Question

Corporation Powns 93 percent of the outstanding stock of Corporation T. This year, the corporation's records provide the following information. Ordinary operating income (loss) Capital gain (loss) Section 1231 gain (loss) Corporation P $540,000 (8,700) (1,400) Corporation T $(220,000) 6,400 5,800 a. Compute each corporation's taxable income if each files a separate tax return. b. Compute consolidated taxable income if Corporation P and Corporation T file a consolidated tax return. Complete this question by entering your answers in the tabs below. Required A Required B Compute each corporation's taxable income if each files a separate tax return. (Net loss(es) should be indicated by a minu sign.) Corporation P's Corporation T's

Answer 1

A. If separately calculated-

Corporation P-

Ordinary Operating Income		$540,000
Capital Loss	Note 1	$(3,000)
Loss U/S 1231	Note 2	$(1,400)
Taxable Income of P		$535,600

Note 1= Capital loss can be allowed to set off against ordinary income but upto $3000 only and remaining can be carry forward.

Note 2 Sec 1231 loss is allowed to set off against ordinary income.

Corporation T

Ordinary Operating loss		$(220,000)
Capital gain	Note 1	$6,400
Gain U/S 1231	Note 2	$5,800
Taxable Income of T		$(214,200)

Note 1 Capital gain is not allowed to set off against ordinary loss.

Note 2 Gain U/S 1231 is allowed to set off against business loss.

B. If compiled return is filled-

Ordinary Operating Income(Note 1) -$320,000

Capital Loss(Note 2) $(2300)

Loss U/S 1231(Note 3) $(4400)

Taxable Income= $313,300

Note1 Ordinary business loss can be set off against ordinary business gain.

Note2 Capital gain can be set off against capital loss.

Note 3 Gain U/S Sec 1231 can be set off against ordinary business gain.