Question

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: $(684,000) S(1,004,000) 462,000 Sales Operating expenses Intra-entity gross profits in ending inventory (included in above figures) Dividend income-Benjamin Company Benjamin Company: 516,000 (213,000) (13,500) (247,000) (31,500) (307,000) 162,000 (15,000) (361,000) 209,000 (35,000) Sales Operating expenses Dividends paid Assume that a tax rate of 40 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? Income tax expense а. Income tax peayable b. Income tax expense Income tax payable

Answer 1

Answer of @ consolidated Return Abbey income-2014 = sales – Expen.se = $1,004,000 - 516,000 = $488000 benjammin income-2014 = sales - Eupense = 361,000 -- 209,000 = $152,000 2013 gam realized in 2014 = $213,000 2014 de ferred gain = $ 247,000 Taxable income = $488000+ $152,000 +213,000 -247,000 = $853000 - 241,000 :- $ 606,000 Tax rate = 40%.. Pincome tax payable-current = 606,000 x 40%. -$242you

consolidated Return Abbey income - 2014 benjammin income - 2014 $ 488000 $152,000 $213,000 2013 gairi realized in 2014 2014 deferred gain - $247,000 ble income $606,000 Tax rate 404, income tax payable current , $242,400 In absence of any kind os temorary di Libere nec, income tax Expense shall be same as income taxe Payable le, $242400. Nole : The unrealized gain is not taseed untill realiaed. Dividend incomme éis not important because a consolidated vetem is being tred]

Seperate return Abbey will report taxable income of $ 488000.. The unrealized gain cann't be deffered. The dividend would not be taxable because Benjammin still meets the criteria to be a member do an affiliated group. A consolidate dreturn is not a requirement for these divialand to be excluded. Thus, income to payable by p= $488000 x 40% = $195200 I si income tax payable typ = $19 .5000] Now, - To Determine the income tax Expense for the two muel be taken into account. temporary difference Taxable income = 488000.. gain taxed in 2013 though realized in 2014 = $213,000

gåin taxed on 2014 although not realized = $247,000 W 2014 realized income subject to taxation - 488000 +213,000 . - 247,000 = 701000 - 247,000 = $454000 tax rate = 40% income tax Excense' $454000 X 404. = $181600 Taxable income gån tored in 2013 though realized in 200 Jån fenced in wol4 although not scalized L dolų rcalized income subicct tatavation Tax rate Lincome Tox dipense $488000 $ 213,000 - $24,000 $ 454000 401 $ 181600 $ will have an expense and payable = $152000 X 4011. = $ 60800