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Plumas, Inc., owns 80 percent of Santa Cruz Corporation. Both companies have been profitable for many...

Plumas, Inc., owns 80 percent of Santa Cruz Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $295,000 merchandise costing $138,000 to the subsidiary, which still held 10 percent of this merchandise at the end of the year. Assume that the tax rate is 30 percent and that a consolidated tax return was filed. What deferred income tax asset amount is created?

Multiple Choice,

a) $20,410

b) $3,510

c) $0

d) $4,710

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Answer #1

Answer : Option D ; $4,710

Explanation;

Total Gross Profit =$ 157,000( $295,000 - $138,000)

Portion Still Held = 10 %

Unrealized Gross Profit = $15,700 ($157,000 × 10%)

Tax Rate = 30 %

Deffered Tax Asset = $4,710 ( $15,700 × 30%)

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