Problem

On January 1, 2012, Piranto acquires 90 percent of Slinton’s outstanding shares. Financial...

On January 1, 2012, Piranto acquires 90 percent of Slinton’s outstanding shares. Financial information for these two companies for the years of 2012 and 2013 follows:

 

2012

2013

Piranto Company:

 

 

 Sales

$(600,000)

$(800,000)

 Operating expenses

400,000

500,000

 Unrealized gross profits as of end of year (included in above figures)

 

(120,000)

 

(150,000)

 Dividend income Slinton Company

(18,000)

(36,000)

Slinton Company:

 

 

 

 Sales

 

(200,000)

(250,000)

 Operating expenses

120,000

150,000

 Dividends paid -

(20,000)

(40,000)

Assume that a tax rate of 40 percent is applicable to both companies.

a. On consolidated financial statements for 2013, what are the income tax expense and the income tax currently payable if Piranto and Slinton file a consolidated tax return as an affiliated group?

b. On consolidated financial statements for 2013, what are the income tax expense and income tax currently payable if they choose to file separate returns?

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Solutions For Problems in Chapter 7