COMMPREHENSIVE PROBLE MMS C:8-67 P and S Corporations have filed consolidated ta
ID: 2458671 • Letter: C
Question
COMMPREHENSIVE PROBLE MMS C:8-67 P and S Corporations have filed consolidated tax returns for ten years. P and S use the accrual method of accounting, and they use the calendar year as their tax year. P and S report separate return taxable income (before any consolidation adjustments and elimi- nations, the NOL deduction, the charitable contributions deduction, and the dividends received deduction) for the current year of $200,000 and $250,000, respectively. These amounts include the following current year transactions and events: Psells land to a third party for $80,000. P purchased the land from S two years ago for $70,000. S had purchased the land five years ago for $48,000. P's separate taxable income includes a $12,000 dividend S paid to P. P sold inventory to S in the previous year for which the deferred profit at the begin ning of the current year is $5,000. S sells this inventory outside the consolidated group in the current year. P sells additional inventory to S in the current year, realizing a $100,000 profit. The intercompany profit on this unsold inventory is $8,000. The P-S group has a $20,000 consolidated NOL carryover available from the previous year. The NOL is wholly attributable to S. P receives $10,000 of dividends from corporations in which it owns less than 1% of the stock. Pand S contribute cash to charities of $17,000 and $11,000, respectively. Plends S $150,000 early in the current year. S repays the loan later in the year. In addi tion, S pays P$6,000 interest at the time of repayment axation 2015 Corporations, Partnerships, Estates & Trusts, Twenty-eighth Edition, by Thomas R. Pope, Timothy J. Rupert, and Kenneth E. Anderson. Published by Prentice Hall. Copyright 2014 by Pearson Education, Inc Consolidated Tax Returns v Corporati S earns $1,600 of tax-exempt interest income, which is not included in S's $250,000 separate return taxable income. P and S have no qualified production activities income. Determine the P-S group's consolidated taxable income and consolidated tax liability for the current year. What is P's basis for the S stock at the end of the current year? Assume that P's basis for the S stock was $1.4 million at the beginning of the current yearExplanation / Answer
Particulars P Amount + S Amount =Consolidated
Before adjustments taxable income $200,000 + $250,000 =$450,000
Deduct:
Consolidated NOL = N/A N/A = $20,000
Consolidated Charitable contributions =$17,000 +$11,000 =$28,000
Consolidated dividends paid = $12,000 N/A = $12,000
Consolidated dividends received = N/A $22,000 =$22,000
ADD:
Net Capital Gains = $10,000 + $22,000 =$32,000
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Taxable Income =$400,000
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For Tax liability
Particulars P Amount + S Amount =Consolidated
Before adjustments taxable income $200,000 + $250,000 =$450,000
Dividends = Intercompany ($22,000-$12,000)=$10,000
Tax exempt Interest t= N/A+N/A $1,600
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Income = $461,600
Less
Deductions:
Interest N/A $6,000 =$6,000
Contributions $17,000 +$11,000 =$28,000
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Total deductions=$34,000
Taxable Income Before NOL = $427,600
Less:
NOL= N/A + $20,000+$20,000
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Taxable income = $407,600
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