29 Jun Question 5. On January 1, 20X1, P
Question
5. On January 1, 20X1, Panther Company purchased 100% of the common stock of Seahawk Company for $1,410,000. On this date, Seahawk had total owners’ equity of $1,150,000.
On December 31, 20X4, Seahawk Company had reported an operating loss before taxes of $175,000. Assume a tax rate of 35%. Since a carryback of $75,000 was available, a tax refund receivable of $26,250 was recorded and a net-of-tax loss of $148,750 was reported. At the date of purchase, Panther Company has concluded that the balance of the tax benefit of the operating loss will be realized in 20X1 when a consolidated tax return is prepared.
On January 1, 20X1, the excess of cost over book value is due to the tax benefit above, to a $30,000 undervaluation of Bonds Payable, to an undervaluation of land, building and equipment, and to goodwill. The fair value of land is $500,000. The fair value of building and equipment is $750,000. The book value of the land is $400,750. The book value of the building and equipment is $613,000.
2-12
Chapter 2
Required:
a. Using the information above and on the separate worksheet, complete a schedule for determination and distribution of the excess of cost over book value.
b. Complete the Figure 2-3 worksheet for a consolidated balance sheet as of January 1, 20X1.
6. On January 1, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $248,800. On this date, Subsidiary had total owners’ equity of $240,000.
On December 31, 20X4, Subsidiary Company had reported an operating loss before taxes of $40,000. Assume a tax rate of 30%. Since a carryback of $20,000 was available, a tax refund receivable of $6,000 was recorded and a net-of-tax loss of $34,000 was reported. At the date of purchase, Parent Company has concluded that the balance of the tax benefit of the operating loss will be realized in 20X1 when a consolidated tax return is prepared.
On January 1, 20X1, the excess of cost over book value is due to the tax benefit above,
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