Question

Clarke has a controlling interest in Rogers's outstanding stock. At the current year-end, the following information has been accumulated for these two companies: Dividends Paid Separate Operating Income Clarke $742,500 (includes a $163,000 net unrealized gross profit in intra-entity ending inventory) 272,500 $120,000 Rogers 55,000 Clarke uses the initial value method to account for the investment in Rogers. The separate operating income figures just presented include neither dividend nor other investment income. The effective tax rate for both companies is 40 percent. a. Assume that Clarke owns 100 percent of Rogers's voting stock and is filing a consolidated tax return. What income tax amount does b. Assume that Clarke owns 92 percent of Rogers's voting stock and is filing a consolidated tax return. What amount of income taxes c. Assume that Clarke owns 80 percent of Rogers's voting stock, but the companies elect to file separate tax returns. What is the total d. Assume that Clarke owns 70 percent of Rogers's voting stock, requiring separate tax returns. What is the total amount of income ta> e. Assume that Clarke owns 70 percent of Rogers's voting stock so that separate tax returns are required. What amount of income this affiliated group pay for the current period? does this affiliated group pay for the current period? amount of income taxes that these two companies pay for the current period? expense to be recognized in the consolidated income statement for the current period? taxes does Clarke have to pay for the current year? s. Income tax b. Income tax C. Total amount of income tax d. Total amount of income tax expense e. Income tax

Please help! Want to learn based on this example, thank you so much!! <3333

Answer 1

Since the parent owns 100%, affiliated group will be taxed on its operating income. Intercompany transfer and dividends have no impact on consolidation return when it is filled (742500-163000-272500) x 40% 340800 Even though parent owns 92% it qualifies for consolidated tax return (742500-163000-272500) x 40% 340800 Separate tax return will be filled. Parent tax = 742500 x 40% = $ 297000 Subsidiary tax return-272500 x 40% -109000 Total = 297000 + 109000 - $406000 Dividend Received = 55000 x 70% x 20% = $ 7700 Income Tax Payable = (742500+7700) x 40% $ 300080

Hello, i was not confident on Part 4(D) so i did not attempt it,hope this helps.