15 May ParentCo And SubCo Are Calendar Year Corporations That Keep Their Respective Books On The Accrual..
ParentCo and SubCo are calendar year corporations that keep their respective books on the accrual basis. The companies have taxable income of $200,000 and $250,000, respectively, for tax year 2013 (before consolidation adjustments, elimination entries and charitable deductions).
The following transactions are included:
1. Land was sold by ParentCo to a third party for $80,000. The land was acquired from SubCo in 2011. SubCo acquired the land in 2008 for $48,000.
2. ParentCo’s taxable income includes a $12,000 dividend SubCo paid to ParentCo.
3. ParentCo sold inventory to SubCo in 2013 for a realized $100,000 profit. The intercompany profit on the unsold inventory is $8,000. ParentCo sold inventory to SubCo in 2012 for which deferred profit at the beginning of the year is $5,000. SubCo sold this inventory to an external party. ParentCo sold additional inventory to SubCo in 2013 for a realized $100,000 profit. The intercompany profit on the unsold inventory is $8,000.
4. ParentCo and SubCo contribute $17,000 and $11,000 to charity, respectively.
Directions: Calculate the consolidated taxable income and consolidated tax liability of ParentCo and SubCofor 2013. Than calculate the basis of ParentCo’s stock at the end of 2013, assuming that it was $1,400,000 at the beginning of the year.
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