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Chapter 06—Cash Flow, EPS, and Taxation
Multiple Choice
1. The cash purchase of a controlling interest in a firm requires disclosure on the consolidated statement of cash flows as
a(n)
a. financing activity only.
b. financing activity and in the schedule of noncash financing and investing activity.
c. investing activity only.
d. investing activity and in the schedule of noncash financing and investing activity.
ANSWER: d
RATIONALE: The purchase of a controlling interest represents an investing activity. Since it is also
necessary to explain the total increase in consolidated assets and the addition of the NCI to
the consolidated balance sheet, it must also be disclosed in the schedule of noncash investing
and financing activity.
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.6-1
2. Ponti Company purchased the net assets of the Sorri Company for $800,000. The book value of the net assets of Sorri
Company were as follows on the acquisition date:
Cash $ 50,000
Inventory 150,000
Land 150,000
Building (net) 400,000
Liabilities (200,000)
Net assets $550,000
The market values were as follows: Inventory, $160,000; Land, $170,000; Building, $450,000. The excess purchase price
is allocated to goodwill. On the consolidated statement of cash flows, what is the amount that will appear as cash applied
to investing as a result of this purchase?
a. $800,000
b. $720,000
c. $750,000
d. $670,000
ANSWER: c
RATIONALE: The following caption and amount would be included in the investing section of the
consolidated statement of cash flows:
Payment for purchase of Sorri Company, net of cash acquired $750,000*
*Represents the $800,000 paid for Sorri Company, less the $50,000 cash purchased with the
company.
DIFFICULTY: M
3. Company P acquired 80% of the outstanding common stock of the Company S by issuing common stock with a market
value of $550,000. The balance sheet of Company S was as follows on the acquisition date:
Assets Liabilities and Equity
Cash $ 50,000 Liabilities $120,000
Inventory 120,000 Common stock, $10 par 100,000
Cengage Learning Testing, Powered by Cognero Page 1
Land 100,000 Other paid-in capital 150,000
Building (net) 350,000 Retained earnings 250,000
Total $620,000 Total $620,000
The market values were as follows: Inventory, $130,000; Land, $120,000; Building, $400,000. What is the amount that
will appear as Cash Provided (Used) by Investing Activities on the consolidated statement of cash flows, as a result of this
purchase?
a. $600,000
b. $500,000
c. $50,000
d. $0
ANSWER: c
RATIONALE: Because the company was paid for with stock (a non-cash transaction not requiring cash
outflows), the amount included in the investing activities in the consolidated statement of
cash flows would be the $50,000 cash purchased with the company.
DIFFICULTY: M
4. In a noncash purchase of a controlling interest in a firm, disclosure is required on the consolidated statement of cash
flows as a(n)
a. financing activity only.
b. financing activity and in the schedule of noncash financing and investing activity.
c. investing activity only.
d. investing activity and in the schedule of noncash financing and investing activity.
ANSWER: d
RATIONALE: The purchase of a controlling interest represents an investing activity. Since it is also
necessary to explain the total increase in consolidated assets and the addition of the NCI to
the consolidated balance sheet and the increase in the securities issued, it must also be
disclosed in the schedule of noncash investing and financing activity.
DIFFICULTY: E
5. Company P acquired 75% of the outstanding common stock of the Company S by issuing common stock with a market
value of $650,000 on January 1, 2016. The balance sheet of Company S was as follows on the acquisition date:
Cash $100,000 Liabilities $100,000
Total $840,000 Total $840,000
The market values were as follows: Inventory, $180,000; Land, $150,000; Building, $600,000. What is the amount that
will appear as Cash Provided (Used) by Financing Activities as a result of this purchase?
a. $560,000
b. $100,000
c. $75,000
d. $0
ANSWER: d
RATIONALE: Because the company was paid for with stock (a non-cash transaction not resulting in cash
inflows from the sale of stock), no amount would be included in the financing activities in the
consolidated statement of cash flows.
DIFFICULTY: D
6. Amortization of excesses in periods subsequent to the purchase would affect which sections of a consolidated statement
of cash flows?
a. operating activity
b. financing activity
c. investing activity
d. all of the above
ANSWER: a
RATIONALE: Amortization of excesses in periods subsequent to the purchase would affect the operating
activity section of the consolidated statement of cash flows.
DIFFICULTY: E
7. Company P acquired 60% of the outstanding common stock of Company S by issuing common stock with a market
value of $420,000 on January 1, 2016. The balance sheet of Company S was as follows on the acquisition date:
Cash $ 50,000 Liabilities $ 80,000
Total $500,000 Total $500,000
The market values were as follows: Inventory, $130,000; Land, $150,000; Building, $400,000. The inventory was sold
during 2016, the building has a 10-year life, and any excess purchase price is attributed to goodwill. What adjustment is
needed to consolidated net income to arrive at cash flow-operations for 2017, under the indirect method, as a result of
amortization of excesses from the purchase?
a. $1,000
b. $9,000
c. $14,800
d. $15,000
ANSWER: d
RATIONALE: Only the excess purchase price attributed to the building would result in amortization in
2017. The amount is calculated as follows:
Fair value of the building $400,000
Book value of the building 250,000
Excess purchase price 150,000
Estimated life 10 years
Annual amortization $ 15,000
DIFFICULTY: M
8. Company P purchased an 80% interest in Company S on January 1, 2016, at a price in excess of book value, such that a
patent arises in the consolidation process. As a result of amortizing the patent on the consolidated income statement, an
adjustment would be required in which section of the consolidated statement of cash flows?
Operating InvestingFinancing No Adjustment
a. Yes No No No
b. No Yes No No
c. No No Yes No
d. No No No Yes
ANSWER: a
RATIONALE: The amortization of the patent would be included in the operating section of the consolidated
statement of cash flows.
DIFFICULTY: E
9. The purchase of additional shares from the non-controlling interest of a subsidiary by the parent results in disclosure in
which section of a cash flow statement?
a. operating activities
b. financing activities
c. investing activities
d. not reflected on the statement of cash flows
ANSWER: b
RATIONALE: The purchase of additional shares from the non-controlling interest of a subsidiary results in
an outflow of cash and is considered to be the purchase of treasury shares, so it would be
included in the financing activities.
DIFFICULTY: M
10. The purchase of additional shares directly from a subsidiary by the parent results in disclosure in which section of a
consolidated statement of cash flows?
a. operating activities
b. financing activities
c. investing activities
d. not reflected on the consolidated statement of cash flows
ANSWER: d
RATIONALE: Because the purchase of additional shares directly from the subsidiary does not result in cash
flowing in or out of the company, it would not appear on the consolidated statement of cash
flows.
DIFFICULTY: E
11. A parent company owns 80% of the common stock of its subsidiary. During the current year, the parent purchases an
additional 10% interest from non-controlling shareholders. This cash transaction will appear in which section of the
consolidated statement of cash flows?
Operating Investing Financing No Adjustment
a. Yes No No No
b. No Yes No No

c. No No
Yes No
d. No No
No Yes
ANSWER: c
RATIONALE: A parent’s purchase of additional stock from the non-controlling shareholders is considered a
purchase of treasury shares and is included in the financing section of the consolidated
DIFFICULTY: M
12. Dividends paid by a subsidiary have the following effect on the consolidated cash flow
a. all dividends to the parent and to non-controlling stockholders appear on the statement.
b. only dividends to the parent appear on the statement.
c. only dividends to NCI appear on the statement.
d. neither dividends to the parent or to non-controlling stockholders appear on the statement
ANSWER: c
RATIONALE: Dividends paid by the subsidiary to the controlling interest are a transfer of cash within the
consolidated entity and would not appear on the consolidated statement of cash flows,
however, dividends to the NCI are cash flows to parties outside the consolidated group and
would be included as a financing activity on the consolidated statement of cash flows.
DIFFICULTY: E
13. Which of the following statements is true about the consolidated statement of cash flows?
a. The purchase of intercompany bonds from parties outside the consolidated group is treated as a retirement of
consolidated debt; the payment is reported as a cash outflow from financing activities.
b. The purchase of intercompany bonds from parties outside the consolidated group is treated as a retirement of
consolidated debt; the payment is reported as a cash outflow from investing activities.
c. Intercompany interest payments and amortization of premiums and/or discounts on intercompany bonds are
reported in the operating activities section of the statement.
d. Intercompany interest payments and amortization of premiums and/or discounts on intercompany bonds are
reported in the investing activities section of the statement.
ANSWER: a
RATIONALE: The purchase of intercompany bonds from parties outside the consolidated company is
considered a retirement of the bonds and is reported as a cash outflow from financing
activities.
DIFFICULTY: M
14. A parent company purchased all the outstanding bonds of its subsidiary. This cash transaction will appear in which
section of the consolidated statement of cash flows?
Operating Investing Financing No Adjustment
a. Yes No No No
b. No Yes No No
c. No No Yes No
d. No No No Yes
ANSWER: c
RATIONALE: The parent’s purchase of the outstanding bonds of its subsidiary from third parties is
considered a retirement of debt and is included in the financing section of the consolidated
DIFFICULTY: M
15. Investor has a 40% ownership interest in the common stock of Investee. Investor paid $10,000 more than book value
for its 40% interest and regards the excess as attributable to goodwill. If Investee reports income of $200,000 and pays
dividends of $50,000, the operating activities of the consolidated statement of cash flows (indirect method) will reflect an
adjustment of
a. $80,000
b. $70,000
c. $60,000
d. $20,000
ANSWER: c
RATIONALE: Investee activity Investor portion (40%)
Net income $200,000 $80,000
Dividends (50,000) (20,000)
Equity income from Investee in
excess of dividends $60,000
DIFFICULTY: M
16. Consolidated Basic Earnings Per Share (BEPS) is calculated by dividing

