Chapter 7 Solution

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Chapter 7 - Consolidated Financial Statements - Ownership Patterns And Income Taxes

CHAPTER 7 CONSOLIDATED FINANCIAL STATEMENTS - OWNERSHIP PATTERNS AND INCOME TAXES Answers to Problems 1. D 2. B 3. D 4. C 5. C 6. C 7. A Damson's accrual-based income: Operational income ................................................................... Defer unrealized gain ................................................................ Damson's accrual-based income ....................................... Crimson's accrual-based income: Operational income ................................................................... Investment Income (90% of Damson’s realized income) ....... Crimson's accrual-based income .......................................

$200,000 (40,000) $160,000

$200,000 144,000 $344,000

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Chapter 7 - Consolidated Financial Statements - Ownership Patterns And Income Taxes

Bassett's accrual-based income: Operational income ................................................................... Investment income (80% of Crimson's realized income) ....... Bassett's accrual-based income ........................................ 8. C Icede's accrual-based income: Operational income ................................................................... Defer unrealized gain ................................................................ Icede's accrual-based income ............................................ Outside ownership .................................................................... Noncontrolling interest ....................................................... Healthstone's accrual-based income: Operational income ................................................................... Defer unrealized gain ................................................................ Investment income (80% of Icede's accrual-based income) . Healthstone's accrual-based income ................................. Outside ownership .................................................................... Noncontrolling interest ....................................................... Total noncontrolling interest = ($32,000 + $79,600) = $111,600 9. D Juvyn's operational income .......................................................... Dividend income ............................................................................. Juvyn's income ............................................................................... Outside ownership ......................................................................... Noncontrolling interest .................................................................. 10. A Equity income (60% of $200,000) .................................................. Dividend income (60% of $40,000) ................................................ Tax difference ............................................................................ Dividend deduction upon eventual distribution (80%) ................ Temporary portion of tax difference ........................................ Tax rate .......................................................................................... Deferred income tax liability .................................................... 11. C Unrealized Gain: Total gain ..................................................................................... Portion still held ......................................................................... Unrealized gain .......................................................................... Tax rate .......................................................................................... Deferred tax asset ......................................................................

$300,000 275,200 $575,200

$220,000 (60,000) $160,000 20% $32,000

$300,000 (30,000) 128,000 $398,000 20% $79,600

$50,000 14,000 $64,000 10% $6,400 $120,000 24,000 $96,000 (76,800) $19,200 30% $5,760

$30,000 20% $6,000 25% $1,500

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Chapter 7 -...
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