Question

Boulder corporation owns all of the stock of PebbleCo, so they constitute a federal affiliated group and a parent-subsidiary controlled group. By completing the following chart, delineate for boulder’s tax department some of the effects of an election to file federal consolidated income tax returns.

	Situation	If the group files a consolidated return	If separate income tax returns continue to be filed
A	PebbleCo pays a $1 million cash dividend to Boulder
B	Taxable income for both group members this year is $50,000
C	Boulder’s tax liability is $95,000 and Pebble’s liability totals %75,000
D	Boulder uses the LIFO Method for its inventories, but Pebble wants to use FIFO for its own inventorier

Answer 1

Answer:

	Situation	If the group files a consolidated return	If separate income tax returns continue to be filed
A	Pebble Co pays a $1 million cash dividend to Boulder	$0	$0
B	Taxable income for both group members this year is $50,000	$15,000	$7,500
C	Boulder’s tax liability is $95,000 and Pebble’s liability totals %75,000	$170,000	$9,500
D	Boulder uses the LIFO Method for its inventories, but Pebble wants to use FIFO for its own inventories	Allowed	Allowed