a. consolidated net income by parent company outstanding stock.
b. consolidated net income by parent company outstanding stock and subsidiary outstanding stock.
c. consolidated net income by parent company outstanding stock and subsidiary non-controlling outstanding
stock.
d. none of the above
ANSWER: d
RATIONALE: Consolidated BEPS is calculated as follows:
Parent Parent Parent
adjusted Parent interest portion of
internally - preferred + in + subsidiary
generated stock subsidiary preferred
net income dividends income * dividends **
Weighted average parent company common shares outstanding
* Parent-owned subsidiary common shares x Subsidiary BEPS
** Parent-owned subsidiary preferred shares x Subsidiary preferred dividends per share
DIFFICULTY: E
17. Program Corporation owns 70% of Solution Company. Selected financial data for each for the current year follows:
Program Corporation:
Internally generated net income $125,000
Common shares outstanding 100,000
Solution Company:
Net income (adjusted for intercompany profits) $ 50,000
Common shares outstanding 10,000
Consolidated basic earnings per share (BEPS) is (round to the nearest cent):
a. $1.25
b. $1.64
c. $1.60
d. $1.59
ANSWER: c
RATIONALE: Subsidiary BEPS = $50,000 / 10,000 shares = $5.00
Consolidated BEPS = $125,000 + (70% x 10,000 x $5) = $160,000 = $1.60
100,000 shares 100,000
DIFFICULTY: M
18. Which of the following is not true regarding diluted earnings per share (DEPS) when the subsidiary has outstanding
dilutive securities which may require the issuance of subsidiary company shares only?
a. The calculation of consolidated DEPS becomes a two-stage process where the DEPS of the subsidiary must
first be calculated.
b. The controlling interest’s share of net income is divided by the number of outstanding parent shares.
c. Both the income of the parent and subsidiary would be the income as shown in their respective income
distribution schedules, except for the inclusion of the parent’s share of subsidiary income.
d. The DEPS of the subsidiary is a component of the calculation of consolidated DEPS.
ANSWER: b
RATIONALE: The controlling interest’s share of net income is divided by the number of outstanding parent
shares only if the subsidiary has no dilutive securities.
DIFFICULTY: D
19. When the acquisition of a subsidiary occurs during a reporting period, the computation of both Basic earnings per
share (BEPS) and Diluted earnings per share (DEPS) includes subsidiary income
a. and subsidiary securities for the entire period.
b. for the entire period and the number of subsidiary shares weighted for the partial period.
c. for the partial period and the number of subsidiary shares weighted for the partial period
d. for the partial period and the number of subsidiary shares entire period
ANSWER: c
RATIONALE: When an acquisition occurs during a reporting period, only the subsidiary income since the
acquisition date is included and the number of subsidiary shares is weighted for the partial
period.
DIFFICULTY: E
20. For two or more corporations to file a consolidated tax return, the parent must own what percentage of the voting
power of all classes of stock and what percentage of the fair value of all the outstanding stock of the corporation?
a. 90%
b. 80%
c. 70%
d. 60%
ANSWER: b
RATIONALE: Section 1504(a) of the Tax Code does not allow two or more corporations to file a
consolidated tax return unless the parent owns 80% of the voting power of all classes of stock
and 80% of the fair market value of all the outstanding stock of the other corporation.
DIFFICULTY: E
21. In calculating the voting power and market value for two or more corporations to file a consolidated tax return,
preferred stock is included only if it
a. is entitled to vote.
b. is not limited and not preferred as to dividends.
c. has redemption rights beyond its issue price plus a reasonable redemption or liquidation premium and is
convertible into the other class of stock.
d. meets any of the above conditions.
ANSWER: d
RATIONALE: Preferred stock is not included in calculating the voting power and market value if it is not
entitled to vote, is limited and preferred as to dividends, does not have redemption rights
beyond its issue price plus a reasonable redemption or liquidation premium, and is not
convertible into the other class of stock.
DIFFICULTY: M
22. Consolidated firms that meet the tax law requirements to be an affiliated group
a. must file a consolidated return.
b. must receive permission of the Internal Revenue Service to file separately.
c. may elect to file as a single entity or as a consolidated group.
d. cannot change the method of filing in the future.
ANSWER: c
RATIONALE: Consolidated firms that meet the tax law requirements to be an affiliated group may elect to
be taxed as a single entity or as separate entities. However, once the election is made to file
as a single entity, the permission of the IRS is required before the companies can file
separately again.
DIFFICULTY: E
23. When an affiliated group elects to be taxed as a single entity, taxable income is calculated based on
a. consolidated income as determined on the consolidated worksheet.
b. each firms separate income.
c. each firms separate income with adjustments for intercompany transactions.
d. none of the above.
ANSWER: a
RATIONALE: When an affiliated group elects to be taxed as a single entity, consolidated income is
determined on the consolidated worksheet.

DIFFICULTY: E
24. Company P purchased an 80% interest in Company S on January 1, 2016, for $800,000. On the purchase date,
Company S stockholders' equity was $800,000. Any excess of fair value over book value was attributed to a patent with a
10-year remaining life. In 2016, Company P reported internally generated net income before taxes of $150,000. Company
S reported a net income before taxes of $70,000. The firms file a consolidated tax return at a 30% tax rate. The
nondeductible portion of excess amortization is
a. $20,000
b. $15,000
c. $4,000
d. $0 (The amortization is fully deductible)
ANSWER: c
RATIONALE: Fair value of entity ($800,000 / 80%) $1,000,000
Book value of shareholders’ equity 800,000
Excess of price over fair value attributable to
patent 200,000
Estimated life of patent 10 years
The NCI’s portion of $4,000 ($20,000 x 20%) is not deductible.
DIFFICULTY: M
S reported a net income before taxes of $70,000. The firms file a consolidated tax return at a 30% tax rate. The controlling
share of consolidated net income is
a. $14,000
b. $12,000
c. $28,000
d. $36,000
ANSWER: c
RATIONALE: Controlling NCI Total
[1] Sub’s adjusted income ($70,000 – $20,000* $ 40,000 $ 10,000 $ 50,000
amortization)
Nondeductible NCI share of asset
amortization 4,000
Taxable income 40,000 14,000
[2] 30% tax on taxable income 12,000 4,200 16,200
Net-of-tax share of income [1] - [2] $ 28,000 $ 5,800 $ 33,800
*Fair value of entity ($800,000 / 80%) $1,000,000

patent 200,000
DIFFICULTY: D
S reported a net income before taxes of $70,000. The firms file a consolidated tax return at a 30% tax rate. The tax on
subsidiary earnings is
a. $20,000
b. $16,200
c. $15,000
d. $10,000
ANSWER: b
RATIONALE: Subsidiary Tax Schedule: Controlling NCI Total
[1] Total adjusted income ($70,000 - $20,000*) $ 40,000 $ 10,000 $ 50,000
[2] Nondeductible NCI share of asset
Amortization 4,000
[3] Taxable income 40,000 14,000
[4] 30% tax on taxable income [3] 12,000 4,200 16,200
Net-of-tax share of income [1]-[4] $ 28,000 $ 5,800 $ 33,800
*Fair value of entity ($800,000 / 80%) $1,000,000

patent 200,000
DIFFICULTY: D
S reported a net income before taxes of $70,000. The firms file a consolidated tax return at a 30% tax rate. The
consolidated net income is
a. $142,800
b. $121,800
c. $138,800
d. $152,000
ANSWER: c
RATIONALE: Parent internally generated net income $ 150,000
Subsidiary internally generated net income 70,000
Amortization of excess * (20,000)
Consolidated income before income taxes 200,000
Nondeductible NCI share of excess

amortization 4,000
Adjusted consolidated IBIT 204,000
Tax rate 30%
Taxes $ 61,200
Consolidated net income = $200,000 - 61,200 tax =
$138,800
Calculation of excess:
Fair value of entity ($800,000 / 80%) $1,000,000
patent 200,000
DIFFICULTY: D
28. Because good will is amortized over 15 years for tax purposes, but is not amortized for financial reporting:
a. impairment of goodwill will result in a deferred tax liability.
b. there are no deferred tax implications.
c. a deferred tax liability results from amortization which will not be utilized until goodwill is impairment
adjusted or the company is later sold.
d. a subsidiary will include any goodwill amortization the parent deducts in its taxable income.
ANSWER: c
RATIONALE: Amortization of goodwill for tax purposes will result in a deferred tax liability which will not
be utilized until either the goodwill is impairment adjusted or the company is later sold. The
amortization reduces current taxes payable (debit) and creates a long-term deferred tax
liability (credit).
DIFFICULTY: M
29. For companies that meet the requirements of an affiliated firm but elect to file separately, the parent may exclude how
much of the dividends received from reported income?
a. 100%
b. 80%
c. 70%
d. 20%
ANSWER: a
RATIONALE: When the members of a consolidated company meet the requirements of an affiliated
company, but elect to file separately, 100% of the dividends received is excluded from
reported income.
DIFFICULTY: E
30. For ownership interest of at least 20% but less than 80%, 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%
ANSWER: b
RATIONALE: When a parent company has an ownership interest of at least 20%, but less than 80%, 80% of
the dividends received by the parent is excluded from reported income.
DIFFICULTY: E
31. 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%
ANSWER: c
RATIONALE: When an investor company has an ownership interest of less than 20%, 70% of the dividends
received by the parent is excluded from reported income.
DIFFICULTY: E
32. 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.
ANSWER: a
RATIONALE: Timing differences are created during the consolidation process for items such as
intercompany profits in inventory if the parent and subsidiary have filed separate tax returns
because the amounts eliminated from income have not been considered in either company’s
tax return.
DIFFICULTY: M
Company S stockholders' equity was $800,000. Any excess of cost over book value was attributed to a patent with a 10-
year life. In 2016, Company P reported internally generated income before taxes of $80,000. Company S reported
internally generated income before taxes of $40,000. The firms file separate tax returns at a 30% tax rate. Assume an 80%
exclusion rate on intercompany income. The nondeductible portion of excess amortization is
a. $0 (The amortization is fully deductible)
b. $9,750
c. $2,500
d. $4,500
ANSWER: c
RATIONALE: *Fair value of entity ($675,000 / 80%) $900,000

patent 100,000
The NCI’s portion of amortization is not deductible. This is $2,500 ($10,000 x 25%)
DIFFICULTY: M
Company S stockholders' equity was $800,000. Any excess of cost over book value was attributed to a patent with a 10-
year life. In 2016, Company P reported internally generated income before taxes of $80,000. Company S reported
internally generated income before taxes of $40,000. The firms file separate tax returns at a 30% tax rate. Assume an 80%
exclusion rate on intercompany income. The tax applicable to Company S’s income is
a. $15,750
b. $9,750
c. $2,500
d. $4,500
ANSWER: b
RATIONALE: Subsidiary Tax Schedule Entity 80% Parent 20% NCI
Adjusted income * $30,000 $22,500 $ 7,500
Non-deductible portion of 2,500 - 2,500
amortization
Taxable income $32,500 $22,500 $10,000
30% tax on taxable income $ 9,750 $ 6,750 $ 3,000
* $40,000 Net income - $10,000 amortization of excess amounts
DIFFICULTY: D
35. Assume the parent owns 90% of the subsidiary and has an adjusted internally generated net income of $100,000 and
5,000 shares of common stock outstanding. Also assume the parent has dilutive bonds outstanding that are convertible
into 2,000 shares of common stock and the interest paid on these bonds was $4,000. What is the consolidated diluted
earnings per share (DEPS) if the subsidiary data include: 3,000 shares of common stock, 150 shares of convertible bonds
that are held by parent, 5 shares of common stock that are from convertible bonds outstanding by subsidiary and
subsidiary diluted earnings per share of $ 6.88.
a. $ 20.80
b. $ 25.48
c. $ 18.25
d. $ 14.86
ANSWER: c
RATIONALE: Consolidated DEPS = $100,000 + $ 4,000 + $23,736 *
5,000 +
2,000 = $18.25
*$23,736 = $6.88 x (90% x 3,000 shares + 150 shares x 5 shares)

DIFFICULTY: MED
36. 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.
ANSWER: b
DIFFICULTY: EA
Subjective Short Answer
37. Company S has been an 80%-owned subsidiary of Company P since January 1, 2018. The determination and
distribution of excess schedule prepared at the time of purchase was as follows:
Entity 80% Parent 20% NCI
Entity FV $ 712,500 $ 570,000 $ 142,500
Book value:
Pain-in capital in excess of par 300,000
Retained earnings 1/1/20 300,000
Book value 600,000 480,000 120,000
Excess $ 112,500 $ 90,000 $ 22,500
Equipment $ 50,000 10 yr 5,000
Goodwill 62,500
Total $ 112,500
On January 2, 2019, Company P issued $120,000 of 8% bonds at face value to help finance the purchase of 25% of the
outstanding common stock of Alpha Company for $200,000. No excess resulted from this transaction. Alpha earned
$100,000 net income during 2019 and paid $20,000 in dividends.
The only change in plant assets during 2019 was that Company S sold a machine for $10,000. The machine had a cost of
$60,000 and accumulated depreciation of $40,000. Depreciation expense recorded during 2019 was as follows:
Company P Company S Alpha Company
Buildings $15,000 $ 8,000 $12,000
Machinery 35,000 20,000 4,000
The 2019 consolidated income was $180,000, of which the NCI was $10,000. Company P paid dividends of $12,000, and
Company S paid dividends of $10,000.
Consolidated inventory was $287,000 in 2018 and $223,000 in 2019; consolidated current liabilities were $246,000 in
2018 and $216,700 in 2019. Cash increased by $203,700.
Required:
Using the indirect method and the information provided, prepare the 2019 consolidated statement of cash flows for
Company P. and its subsidiary, Company S.
ANSWER: Company P and Subsidiary Company S
Consolidated Statement of Cash Flows

For the Year Ended December 31, 2019

Cash flows from operating activities:
Consolidated net income $180,000
Adjustment to reconcile net income to net cash:
Building depreciation (1) 23,000
Machine depreciation (2) 60,000
Undistributed equity income from Alpha (20,000)
investment (3)
Loss on sale of machinery (4) 10,000
Decrease in inventory (5) 64,000
Decrease in current liabilities (6) (29,300)
Total adjustments 107,700
Net cash flows provided by operating activities $287,700
Cash flows from investing activities:
Payment for purchase of Alpha Company $(200,000)
Proceeds from sale of machine 10,000
Net cash flows used in investing activities (190,000)
Cash flows from financing activities:
8% bond issuance $120,000
Dividends paid by Company P (12,000)
Dividends paid by Company S to unaffiliated (2,000)
owners (7)
Net cash flows provided by financing activities 106,000
Net increase in cash $203,700
(1) Building depreciation: $15,000 (P) + $8,000 (S)

(2) Machine depreciation: $35,000 (P) + $20,000 (S) + $5,000 (Amortization of excess)
(3) Undistributed equity income: It is assumed that Company P has an influential investment
in Alpha to be accounted for by the equity method. Alpha had net income of $100,000 less
dividends paid of $20,000 for a net $80,000 in retained income. P Company’s share of this is
25% or $20,000.
(4) The net book value of the machine sold was $20,000 ($60,000 - $40,000). The proceeds
from the machine were $10,000 leaving a $10,000.
(5) Decrease in inventory: $287,000 in 2018 - $223,000 in 2019 = $64,000 inflow
(6) Decrease in current liabilities: $246,000 in 2018 - $216,700 in 2019 = $29,300 outflow
(7) Dividends to unaffiliated owners of S: $10,000 x 20% = $2,000
DIFFICULTY: M
38. The following comparative consolidated trial balances apply to Perella Company and its subsidiary Sherwood
Company (80% control):
12/31/17 12/31/18
Cash $ 275,000 $ 300,800
Trading securities portfolio (at market) 160,000 120,000
Accounts receivable 350,000 379,600
Inventories 316,000 268,000
Land 95,000 180,000
Property, plant and equipment 500,000 520,000
Accumulated depreciation (135,000) (152,000)
Goodwill 60,000 60,000
Current liabilities (190,000) (154,500)
Long-term notes payable (450,000) (390,000)
NCI (161,000) (188,780)
Paid-in Capital (660,000) (670,000)
Retained Earnings (195,000) (288,120)
Treasury Stock 35,000 15,000
$ --- $ ---
The following is additional information for 2018:
a) No trading securities were sold nor were any investments added to the portfolio.
b) Land was acquired by issuing a $40,000 note and giving cash for the balance.
c) Equipment (cost $50,000; accumulated depreciation $40,000) was sold for $3,000
d) Dividends declared and paid: Perella 50,000; Sherwood $40,000.
e) Consolidated net income amounted to $178,900.
Required:
Prepare the consolidated statement of cash flows for the year ended December 31, 2018, for Perella and its subsidiary.
ANSWER: Perella Company


Consolidated net income $ 178,900
Adjustment to reconcile net income to net cash
Depreciation expense (3) $ 57,000
Unrealized loss on trading portfolio 40,000
Loss on sale of equipment 7,000
Decrease in inventory 48,000
Increase in accounts receivable (29,600)
Decrease in current liabilities (35,500)
Net cash provided by operating activities 265,800
Proceeds - sale of equipment $ 3,000
Down payment for land (1) (45,000)
Purchase equipment (2) (70,000)
Net cash used by investing activities (112,000)
Reissue treasury stock (5) 30,000
Retire long-term debt (4) (100,000)
Dividends paid (6):
By Perella (50,000)
By Sherwood, to non-controlling (8,000)
interest
Net cash used by financing activities (128,000)
Net change in cash 25,800
Cash at beginning of year 275,000
Cash at year end $ 300,800
NONCASH FINANCING AND INVESTING ACTIVITIES:

Acquired land with $40,000 long-term note and $45,000 cash. (1)(4)
Net Inflow
12/31/17 12/31/18 (Outflow)
Cash $ 275,000 $ 300,800 $ (25,800)
Trading securities portfolio (at 160,000 120,000 40,000
market)
Accounts receivable 350,000 379,600 (29,600)
Inventories 316,000 268,000 (48,000)
Land 95,000 180,000 (85,000) (1)
Property, plant and equipment 500,000 520,000 (20,000) (2)
Accumulated depreciation (135,000) (152,000) 17,000 (3)
Goodwill 60,000 60,000 -
Current liabilities (190,000) (154,500) 35,500
Long-term notes payable (450,000) (390,000) 60,000 (1) (4)
NCI (161,000) (188,780) 27,780 (6)
Paid-in Capital (660,000) (670,000) 10,000 (5)
Retained Earnings (195,000) (288,120) 93,120 (6)
Treasury Stock 35,000 15,000 20,000 (5)
(1) New debt of $40,000 was issued for land. Total land purchased was $85,000, so $45,000
must have been the down payment.
(2) Net $20,000 increase in equipment: equipment having a cost of $50,000 was sold, so
$70,000 of equipment must have been purchased.
(3) Net $17,000 increase in accumulated depreciation: equipment with accumulated
depreciation of $40,000 was sold, so depreciation expense must be $57,000.
(4) Net $60,000 decrease in long-term debt: $40,000 in new debt was added with land
purchase, so $100,000 of debt must have been retired.
(5) Decrease in treasury stock of $20,000 + increase in paid-in capital of $10,000.
(6) Consolidated net income: $178,900
Perella share: $178,900 x 80% = $143,120 vs. $93,120 change in Retained earnings so
$50,000 in dividends were paid.
Sherwood share: $178,900 x 20% = $35,780 vs. $27,780 change in NCI so $8,000 in
dividends were paid.
DIFFICULTY: D
39. The following comparative consolidated trial balances apply to Pembina Company and its subsidiary Scranton
Company (80% interest) for the fiscal year ended 12/31/18:
12/31/17 12/31/18
Cash $ 145,000 $ 419,000
Trading Securities Portfolio (at market) 160,000 175,000
Accounts Receivable 440,000 384,000
Inventories 525,000 542,000
Land 130,000 105,000
Plant, Property, and Equipment 660,000 680,000
Accumulated Depreciation (145,000) (188,000)
Goodwill 60,000 60,000
Current Liabilities (474,000) (502,000)
Long-Term Notes Payable (450,000) (450,000)
Deferred Taxes (35,000) (33,000)
NCI (161,000) (199,800)
Paid-In Capital (660,000) (660,000)
$ --- $ ---
The following events occurred during the year:
a) No trading securities were sold nor were any investments added to the portfolio.
b) Sold land, book value $25,000, for $80,000.
c) Purchased equipment with a cost of $50,000 to replace equipment, book value $13,000,
that was sold for $10,000.
d) Dividends declared and paid: Pembina $50,000; Scranton $40,000.
e) Consolidated net income: $234,000.
Required:
Prepare the consolidated statement of cash flows for the year ended December 31, 2018, for Pembina and its subsidiary.
ANSWER: Pembina, Inc. and Subsidiary Scranton Company


Depreciation expense (1) 60,000
Mark-to-market adjustment of trading portfolio (15,000)
Deferred income tax change (2,000)
Loss on sale of property 3,000
Gain on sale of land (55,000)
Increase in inventory (17,000)
Decrease in accounts receivable 56,000
Increase in current liabilities 28,000
Proceeds from sale of equipment 10,000
Proceeds from sale of land 80,000
Purchase equipment (1) (50,000)
Net cash provided by investing activities 40,000
Dividends paid (2):
By Pembina (50,000)
By Scranton, to non-controlling interest (8,000)
Change in cash 274,000
Cash at beginning of year 145,000
Cash at year end $ 419,000
Net Inflow
12/31/17 12/31/18 (Outflow)
Cash $ 145,000 $ 419,000 $ (274,000)
Trading Securities Portfolio (at market) 160,000 175,000 (15,000)
Accounts Receivable 440,000 384,000 56,000
Inventories 525,000 542,000 (17,000)

Land 130,000 105,000 25,000
Plant, Property, and Equipment (1) 660,000 680,000 (20,000)
Accumulated Depreciation (1) (145,000) (188,000) 43,000
Goodwill 60,000 60,000 -
Current Liabilities (474,000) (502,000) 28,000
Long-Term Notes Payable (450,000) (450,000) -
Deferred Taxes (35,000) (33,000) (2,000)
NCI (2) (161,000) (199,800) 38,800
Paid-In Capital (660,000) (660,000) -
Retained Earnings (2) (195,000) (332,200) 137,200
(1) Net cash outflow for equipment = $20,000: new equipment purchased was $50,000; so
cost of equipment sold was $30,000. The net book value of the equipment sold was $13,000,
so the accumulated depreciation of the equipment sold was $17,000. The net change in
accumulated depreciation was $43,000, if the accumulated depreciation relating to the item
sold was $17,000, depreciation expense was $60,000.
(2) Consolidated net income = $234,000. The income attributable to the controlling interest is
80% of this amount or $187,200. Since the net change in Retained earnings is $137,200,
dividends were $50,000. The income attributable to the NCI is $38,800. Since the change in
the NCI is $46,800, the dividends paid to the NCI were $8,000.
DIFFICULTY: M
40. Plaza Company acquires an 80% interest in Scenic Company for $200,000 cash on January 1, 2020. On that date,
Scenic’s equipment (remaining economic life of 5 years) is undervalued by $25,000; any excess of cost over book value is
attributed to goodwill. Scenic’s balance sheet on the date of the purchase is as follows:
Cash $ 30,000 Current liabilities $ 30,000
Inventory 30,000 Long-term liabilities 40,000
Property, (net) 210,000 Common Stock (no par) 150,000
Retained Earnings 50,000
Total assets $270,000 Total Liabilities & Equity $270,000
The controlling interest in consolidated net income for 2020 is $97,900; the non-controlling interest is $6,000. On
December 31, 2020, Plaza acquired a 15% interest in Adams, Inc. and, in an unrelated transaction, issued additional
common stock. Dividends declared and paid during the year by Plaza and Scenic were $30,000 and $15,000, respectively.
There are no purchases or sales of property, plant, or equipment during the year. Based on the following information,
prepare a statement of cash flows using the indirect method for Plaza Company and its subsidiary for the year ended
December 31, 2020.
Plaza Consolidated
1/1/20 12/31/20
Cash 100,000 87,100
Inventory 50,000 84,300
Property (net) 600,000 772,000
Investment in Adams 57,500
Goodwill 25,000
Long-term Liabilities (100,000) (130,000)
NCI (53,000)
Paid-in Capital (400,000) (490,000)
--- ---
Required:
Prepare the consolidated statement of cash flows for the year ended December 31, 2020, for Plaza and its subsidiary.
ANSWER: Plaza, Inc. and Subsidiary Scenic Company


Consolidated net income (1) $ 103,900
Depreciation expense (2) $ 63,000
Inventory increase (4,300)
Current liabilities increase 5,000
Purchase of interest in Scenic, net of cash acquired $ (170,000)
Investment in Adams (3) (57,500)
Issue common stock (4) $ 90,000
Payment of long-term debt (10,000)
Dividends paid:
By Plaza (1) (30,000)
By Scenic, to non-controlling interest (1) (3,000)
Net cash provided by financing activities 47,000
Net decrease in cash (12,900)
Cash at beginning of year (Parent only) 100,000
Cash at year end (consolidated) $ 87,100
NONCASH TRANSACTION DISCLOSURE:

Plaza acquired 80% of the common stock of Scenic for $200,000 cash. In conjunction
with the acquisition, liabilities were assumed and a non-controlling interest was
created as follows:
Adjusted value of assets acquired $ 270,000
Plus excess 50,000 $ 320,000
Cash paid for common stock $ 200,000
Liabilities assumed 70,000
Non-controlling interest 50,000
Scenic
Plaza Acquisition Other Consolidated
1/1/20 (at fair value) Changes 12/31/20
Cash 100,000 (170,000) 157,100 87,100
Inventory 50,000 30,000 4,300 84,300
Property (net) (2) 600,000 235,000 (63,000) 772,000

Investment in Adams (3) 57,500 57,500

Goodwill (b) 25,000 25,000
Current Liabilities (80,000) (30,000) (5,000) (115,000)
Long-term Liabilities (100,000) (40,000) 10,000 (130,000)
NCI (a) (1) (50,000) (3,000) (53,000)
Paid-in Capital (4) (400,000) (90,000) (490,000)
Retained Earnings (1) (170,000) (67,900) (237,900)
(a) NCI at acquisition $200,000 / 80% = $250,000 x 20% = $50,000

(b) $250,000 assumed fair value - $200,000 equity of Seagull - $25,000 fair value adjustment
for equipment = $25,000 goodwill.
(1) Net income: Controlling interest $97,900 + NCI $6,000 = $103,900
Dividends: Plaza $30,000; Scenic $15,000 x 80% to controlling interest $12,000; 20% to NCI
or $3,000. Change in retained earnings $97,900 - $30,000; Change in NCI $6,000 - $3,000.
DIFFICULTY: M
41. Plateau Company acquires an 80% interest in Seagull Company for $200,000 cash on January 1, 2020. On that date,
Seagull’s equipment is undervalued by $25,000; any excess of cost over book value is attributed to goodwill. Seagull’s
balance sheet on the date of the purchase is as follows:
Cash $ 30,000 Current liabilities $ 30,000
Inventory 30,000 Long-term liabilities 40,000
Property, (net) 210,000 Common Stock (no par) 150,000
Retained Earnings 50,000
Total assets $270,000 Total liabilities & equity $270,000
The controlling interest in consolidated net income for 2020 is $97,900; the non-controlling interest is $6,000. During the
year Plateau retired long-term debt by issuing common stock. Dividends declared and paid during the year by Plateau and
Seagull were $30,000 and $15,000, respectively. During the year Seagull sold equipment with a book value of $30,000 for
a gain of $3,000; there were no purchases of property, plant, or equipment during the year.
Plateau Consolidated
1/1/20 12/31/20
Cash 100,000 87,100
Inventory 50,000 73,000
Property (net) 600,000 772,000
Goodwill 25,000
Long-term Liabilities (100,000) (130,000)
NCI (53,000
Paid-in Capital (400,000) (410,000)
--- ---
Required:
Prepare a statement of cash flows using the indirect method for Plateau Company and its subsidiary for the year ended
December 31, 2020.
ANSWER: Plateau, Inc. and Subsidiary Seagull Company


Consolidated net income (1) $ 103,900
Adjustments to reconcile net income to net cash:
Gain on sale of equipment $ ( 3,000)
Depreciation expense (2) 33,000
Inventory decrease 7,000
Current liabilities increase 16,200
Purchase of interest in Seagull, net of cash acquired $ (170,000)
Proceeds from sale of equipment 33,000
Dividends paid (1):
By Plateau (30,000)
By Seagull, to non-controlling interest (3,000)
Net decrease in cash (12,900)
Cash at beginning of year (Parent) 100,000
Cash at year end (consolidated) $ 87,100
NONCASH TRANSACTION DISCLOSURE:
1) Issued common stock to retire long-term debt, (3)
$10,000
2) Plateau acquired 80% of the common stock of Seagull for $200,000 cash. In
conjunction with the acquisition, liabilities were assumed and a non-controlling
interest was created as follows:
Book value of assets acquired $ 270,000
Excess 50,000 $ 320,000
Cash paid for common stock $ 200,000
Liabilities assumed 70,000
Non-controlling interest (a) 50,000
Acquisition of
Plateau Seagull Other Consolidated
1/1/20 (at fair value) changes 12/31/20
Cash 100,000 (170,000) 157,100 87,100
Inventory 50,000 30,000 (7,000) 73,000
Property (net) (2) 600,000 235,000 (63,000) 772,000
Goodwill (b) 25,000 25,000
Current Liabilities (80,000) (30,000) (16,200) (126,200)
Long-term Liabilities (3) (100,000) (40,000) 10,000 (130,000)
NCI (a) (1) (50,000) (3,000) (53,000)
Paid-in Capital (3) (400,000) (10,000) (410,000)
Retained Earnings (1) (170,000) (67,900) (237,900)

(a) NCI at acquisition = $200,000 / 80% = $250,000 x 20% = $50,000

(b) $250,000 assumed fair value - $200,000 equity of Seagull - $25,000 fair value adjustment
for equipment = $25,000 goodwill.
(1) Net income: Controlling interest $97,900 + NCI $6,000 = $103,900
Dividends: Plaza $30,000; Scenic $15,000 x 80% to controlling interest $12,000; 20% to NCI
or $3,000. Change in retained earnings $97,900 - $30,000; Change in NCI $6,000 - $3,000.
(2) Increase in property from acquisition = $210,000 book value + $25,000 excess; decrease
in property from other causes = $30,000 book value of property sold + $33,000 depreciation.
DIFFICULTY: D
42. Plymouth Company holds a 90% interest in Savannah, Inc., which was acquired in a previous year. As of the end of
the current fiscal period, the following information is available:
Plymouth Savannah
Company Inc.
Internally generated net income $80,000 $60,000
Weighted average common shares outstanding 25,000 12,000
Warrants to acquire sub’s common stock:
Held by unaffiliated investors 2,000
Warrants to acquire parent’s common stock:
Held by Savannah 1,000
Held by unaffiliated investors 2,000
Preferred shares 5% convertible, par $100 1,000
Preferred shares 10% nonconvertible, par $2 5,000
Additional information:
· The warrants to acquire Savannah stock were issued July 1 of the current year. Exercise
price is $9; stock price is $12.
· The warrants to acquire Plymouth stock were issued in a previous fiscal period. Exercise
price is $12; stock price is $18.
· Each share of convertible preferred can be converted into 5 shares of Savannah common
stock. Plymouth owns 60% of the convertible preferred stock.
Required:
Compute consolidated basic and diluted earnings per share for the current year. Ignore any tax effects.
ANSWER: BASIC EARNINGS PER SUBSIDIARY CONSOLIDATED

