer

The answer of The amount of Miscellaneous Revenues/Expense appearing on...

Question 17

The amount of goodwill arising from this business combination is:

Accepted Answer

Goodwill is calculated as the excess of the purchase price over the fair value of the net identifiable assets acquired. Without specific figures for the purchase price and net identifiable assets, the correct choice is based on typical scenarios where goodwill is a positive value.

Question 18

The amount of gross profit appearing on Jay's 2019 Consolidated Income Statement would be:

Accepted Answer

Gross profit is calculated by deducting cost of goods sold from revenue. In this case, revenue is $500,000 and cost of goods sold is $350,000, so the gross profit would be:

$500,000 - $350,000 = $150,000

Therefore, the correct answer is C.

Question 19

The amount of depreciation expense appearing on Jay's 2019 Consolidated Income Statement would be:

Accepted Answer

The answer of The amount of depreciation expense appearing on...

Question 20

The amount of deferred taxes appearing on Jay's 2019 Consolidated Statement of Financial Position would be:

Accepted Answer

Deferred taxes arise when there is a temporary difference between the tax base of an asset or liability and its carrying amount in the financial statements. The temporary difference will result in either a taxable or deductible amount in the future when the asset is realized or the liability is settled. 
In this case, Jay's Consolidated Statement of Financial Position shows a deferred tax liability of $1,140. This means that there is a temporary difference between an asset or liability that will result in a taxable amount in the future, and the carrying amount of that asset or liability in the financial statements, resulting in a deferred tax liability.

Quiz 7: A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings