Question
In: Accounting
On January 1, 2020, Penguin Corporation, the parent corporation of a consolidated group of corporations filing...
On January 1, 2020, Penguin Corporation, the parent corporation of a consolidated group of corporations filing a calendar year consolidated tax return, acquires all of the stock of Steeler corporation for $3 million. In 2020, Steeler Corporation earns $500,000 of taxable income, it earns $20,000 of tax-exempt interest income, it pays Penguin corporation a dividend of $400,000. Steeler pays Penguin an amount equal to its stand-alone income tax liability for 2020, computed at the statutory tax rate of 21%. Compute Penguin’s year-end 2020 tax basis in Steeler stock.
Solutions
Expert Solution
For a 80% or more owned domestic corporation, dividends are not included in the income if consolidated tax return is filled. However, the basis of the parent in the subsidiary is reduced by the amount of dividend received.
Thus the basis of Steeler's stock held by Penguin as at Dec 31, 2020 would be calculated as follows:
| Beginning Basis | $ 3,000,000.00 |
| Add: tax on subsidiary income | $ 105,000.00 |
| Less: Dividend distribution | $ (400,000.00) |
| less: Tax libility distribution | $ (105,000.00) |
| Ending Basis | $ 2,600,000.00 |
For any clarification, please comment. Kindly Up Vote
ekkarill92 answered 2 years agoRelated Solutions
Jupiter, Inc. is a U.S. corporation and the parent of a group of affiliated corporations. Some...
Jupiter, Inc. is a U.S. corporation and the parent of a group of
affiliated corporations. Some of the Jupiter subsidiaries are
incorporated in foreign countries. Jupiter decided to restructure
its international operations for both economic and tax reasons.
Jupiter also wanted to use its overseas earnings more effectively
and avoid using cash from its U.S. operations to fund overseas
expansion. In order to accomplish these goals, Jupiter issued
multi-million dollar “advance agreements” to its foreign
subsidiaries in exchange for existing...
Do parent corporations generally prefer to file consolidated tax returns with their subsidiaries as opposed to...
Do parent corporations generally prefer to file consolidated tax
returns with their subsidiaries as opposed to filing separate
returns? Why or why not?
On January 1, 2020, Holland Corporation paid $9 per share to a group of Zeeland Corporation...
On January 1, 2020, Holland Corporation paid $9 per share to a
group of Zeeland Corporation shareholders to acquire 60,000 shares
of Zeeland’s outstanding voting stock, representing a 60 percent
ownership interest. The remaining 40,000 shares of Zeeland
continued to trade in the market close to its recent average of
$7.50 per share both before and after the acquisition by Holland.
Zeeland’s acquisition date balance sheet follows:
Current assets
$
14,100
Liabilities
$
213,500
Property and equipment (net)
308,100
Common...
On January 1, 2020, Holland Corporation paid $9 per share to a group of Zeeland Corporation...
On January 1, 2020, Holland Corporation paid $9 per share to a
group of Zeeland Corporation shareholders to acquire 60,000 shares
of Zeeland’s outstanding voting stock, representing a 60 percent
ownership interest. The remaining 40,000 shares of Zeeland
continued to trade in the market close to its recent average of
$8.00 per share both before and after the acquisition by Holland.
Zeeland’s acquisition date balance sheet follows: Current assets $
14,200 Liabilities $ 215,000 Property and equipment (net) 328,200
Common...
1. Parent Ltd(P) and Sub Ltd(S) are a consolidated group for financial accounting purpose. Ignore GST...
1. Parent Ltd(P) and Sub Ltd(S) are a consolidated group for
financial accounting purpose. Ignore GST in this question. Both
companies use the perpetual inventory system.
On the first day of the current year P bought $10,000 worth of
inventory on credit. A few months later it sold $1000 of this
inventory to S for $3000 on credit.
By the end of the current year, S had sold 90% of this inventory
to an outsider for $2100.
Select the correct...
When an affiliated group filing a consolidated tax return acquires a new member who has never...
When an affiliated group filing a consolidated tax return
acquires a new member who has never consented to the regulations,
which of the following is true?
A. A form 1122 must be filed by the newly acquired
subsidiary.
B. A new form 1122 must be filed by the common parent
corporation.
C. No consents are required to be filed after the initial
consolidated return year.
D. The entire group is required to submit a form 1122
Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020....
Assume that a Parent company acquires an 80% interest in its
Subsidiary on January 1, 2020. On January 1, 2020, the book value
of net assets and the fair value of the identifiable net assets
equaled the book value of identifiable net assets (i.e. there was
no AAP or Goodwill). The parent uses the equity method to account
for its investment in the subsidiary.
On December 31, 2021, the Subsidiary company issued $1,000,000
(face) 6 percent, five-year bonds to an...
Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value....
Parent acquired Subsidiary on January
1, 2020 at a price $450,000 in excess of book value. Of that
excess, $350,000 was allocated to an unrecorded patent with a
10-year life, with the remainder to goodwill. The parent uses the
equity method to account for its investment in its subsidiary.
In 2021, Subsidiary sold to Parent
land having a book value of $90,000 for a total price of
$244,000.
Financial statements of the two
companies for the year ended December 31,...
On January 1, 2020, Parent Company purchased 80% of the common stock of Subsidiary Company for...
On January 1, 2020, Parent Company purchased 80% of the common
stock of Subsidiary Company for $320,000.
On this date, Subsidiary had common stock, other paid-in
capital, and retained earnings of $40,000, $120,000, and $190,000,
respectively.
Net income and dividends for Subsidiary Company were $50,000
and $10,000, respectively.
Parent Company has used the simple equity method for recording
the Subsidiary income and dividends.
On January 1, 2020, the only tangible assets of Subsidiary that
were undervalued were inventory and equipment....
On January 1, 2020, Caliber Corporation issued 9% bonds dated January 1, 2020, with a face...
On January 1, 2020, Caliber Corporation issued 9% bonds dated
January 1, 2020, with a face amount of $10 million. The bonds
mature in 2029 (10 years). For bonds of similar risk and maturity,
the market yield is 10%. Interest is paid annually on December
31.
1. What is the amount of the annual interest payment?
2. What is the price of the bond on the issue date? (state
method used)
3. Was the bond sold at a discount or...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Use the bond term's below to answer the question Maturity 7 years Coupon Rate 4% Face...
- What experience have you had with Organization Development or with Change Management? Describe the organization, the...
- 1. Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds...
- Given an array of positive integers a, your task is to calculate the sum of every...
- Define “culture.” Software is defined by the Merriam-Webster Dictionary as "the programs that run on a...
- In humans, hypotrichosis (sparse body hair) is a rare autosomal recessive condition. Let h = hypotrichosis...
- Increase all of the listing prices by 5% for all listings under $500,000 and 10% for...
ADVERTISEMENT