SHARE
denom- denom-
numerator inator numerator inator
Income $ 60,000 $ 80,000
Weighted Average Shares O/S 12,000 25,000
Preferred dividends (5,000) (1,000)
$ 55,000 12,000
$4.58 [a] 49,464
$128,464 25,000
$5.14
DILUTED EARNINGS PER
SHARE
Internal BEPS numerator and $ 55,000 12,000 [b] $ 79,000 25,000
denominator
Exercise of Sub Stock warrants 250
Exercise of Par Stock warrants 1,000
Convert preferred to common 5,000 5,000
$ 60,000 17,250
$3.48 [c] 48,024
$ 127,024 26,000
$4.89
[a] parent-owned equivalent sub shares ´ Sub BEPS = (12,000 ´ 90%) ´ $4.58
[b] $80,000 - $1,000 preferred dividends
[c] (equivalent shares common held + equivalent shares from converted preferred) ´
Sub DEPS =
(10,800 + 3,000) ´ $3.48
DIFFICULTY: M
43. Plymouth Company holds a 90% interest in Savannah, Inc., which was acquired in a previous year. As of the end of
the current fiscal period, the following information is available:
Plymouth Savannah
Company Inc.
Internally generated net income $20,000 $7,000
Weighted average common shares outstanding 10,000 4,000
Subsidiary common stock warrants to
acquire 200 shares parent common stock 200
Dilutive convertible bonds:
Dilutive convertible bonds: 4,000
Parent common stock issued on conversion 2,500
Assume a 50% treasury stock method effect on the stock warrants
Required:
Compute consolidated basic and diluted earnings per share for the current year; ignore income taxes.
ANSWER: BASIC EARNINGS PER SUBSIDIARY CONSOLIDATED

SHARE
denom- denom-
numerator inator numerator inator
Income $ 7,000 $ 20,000
Weighted Average Shares O/S 4,000 10,000
$ 7,000 4,000
$1.75 [a] 6,300
$ 26,300 10,000
$2.63
DILUTED EARNINGS PER SHARE
Internal BEPS numerator and
denominator $ 7,000 4,000 $ 20,000 10,000
Conversion of bonds 4,000 2,500
Exercise of Sub warrants for
Parent common stock (200 x
50%) 100
$ 11,000 6,500
$1.69 [b] 6,084
$ 26,084 10,100
$2.58
[a] parent-owned equivalent sub shares ´ Sub BEPS = (4,000 ´ 90%) ´ $1.75
[b] parent-owned equivalent sub shares ´ Sub DEPS = (4,000 ´ 90%) ´ $1.69
DIFFICULTY: M
44. Dills Company purchased an 80% interest in the common stock of Sarada Company for $140,000 on January 1, 2018.
On this date the book value of Sarada’s net identifiable assets totaled $100,000. Any excess was attributed to a patent with
a 10-year life.
During 2019, Dills Company and Sarada Company reported the following internally generated income before taxes:
Dills Co. Sarada Co.
Sales $300,000 $120,000
Cost of goods sold (200,000) (90,000)
Gain on machine 10,000 --
Expenses (40,000) (20,000)
Income before taxes $ 70,000 $ 10,000
Sarada Company routinely sells goods to Dills Company. This year those sales amounted to $60,000. Dills Company
inventories included intercompany goods of $30,000 at the beginning of the year and $12,000 at the end of the year.
Sarada Company sells goods to Dills Company at a gross profit of 16.67%.
On January 1, 2019 Dills Company sold a new machine to Sarada Company, for $40,000. The cost of the machine was
$30,000. It has a 5-year life.
The affiliated group files a consolidated tax return and is taxed at 30%.
Required:
Prepare a consolidated income statement for 2019. Include income distribution for both firms.
ANSWER: Dills Company and Sarada Company

Consolidated Income Statement
Sales $360,000
Cost of goods sold (227,000)
Expenses (65,500)
Income before taxes $ 67,500
Provision for income tax (20,700)
Distributed to:
NCI $ 320
Controlling interest $ 46,480
partial worksheet Eliminations Consol

Parent Sub Debit Credit Net Inc
Sales (300,000) (120,000) IS 60,000 (360,000)
COGS 200,000 90,000 EI 2,000 IS 60,000 227,000
BI 5,000
Gain on Sale (10,000) F 10,000 -
Expenses 40,000 20,000 A 7,500 F 2,000 65,500

(70,000) (10,000)
Consolidated income before income tax (67,500)
Subsidiary Tax Schedule

Controlling NCI Total
[1] Total adjusted income $ 4,400 $ 1,100 $ 5,500
[2] NCI share of asset adjustments 1,500
[4] 30% tax on [3] 1,320 780 2,100
Net-of-tax share of income [1]- $ 3,080 $ 320 $ 3,400
[4]
Subsidiary Company Income Distribution Schedule

Deferred profit in ending 2,000 Internally generated net income 10,000
inventory
Amortization of excess 7,500 Realized profit in beginning 5,000
inventory
Adjusted income before taxes 5,500
Inc tax per Subsidiary tax (2,100)
schedule
Subsidiary net income 3,400
NCI Share 20%
NCI 320
Parent Company Income Distribution Schedule

Deferred gain on sale 10,000 Internally generated net income 70,000
Recognize 1/5 of gain 2,000
30% income taxes (18,600)
Parent net income 43,400
80% × Sub's net income 3,080
Controlling interest net income 46,480
DIFFICULTY: M
45. Dills Company purchased an 80% interest in the common stock of Sarada Company for $140,000 on January 1, 2018.
On this date the book value of Sarada’s net identifiable assets totaled $100,000. Any excess was attributed to a patent with
a 10-year life.
During 2019, Dills Company and Sarada Company reported the following internally generated income before taxes:
Dills Co. Sarada Co.
Sales $300,000 $120,000
Cost of goods sold (200,000) (90,000)
Gain on machine 10,000 --
Expenses (40,000) (20,000)
Income before taxes $ 70,000 $ 10,000
Sarada Company routinely sells goods to Dills Company. This year those sales amounted to $60,000. Dills Company
inventories included intercompany goods of $30,000 at the beginning of the year and $12,000 at the end of the year.
Sarada Company sells goods to Dills Company at a gross profit of 16.67%.
On January 1, 2019 Dills Company sold a new machine to Sarada Company, for $40,000. The cost of the machine was
$30,000. It has a 5-year life.
The firms file separate tax returns. Both are subject to a 30% tax rate. Dills Company receives an 80% dividend
deduction.
Required:
Prepare a consolidated income statement for 2019. Include income distribution for both firms.
ANSWER: Dills Company and Sarada Company
Consolidated Income Statement
Sales $360,000
Cost of goods sold (227,000)
Expenses (65,500)
Income before taxes $ 67,500
Provision for income tax (20,885)
Distributed to:
NCI $ 320
Controlling interest $ 46,295
partial worksheet Eliminations Consol

Parent Sub Debit Credit Net Inc
Sales (300,000) (120,000) IS 60,000 (360,000)
COGS 200,000 90,000 EI 2,000 IS 60,000 227,000
BI 5,000
Gain on Sale (10,000) F 10,000 -
Expenses 40,000 20,000 A 7,500 F 2,000 65,500
(70,000) (10,000)
Consolidated income before income tax (67,500)
Subsidiary Tax Schedule

Controlling NCI Total
[1] Total adjusted income $ 4,400 $ 1,100 $ 5,500
[2] NCI share of asset adjustments 1,500
[4] 30% tax on [3] 1,320 780 2,100
Net-of-tax share of income [1]- $ 3,080 $ 320 $ 3,400
[4]

Deferred profit in ending 2,000 Internally generated net income 10,000
inventory
Amortization of excess 7,500 Realized profit in beginning 5,000
inventory
Inc tax per Subsidiary tax (2,100)
schedule
NCI Share 20%

NCI 320

Deferred gain on sale 10,000 Internally generated net income 70,000
Recognize 1/5 of gain 2,000
Secondary tax (3,080 × .2 × .3) (185)
DIFFICULTY: M
46. On January 1, 2020, Parent Company acquired 100% of the common stock of Subsidiary Company in a stock
exchange. On this date Subsidiary had total owners' equity of $550,000 and book value approximated fair value.
During 2020 and 2021, Parent has accounted for its investment in Subsidiary using the simple equity method.
On January 1, 2021, Parent held merchandise acquired from Subsidiary for $75,000. During 2021, Subsidiary sold
merchandise to Parent for $100,000, of which $25,000 is held by Parent on December 31, 2021. Subsidiary's usual gross
profit on affiliated sales is 50%.
On December 31, 2020, Parent sold to Subsidiary some equipment with a cost of $75,000 and a book value of $30,000.
The sales price was $40,000. Subsidiary is depreciating the equipment over a 5-year life, assuming no salvage value and
using the straight-line method.
Parent and Subsidiary qualify as an affiliated group for tax purposes and thus will file a consolidated tax return. Assume a
30% corporate income tax rate.
Required:
Complete the Figure 6-10 worksheet for consolidated financial statements for the year ended December 31, 2021.
Figure 6-10
Trial Balance Eliminations and
Parent Sub. Adjustments
Account Titles Company Company Debit Credit
Inventory, December 31 100,000 60,000
Other Current Assets 374,000 520,000
Investment in Sub. Company 740,000
Land 240,000 120,000

Buildings and Equipment 515,000 380,000

Long-Term Liabilities (200,000) (150,000)
Common Stock – P Co. (300,000)

Other Paid-in Capital – P Co. (300,000)
Retained Earnings – P Co. (679,000)
Common Stock – S Co. (50,000)

Other Paid-in Capital – S Co. (200,000)
Retained Earnings – S Co. (350,000)
Net Sales (600,000) (500,000)

Cost of Goods Sold 360,000 200,000
Operating Expenses 120,000 150,000
Subsidiary Income (150,000)
Dividends Declared – P Co. 50,000

Dividends Declared – S Co. 10,000
0 0
Consol. Control. Consol.

