Question

18. For ownership interest of less than 20%, the parent may exclude how much of the dividends received from its reported income when filing separately?

	a.	​100%
	b.	​80%
	c.	​70%
	d.	​20%

19. One complication that arises in consolidation when the parent and subsidiary have filed separate tax returns is:​

	a.	​timing differences are created in consolidation for items such as intercompany profits in inventory.
	b.	​the parent and subsidiary may both incur taxes on the same items.
	c.	​a special tax reserve must be set up in owners’ equity.
	d.	​None of the above.

20. When there is an excess of fair value over cost relative to an identifiable asset,

	a.	​the recording of a deferred tax liability is required for the excess.
	b.	​the recording of a deferred tax liability is necessary for the amount of the tax rate times the excess.
	c.	no amortization of a deferred tax liability is necessary​
	d.	​this excess does not create a deferred tax liability that needs to be recorded.

21. Discuss how the following items affecting shareholder equity are disclosed in a consolidated statement of cash flows:

​

1)  The acquisition of controlling interest by issuing shares of stock

​

2)  The purchase of additional subsidiary shares from the non-controlling interest

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3)  Subsidiary dividends

Answer 1

18.) Option is C : when the ownership interest is less than 20 % then 70 % of the dividends received by the parent is excluded from reported income.

19.) Option is A:  one complication that arises in consolidation when the parent and subsidiary have filed separate tax return is timing difference are created in consolidation process for items such as inter company profits in inventory.

20.) Option is B : when there is an excess of fair value over cost relative to an identifiable asset is the recording of a deferred tax liability is necessary for the amount of the tax rate times the excess.

21.)

1.) The acquisition of controlling interest by issuing shares of stock will affect the shareholders equity and should be disclosed in a consolidated financial statement.

2.) The purchase of additional subsidiary shares from the non controlling interest shall not be disclosed in a consolidated statement of cash flows.

3.) subsidiary dividends will have an effect on share holders equity hence it is to disclosed in a consolidated statement of cash flows.