Ketchem Corp., a cash basis taxpayer, and Catcham Corp., an accrual basis taxpay

Question

Ketchem Corp., a cash basis taxpayer, and Catcham Corp., an accrual basis taxpayer, are parent-subsidiary corporations. In January-November of year 1, Ketchem sold $50,000 of supplies to Catcham, which Catcham paid for on a 1/20 net 30 basis, always paying on Day 20. On December 27 of year 1, Ketchem 's December sale of supplies to Catcham, Ketchem 's taxable income is $600,000 and Catcham's is $120,000. How much taxable income should Ketchem and Catcham report on the year 1 consolidated tax return?

$720,000

Explanation / Answer

Solution: $770,000

Working:

Ketchem 's taxable income - Cash basis 600,000 Catcham's taxable income - Accrual basis 120,000 Ketchem sold $50,000 of supplies; amount not received yet 50,000 770,000

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