Income Retained Balance
Account Titles Statement NCI Earnings Sheet
Inventory, December 31
Other Current Assets
Investment in Sub. Company
Land
Buildings and Equipment

Accumulated Depreciation
Current Liabilities
Long-Term Liabilities
Common Stock – P Co.

Other Paid-in Capital – P Co.
Retained Earnings – P Co.
Common Stock – S Co.

Other Paid-in Capital – S Co.
Retained Earnings – S Co.
Net Sales
Cost of Goods Sold
Operating Expenses
Subsidiary Income
Dividends Declared – P Co.

Dividends Declared – S Co.
ANSWER:
For the worksheet solution, please refer to Answer 6-10.
Answer 6-10
Inventory, December 100,000 60,000 EI 12,500

31
Investment in Sub.
Company 740,000 CY 140,000
EL 600,000
Land 240,000 120,000

Buildings and
Equipment 515,000 380,000
Accumulated
Depreciation (120,000) (140,000) F2 2,000 F1 10,000
Long-Term
Liabilities (200,000) (150,000)
Common Stock – P
Co. (300,000)
Other Paid-in Capital
– P Co. (300,000)
Retained Earnings –
P Co. (679,000) BI 37,500
F1 10,000
Common Stock – S
Co. (50,000) EL 50,000
– S Co. (200,000) EL 200,000
S Co. (350,000) EL 350,000
Net Sales (600,000) (500,000) IS 100,000

Cost of Goods Sold 360,000 200,000 EI 12,500 BI 37,500
IS 100,000
Operating Expenses 120,000 150,000 F2 2,000
Subsidiary Income (150,000) CY 150,000
Dividends Declared
– P Co. 50,000
Dividends Declared
– S Co. 10,000 CY 10,000
Consolidated Income
before Tax
Provision for Income
Tax T 89,100
Income Taxes
Payable T 89,100
Consolidated Net

Income
To NCI
To Controlling
Interest
Total NCI
Ret. Earn. Contr. Int.
12-31
0 0 1,001,100 1,001,100

Inventory, December 31 147,500
Other Current Assets 894,000
Investment in Sub. Company 0
Land 360,000
Buildings and Equipment 895,000
Accumulated Depreciation (268,000)
Current Liabilities (200,000)

Long-Term Liabilities (350,000)


Net Sales (1,000,000)

Cost of Goods Sold 435,000
Operating Expenses 268,000
Subsidiary Income 0

Consolidated Income before

Tax (297,000)
Provision for Income Tax 89,100
Income Taxes Payable (89,100)
Consolidated Net Income (207,900)

To NCI 0
To Controlling Interest 207,900 (207,900)

Total NCI 0
Ret. Earn. Contr. Int. 12-31 (789,400) (789,400)
0
Eliminations and Adjustments:

CY Eliminate the current-year entries made in the investment account and in the
subsidiary income account.
EL Eliminate 100% of Subsidiary Company equity balances at the beginning of the
year against the investment account.
BI Eliminate the $37,500 of gross profit in the beginning inventory. ($75,000 x 50%)
IS Eliminate the entire intercompany sales of $100,000.
EI Eliminate the $12,500 of gross profit in the ending inventory. ($25,000 x 50%)
F1 Eliminate the $10,000 gain on sale of equipment against retained earnings of
Parent.
($40,000 - $30,000)
F2 Eliminate the $2,000 of excess depreciation for 2021 on the transferred
equipment.
($10,000 / 5)
T Record provision for income tax, calculated as follows:
Consolidated income before tax $297,000
Corporate tax rate 30%
Tax liability $ 89,100
DIFFICULTY: M
47. On January 1, 2018, Paul Company purchased 80% of the common stock of Smith Company for $300,000. On this
date Smith had total owners' equity of $350,000. Any excess of cost over book value is attributed to a patent, to be
amortized over 10 years.
During 2018, Paul has accounted for its investment in Smith using the simple equity method.
During 2018, Paul sold merchandise to Smith for $50,000, of which $10,000 is held by Smith on December 31, 2018.
Paul's gross profit on sales is 40%.
During 2018, Smith sold some land to Paul at a gain of $10,000. Paul still holds the land at year end.
Paul and Smith qualify as an affiliated group for tax purposes and thus will file a consolidated tax return. Assume a 30%
corporate income tax rate.
Required:
Complete the Figure 6-11 worksheet for consolidated financial statements for the year ended December 31, 2018.
Figure 6-11
Inventory, December 31 100,000 50,000
Invest in Smith Company 348,000
Land 240,000 100,000

Buildings and Equipment 300,000 200,000

Long-Term Liabilities (200,000) (100,000)


Net Sales (500,000) (300,000)

Cost of Goods Sold 300,000 160,000
Operating Expenses 100,000 80,000
Subsidiary Income (56,000)

Gain on Sale of Land (10,000)
0 0

Inventory, December 31
Other Current Assets
Invest in Smith Company
Land
Buildings and Equipment
Accumulated Depreciation
Current Liabilities
Long-Term Liabilities
Common Stock – P Co.

Other Paid-in Capital – P Co.
Retained Earnings – P Co.
Common Stock – S Co.

Net Sales
Cost of Goods Sold
Operating Expenses
Subsidiary Income
Gain on Sale of Land
Dividends Declared – P Co.

ANSWER:
For the worksheet solution, please refer to Answer 6-11.
Answer 6-11
Paul Smith Adjustments
Inventory, December
31 100,000 50,000 EI 4,000
Invest in Smith
Company 348,000 CY 48,000
EL 280,000
D 20,000
Land 240,000 100,000 LA 10,000
Buildings and
Equipment 300,000 200,000
Accumulated
Depreciation (80,000) (60,000)
Patent D 25,000 A 2,500

Long-Term
Liabilities (200,000) (100,000)
Common Stock – P
Co. (100,000)
– P Co. (180,000)
P Co. (320,000)
Common Stock – S
Co. (100,000) EL 80,000
– S Co. (100,000) EL 80,000
S Co. (150,000) EL 120,000 D 5,000
Net Sales (500,000) (300,000) IS 50,000

Cost of Goods Sold 300,000 160,000 EI 4,000 IS 50,000
Operating Expenses 100,000 80,000 A 2,500
Subsidiary Income (56,000) CY 56,000

Gain on Sale of Land (10,000) LA 10,000
Dividends Declared – 30,000
P Co.
Dividends Declared –
S Co. 10,000 CY 8,000
Consolidated Income
before Tax
Provision for Income
Tax T 46,200
Income Taxes
Payable T 46,200
Consolidated Net
Income
To NCI
To Controlling
Interest
Total NCI
Ret. Earn. Contr. Int.
12-31

Inventory, December 31 146,000
Other Current Assets 418,000
Invest in Smith Company 0
Land 330,000
Buildings and Equipment 500,000
Accumulated Depreciation (140,000)
Patent 22,500
Current Liabilities (180,000)

Long-Term Liabilities (300,000)


Net Sales (750,000)

Cost of Goods Sold 414,000
Operating Expenses 182,500
Subsidiary Income 0
Gain on Sale of Land 0

Consolidated Income before

Tax (153,500)
Provision for Income Tax 46,200
Income Taxes Payable (46,200)
Consolidated Net Income (107,300)

To NCI 7,900 (7,900)
To Controlling Interest 99,400 (99,400)
Total NCI (80,900) (80,900)
Ret. Earn. Contr. Int. 12-31 (389,400) (389,400)
0
Eliminations and Adjustments:
CY Eliminate the current-year entries made in the investment account and in the
subsidiary income account.
EL Eliminate 80% of Smith Company equity balances at the beginning of the year
against the investment account.
D Distribute the $25,000 excess of cost over book value to the patent; allocate to
Parent and Subsidiary ($300,000 / 80% = $375,000 - $350,000 = $25,000)
A Amortize the patent over 10 years. ($25,000 / 10)
IS Eliminate the entire intercompany sales of $50,000.
EI Eliminate the $4,000 of gross profit in the ending inventory. ($10,000 x 40%)
LA Eliminate the $10,000 gain on sale of land against the land account.
T Record provision for income tax, calculated as follows:
Consolidated income before tax $153,500
Add back NCI portion of excess amortization ($2,500 ´ 500
20%)
$154,000
Multiply by corporate tax rate 30%
Tax liability $ 46,200
Subsidiary Tax Schedule Controlling NCI Total

[1] Total adjusted income $ 46,000 $11,500 $57,500
[2] NCI share of asset adjustments 500
[4] 30% tax on [3] 13,800 3,600 17,400
Net-of-tax share of income $ 32,200 $ 7,900 $40,100
[1]-[4]

Defer gain on sale of land 10,000 Internally generated net income 70,000
Amortization of patent 2,500

Inc tax per Sub tax schedule (17,400)
NCI share per Sub tax schedule 7,900

Defer profit in ending 4,000 Internally generated net income 100,000
inventory
DIFFICULTY: D
Essay
48. 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
3) Subsidiary dividends
ANSWER: 1) The acquisition of a controlling interest by issuing shares of stock would be disclosed in
the supplemental schedule of noncash financing and investing activity. The number and fair
value of the shares issued would be disclosed as well the value of the assets acquired,
liabilities assumed and the amount of the non-controlling interest, if less than 100% of the
subsidiary’s shares were acquired. Any cash acquired would be included within the body of
the statement of cash flows under the heading “Cash flows from investing activities.”
2) The purchase of additional subsidiary shares from the non-controlling interest is the
equivalent of purchasing treasury shares from a consolidated standpoint, so it would be
included as an outflow of cash under financing activities in the consolidated statement of
cash flows.
3) Subsidiary dividends paid to the parent are not included in the consolidated statement of
cash flows because they are a transfer of cash within the consolidated entity. However,
dividends paid by a subsidiary to the non-controlling interest would appear as an outflow of
cash under financing activities in the consolidated statement of cash flows.
DIFFICULTY: M

