Please see above question. need the income tax expense and income tax payable fo
ID: 2795424 • Letter: P
Question
Please see above question. need the income tax expense and income tax payable for a and b with details please.
Check my work 3 On January 1, 2017. Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows 2017 2018 Abbey Company: 10 points Sales Operating expenses Intra-entity gross profits in ending inventory $ (500,00e) s (700,009) 400,890 300,000 (included in above figures) Dividend income-Benjamin Company (120,000) (150,000) (36,000) (18,000) eBook Benjamin Company: Sales Operating expenses Dividends pai (210,00)(270,000) 170,000 (40,e00) References 130,000 (20,000) Assume that a tax rate of 35 percent is applicable to both companies. a. On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group? b. On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns? Mc Graw HillExplanation / Answer
When filing returns as an affliated group, Abbey and Benjamin will be taxed on their combined Operating Income,
Operating Income is given by Sales - Expenses
Dividends and Intra-entity gross profits don't matter when filing as an affliated group.
For year 2017,
Operating Income of Abbey = Sales of Abbey - Expenses of Abbey = -$500,000 - $300,000 = -$800,000
Operating Income of Benjamin = Sales of Benjamin - Expenses of Benjamin= -$210,000 - $130,000 = -$340,000
Combined Income of Abbey and Benjamin = -$800,000 + -$340,000 =-$1140,000
Tax rate = 35%
Tax payable = 35% of -$1140,000 = -$339,000
For year 2018,
Operating Income of Abbey = Sales of Abbey - Expenses of Abbey = -$700,000 - $400,000 = -$1100,000
Operating Income of Benjamin = Sales of Benjamin - Expenses of Benjamin= -$270,000 - $170,000 = -$440,000
Combined Income of Abbey and Benjamin = -$1100,000 + -$440,000 =-$1540,000
Tax rate = 35%
Tax payable = 35% of -$1540,000 - Tax refund from last year = -$539,000 - -$339,000 = -$200,000
Tax Expense = 0
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Even when taxes are filed separately, consolidated statement is presented by parent company (having over 80% rights).
Here we'll have to calculate taxes of both companies separately and combine them after which we need to adjust them for items reported on consolidated basis.
For year 2017,
Operating Income of Abbey = Sales of Abbey - Expenses of Abbey = -$500,000 - $300,000 = -$800,000
Operating Income of Benjamin = Sales of Benjamin - Expenses of Benjamin= -$210,000 - $130,000 = -$340,000
Combined Income of Abbey and Benjamin = -$800,000 + -$340,000 =-$1140,000
Adjustment to combined income = -$1140,000 + -$120,000 = -$1260,000
Taxes for 2017 = 35% of -$1260,000 = -$441,000
For year 2018,
Operating Income of Abbey = Sales of Abbey - Expenses of Abbey = -$700,000 - $400,000 = -$1100,000
Operating Income of Benjamin = Sales of Benjamin - Expenses of Benjamin= -$270,000 - $170,000 = -$440,000
Combined Income of Abbey and Benjamin = -$800,000 + -$340,000 =-$1540,000
Adjustment to combined income = -$1540,000 + -$150,000 = -$1690,000
Taxes for 2018 = 35% of -$1690,000 - Tax refund from last year = -$591,500 - -$441,000 = -$150,500
Tax payable = -$150,500
Tax expense = 0
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