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employing the syncopated form, the triple rhythm clashes with the
dual rhythm, require assurance, which can be given by easy means.
The uncertainty occasioned them by the sudden appearance of the
unexpected rhythm, contradicted by the rest of the orchestra, always
leads the performers to cast an instinctive glance towards the
conductor, as if seeking his assistance. He should look at them,
turning somewhat towards them, and marking the triple rhythm by
very slight gestures, as if the time were really three in a bar, but in
such a way that the violins and other instruments playing in dual
rhythm may not observe the change, which would quite put them out.
From this compromise it results that the new rhythm of three-time,
being marked furtively by the conductor, is executed with steadiness;
while the two-time rhythm already firmly established, continues
without difficulty, although no longer indicated by the conductor. On
the other hand, nothing, in my opinion can be more blamable, or
more contrary to musical good sense, than the application of this
procedure to passages where two rhythms of opposite nature do not
co-exist, and where merely syncopations are introduced. The
conductor, dividing the bar by the number of accents he finds
contained in it, then destroys (for all the auditors who see him) the
effect of syncopation; and substitutes a mere change of time for a
play of rhythm of the most bewitching interest. If the accents are
marked, instead of the beats, in the following passage from
Beethoven’s Pastoral Symphony, we have the subjoined:—
[Listen]
whereas the four previously maintained display the syncopation and

make it better felt:—
[Listen]
This voluntary submission to a rhythmical form which the author

intended to thwart is one of the gravest faults in style that a beater of
the time can commit.
There is another dilemma, extremely troublesome for a
conductor, and demanding all his presence of mind. It is that
presented by the super-addition of different bars. It is easy to
conduct a bar in dual time placed above or beneath another bar in
triple time, if both have the same kind of movement. Their chief
divisions are then equal in duration, and one needs only to divide
them in half, marking the two principal beats:—
[Listen]
But if, in the middle of a piece slow in movement, there is

introduced a new form brisk in movement, and if the composer
(either for the sake of facilitating the execution of the quick
movement, or because it was impossible to write otherwise) has
adopted for this new movement the short bar which corresponds with
it, there may then occur two, or even three short bars super-added to
a slow bar:—
[Listen]
The conductor’s task is to guide and keep together these different

bars of unequal number and dissimilar movement. He attains this by
dividing the beats in the Andante bar, No. 1, which precedes the
entrance of the Allegro in 6/8, and by continuing to divide them; but
taking care to mark the division more decidedly. The players of the
Allegro in 6/8 then comprehend that the two gestures of the
conductor represent the two beats of their short bar, while the
players of the Andante take these same gestures merely for a
divided beat of their long bar.
Bar No. 1
Bars Nos. 2, 3,
and so on.
It will be seen that this is really quite simple, because the division
of the short bar, and the subdivisions of the long one, mutually
correspond. The following example, where a slow bar is super-added
to the short ones, without this correspondence existing, is more
awkward:—
[Listen]
Here, the three bars Allegro-assai preceding the Allegretto are

beaten in simple two-time, as usual. At the moment when the
Allegretto begins, the bar of which is double that of the preceding,
and of the one maintained by the violas, the conductor marks two
divided beats for the long bar, by two equal gestures down, and two
others up:—
The two large gestures divide the long bar in half, and explain its
value to the hautboys, without perplexing the violas, who maintain
the brisk movement, on account of the little gesture which also
divides in half their short bar.
From bar No. 3, the conductor ceases to divide thus the long bar
by 4, on account of the triple rhythm of the melody in 6/8, which this
gesture interferes with. He then confines himself to marking the two
beats of the long bar; while the violas, already launched in their rapid
rhythm, continue it without difficulty, comprehending exactly that
each stroke of the conductor’s stick marks merely the
commencement of their short bar.
This last observation shows with what care dividing the beats of a
bar should be avoided when a portion of the instruments or voices
has to execute triplets upon these beats. The division, by cutting in
half the second note of the triplet, renders its execution uncertain. It
is even necessary to abstain from this division of the beats of a bar
just before the moment when the rhythmical or melodic design is
divided by three, in order not to give to the players the impression of
a rhythm contrary to that which they are about to hear:—
[Listen]
In this example, the subdivision of the bar into six, or the division
of beats into two, is useful; and offers no inconvenience during bar
No. 1 when the following gesture is made:—
But from the beginning of bar No. 2 it is necessary to make only

the simple gestures:—
on account of the triplet on the third beat, and on account of the one
following it which the double gesture would much interfere with.
In the famous ball-scene of Mozart’s Don Giovanni, the difficulty
of keeping together the three orchestras, written in three different
measures, is less than might be thought. It is sufficient to mark
downwards each beat of the tempo di minuetto:—
[Listen]
Once entered upon the combination, the little allegro in 3/8, of

which a whole bar represents one-third, or one beat of that of the
minuetto, and the other allegro in 2/4, of which a whole bar
represents two-thirds, or two beats, correspond with each other and
with the principal theme; while the whole proceeds without the
slightest confusion. All that is requisite is to make them come in
properly.
CHAPTER VI.
How To Prepare a Score
Methodical mastery of the full score, mental

reading, use of piano. Preparing a score for
rehearsal and performance.
To the average layman and even a great many musicians, an

orchestral score appears to be about as intricate in appearance as a
blue print of a complicated engine. The simile of the blue print and
the score is not inapt inasmuch as the blue print represents on paper
every detail of the mechanical construction of the engine, and,
likewise, the musical score is an exact description on paper of every
detail of the musical composition.
No attempt will be made in this book to describe the development
of the core from the days of the early Italian opera composers who
did not even write out parts for the players, to our own time when
hardly anything is left to the imagination of the musician, and
everything is written in the music. Likewise, the aesthetic
interpretation and evaluation of the musical content of the score will
be left undiscussed, to make way for the presentation of the practical
aspect of a methodical system of learning to read quickly and
accurately the mere notes of the score.
It is related that a celebrated professional magician, in order to
train his sense of vision, quickness of mental perception and
memory, used to practice looking at a show window for exactly one
minute and then writing down from memory the name of every article
he saw therein. By practice he was enabled to increase the number
of articles remembered from a relatively small number to a total
which included everything in the window. Now, what the magician did
with his sense of vision, quickness of mental perception, and
memory is precisely what the musician must do in learning to read
the full score.
Possibly the most confusing thing to the beginner in score
reading is the increased demands made upon his vision.
Accustomed to reading music in one or two staves, the eye is now
called upon to comprehend as many as 24 to 30 staves in a glance.
At first this seems an impossible task but like many other seemingly
impossible tasks it can be accomplished by patient and systematic
practice. Of course, every conductor has his own way of mastering a
score and the author can only give his personal method. However,
this method has been followed successfully by students, and in
practically every case has been found successful.
It is assumed that the conductor has some ability in piano-
playing. Naturally, the more the better, although it is not necessary to
be equipped with the highest virtuoso technic. A knowledge of the
scales and arpeggios, the ability to play Bach’s Two and Three Part
Inventions and Well-Tempered Clavichord might be considered a
working equipment for the conductor. Let it be explained here, that
while the ideal of score reading is to be able to read and hear every
note of the partitur without the aid of the piano, the value of the use
of the instrument in the process of developing this ability and as a
constant means of checking and proving one’s capacity is
unquestioned.
The best exercise for widening or broadening the sense of vision
is to practice the playing of three or more part vocal scores. A
collection of early church music such as “Musica Sacra,” published
by Peters, contains the most practical material. Herein are to be
found in two, three, four, five, six, eight, ten and twelve parts and
staves, the lovely old polyphonic works of the early Italian masters
and the patient practice on these, always adding one more part, will
do much toward the spreading of a sense of vision that has become
limited by the habitual perusal of just one or two lines. The absolute
independence of each individual part makes these polyphonic
choruses highly valuable as practice material.
The second difficulty of the full score is the fact that not all of the
instruments are written in the familiar clefs and many of them are
transposed into different keys because of their peculiar mechanical
construction.
Following the method employed in the conducting classes of the
High School for Music in Berlin, the author has found the use of
Bach’s chorales with each of the four parts written in a different clef,
most effective in imparting the ability to transpose. These chorales
should be taken from the various two-line editions (Peters, Breitkopf
& Härtel, C. C. Birchard) and copied by the student on four separate
lines, using the Soprano, Alto, Tenor and Bass clefs for the
respective parts.
The Soprano clef,
Alto clef,
and the Tenor clef,
are C clefs, i.e., the note on the staff indicated by the clef is
middle C;
with the Soprano clef this is the first line, with the Alto clef the third,
and with the Tenor clef, the fourth. Knowing the position of middle C
it should not be difficult to trace the position of the other notes of the
scales. The following is an example of the old and new vocal scores:
Passion Chorale (Bach)

[Listen]
For variety, the student might make use of ordinary four part
hymn tunes in the same manner. These chorales and hymn tunes in
the old clefs must not be merely played through a few times, but are
to be practiced daily until the process of playing the old clefs has
become as automatic as playing in the treble and bass clefs. This
will give the student the necessary mental gymnastics and make the
reading and playing of the various transposing instrumental parts
comparatively easy.
So much for the purely technical preparation in the process of
learning to read and transcribe scores.
The following headings are descriptive of a method of score
preparation generally used by modern conductors:
1. The Architectural or General Impression.
2. Detailed study of the individual parts.
3. Detailed study of individual sections (strings,
woodwinds, brass, and percussion).
4. Mental hearing of the composition in parts
and as a whole.
5. Piano transcription as a means of checking
up and ratifying the mental concept.
When a building is viewed for the first time hardly anything more
than a general impression of the type of architecture, size, symmetry,
and color is made upon the mind. The details of construction,
materials used, number of floors, style of windows and doors are
only comprehended after closer study.
At the first perusal of a score, which should always be away from
the piano, the impression made is just as general as in viewing the
building. Hardly more than the contour of the melody and bass,
outstanding climaxes and general character can be grasped at the
first reading.
Next, a reading through either with or without piano, of each
individual part reveals the details of construction, and the playing on
the piano of the various sections gives the harmonic and polyphonic
content of the work. A practical knowledge of Instrumentation is most
helpful at this stage of the work.
After this detailed study, the work should be read through
mentally at about the speed of actual performance, the climaxes
noted, the emotional content determined, and a diagram of the form
fixed in the mind. There is always a danger of losing the perspective
of the work as a whole if too much detailed study is indulged in. The
ability to read and hear music without the aid of an instrument is
absolutely essential for the conductor. It can be acquired to a degree
by proper study. Such works as Wedge’s “Sight Singing and Ear
Training” (G. Schirmer) and Robinson’s “Aural Harmony” (G.
Schirmer) are invaluable helps. “Musical Form” by H. Anger
(Augener) is a most practical treatise on the subject and contains
clear instructions for analyzing the piano Sonatas of Beethoven and
the Fugues in Bach’s “Well-tempered Clavichord.”
Upon being questioned as to his opinion of the importance of the
conductor’s “ears” or hearing, Wilhelm Furtwängler, the eminent
German conductor, made the following reply: “Generally considered,
there is no such thing among conductors as a good or bad ‘ear.’
There is only a greater or lesser mastery of the material, that is, the
score and its every detail. One can only hear individual mistakes in
the complicated mass of sound when one knows completely just
what the composer wanted.” (Pult and Takstock, Dec., 1925).
Of course there are conductors who learn the content of a score
quickly from listening to the orchestra as they rehearse. But, it
matters not how clever the conductor is, his orchestra always senses
when it is being used as the means of their leader’s learning the
score and their respect for him is lowered. There is a fable of a
young conductor who wished to impress himself on his men by a
display of sharp hearing. He secretly wrote in a false F ♯ in the
second bassoon part of a particularly loud and boisterous passage.
At the rehearsal in the midst of the orchestral rumpus he suddenly
stopped the orchestra and cried out impatiently, “F sharp, F sharp in
the second bassoon is wrong,” only to be answered by the first
player, “Beg pardon, Sir, the second bassoon is absent today.”
To play a full score accurately and fluently on the piano, is an art
in itself and in the course of musical history we hear of only a few
musicians who really could do this. Saint-Saëns, Liszt, and Von
Buelow were said to be proficient in this difficult art, and undoubtedly
their marvelous piano technique was a most important factor in their
prima-vista score transcriptions. To fluently play a printed pianoforte
arrangement of a Beethoven Symphony takes as much technique as
to play one of his sonatas. We must not forget the comparative
simplicity of even a Wagner score when compared with such a work
as Varese’s “L’Amériques” or “The Rites of Spring” by Stravinsky,
and it is just likely that any of the three masters just mentioned would
have great difficulty in reading Honegger’s “Pacific 231” at the piano.
For the average conductor then, the piano does not become the
supreme channel for expressing the score, but is used merely as an
aid to his mental and spiritual master of its intricacies.
There still remains for discussion one phase in the work of score
preparation, and that is—memory. Just as among concert players
the old custom of playing from the printed page has given way to the
one of playing and singing everything from memory, so have modern
conductors taken to dispensing with their scores in performance.
The increased amount of preparatory work involved in
memorizing a score certainly gives one an increased insight into the
composition and to be freed from the necessity of reading the printed
page gives a much greater authority and command in the whole
attitude of the conductor at the performance. We never read of any
great military commander leading his troops to battle with his eyes
glued on the map, and we have all heard of the conductors who
have their heads in the score when they should have the score in
their heads. Arturo Toscanini memorizes every detail of the score
before the first rehearsal and conducts even the rehearsals from
memory. This, of course, is such miraculous achievement in the
mastery of the purely technical that it ceases to be technique and
becomes an integral part of the conductor’s being.
The improved gramophone with the new process records of the
great orchestral, choral and operatic masterworks can be put to
splendid use by the student of conducting. Score in hand, these
records should be listened to until completely absorbed and then
they should be conducted. The operatic arias are particularly good
practice for practising the art of conducting accompaniments.
In concluding this chapter the following paragraph from Adrian
Boult’s “Handbook on the Technique of Conducting” is most fitting.
He says, “In conducting there is a double mental process. There is
the process of thinking ahead and preparing the orchestra for what is
to come, that is to say, of driving it like a locomotive. There is also
the process of listening and noting difficulties and points that must be
altered, in fact of watching the music, as a guard watches his train.
At rehearsal the second of these is the more important. Occasionally
one must take hold and drive one’s forces to the top of a climax, just
as a boat’s crew on the day before the race does one minute of its
hardest racing, but takes it pretty easy otherwise. The main thing at
a rehearsal is to watch results and to act on them. At a performance
it is the other way about—the conductor must take the lead. It is then
too late to alter things like faulty balance or wrong expression, but
the structure and balance of the work as a whole and the right spirit
are the two things of paramount importance.”
CHAPTER VII
The Technic of the Baton
in Choral Conducting
There seems to be in the minds of some musicians an idea that a vast

difference exists between chorus conducting and orchestra conducting. In fact, it
is a very common fact that there are many fine musicians who obtain excellent
results from their choruses but who are completely at a loss when it comes to
conducting even the orchestral accompaniment of the choral works they are
presenting. The tales told by sophisticated orchestral players on their return from
music festivals in the provinces about the antics of many choral conductors
would be funny if they were not tragic.
Usually, the choral conductor is a good musician and knows his musical
subject matter thoroughly. Through the process of much careful rehearsing and
teaching, he succeeds in imparting his ideas of interpretation to his chorus,
which in turn comes to understand the meaning of his gestures. Up until the first
orchestral rehearsal, which is usually the only one, everything goes smoothly;
but as soon as the highly trained and sensitive orchestra tries to follow the
conductor’s beat, a state of utter chaos ensues. Much time is wasted, the
conductor becomes irritable, the chorus demoralized, the orchestra scornful, and
in general the outlook for a successful concert begins to look very black. Finally,
the more practical side of the orchestra rises above the disgruntled and
disillusioned attitude and it rescues the situation by playing more in spite of the
conductor rather than because of him. This picture is not exaggerated and has
almost a universal application. The author, in his orchestral playing days, has
witnessed such scenes not only in the United States but also in France and
Germany, and has been told by competent authorities that the same conditions
exist in England. In fact, this little tale is one that will be verified by almost every
experienced orchestral musician.
The cause of much of this ineffective conducting is a profusion of vague,
meaningless (to the orchestral player) gestures on the part of the choral
conductor, who has gotten into the habit of making many motions because of
certain conditions peculiar to choruses and choral music. First of these
conditions is the average chorus member’s rather low standard of musical ability,
(in comparison with the professional orchestra) which causes the conductor to
lead his charges through intricate rhythmical mazes by indicating every 32d note
and beating out the melodic contour rather than giving the basic beats and
subdivision of the beats. Secondly, the conductor usually has the assistance of a
good accompanist who plays the piano arrangement of the orchestral score so
efficiently that the conductor ceases to even think about it, and who provides a
firm rhythmical background by crisp and incisive marking of the main beats of
the measure. Naturally, the conductor cannot change the habits acquired during
many weeks of rehearsal and when he finally finds himself in front of the critical
professional orchestra, he is confronted with the task of leading this complicated
organization with gestures engendered by the peculiar weaknesses of his choral
body and which are totally confusing to the strange orchestra.
There is only one remedy for this condition. Directors of choruses must
remember that essentially there is no difference between orchestral conducting
and choral conducting, although there is a vast difference between orchestral
and choral training and rehearsing. It is not necessary to give the chorus a
special gesture for each 32d note of the melodic line. Chorus members will give
a rhythmical performance of a work only when they are made to feel the main
pulsations of the movement, and this can be accomplished only by using such
established gestures which clearly mark the fundamental rhythm. Naturally, such
gestures will easily be understood by the orchestral musicians as well as by the
chorus singers. Of course, this refers definitely to the conducting of combined
orchestral and choral forces. The conducting of part songs accompanied or
unaccompanied calls for a somewhat different treatment.
In A Capella music, the conductor usually dispenses with the baton in order
to gain more expressive freedom of both hands. In comparison with a choral-
orchestral composition, these part songs and polyphonic choruses have but few
individual parts and the conductor is not so much concerned with the actual
beating of time as with the subtle indication of interpretative shades and
meaning. Nevertheless, the author believes that the fundamental gestures are a
sufficiently comprehensive basis for the most expressive type of conducting.
It is not the purpose of this chapter to enter into the details of choral training
and interpretation. Those subjects have been admirably treated by other writers
and for the chorus master seeking truly authoritative advice in these matters, the
following books are recommended:
Coward—Choral Technic and Interpretation (Novello)

Russell—English Diction (Ditson)
Henderson—The Singer’s Art.
Mees—Choirs and Choir Music
Schweitzer—Bach
Newman Flower—Handel

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16. Consolidated Basic Earnings Per Share (BEPS) is calculated by dividing

determined on the consolidated worksheet.

*Fair value of entity ($800,000 / 80%) $1,000,000

Annual amortization $ 20,000

*Fair value of entity ($800,000 / 80%) $1,000,000

Nondeductible NCI share of excess

RATIONALE: *Fair value of entity ($675,000 / 80%) $900,000

*$23,736 = $6.88 x (90% x 3,000 shares + 150 shares x 5 shares)

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Subjective Short Answer

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For the Year Ended December 31, 2019

(1) Building depreciation: $15,000 (P) + $8,000 (S)

ANSWER: Perella Company

Cash flows from operating activities:

NONCASH FINANCING AND INVESTING ACTIVITIES:

ANSWER: Pembina, Inc. and Subsidiary Scranton Company

Cash flows from operating activities:

Inventories 525,000 542,000 (17,000)

ANSWER: Plaza, Inc. and Subsidiary Scenic Company

Cash flows from operating activities:

NONCASH TRANSACTION DISCLOSURE:

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Investment in Adams (3) 57,500 57,500

(a) NCI at acquisition $200,000 / 80% = $250,000 x 20% = $50,000

ANSWER: Plateau, Inc. and Subsidiary Seagull Company

Cash flows from operating activities:

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(a) NCI at acquisition = $200,000 / 80% = $250,000 x 20% = $50,000

ANSWER: BASIC EARNINGS PER SUBSIDIARY CONSOLIDATED

ANSWER: BASIC EARNINGS PER SUBSIDIARY CONSOLIDATED

ANSWER: Dills Company and Sarada Company

partial worksheet Eliminations Consol

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Subsidiary Tax Schedule

Subsidiary Company Income Distribution Schedule

Parent Company Income Distribution Schedule

partial worksheet Eliminations Consol

Subsidiary Tax Schedule

Subsidiary Company Income Distribution Schedule

NCI Share 20%

Parent Company Income Distribution Schedule

Land 240,000 120,000

Current Liabilities (150,000) (50,000)

Common Stock – P Co. (300,000)

Common Stock – S Co. (50,000)

Net Sales (600,000) (500,000)

Operating Expenses 120,000 150,000

Subsidiary Income (150,000)

Dividends Declared – P Co. 50,000

Consol. Control. Consol.

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Common Stock – P Co.