On January 1 2013 Piranto acquires 90 percent of Slintons ou

On January 1, 2013, Piranto acquires 90 percent of Slinton’s outstanding shares. Financial information for these two companies for the years of 2013 and 2014 follows: Note: Parentheses indicate a credit balance.

2013

2014

  Piranto Company:

      Sales

$

(683,000

)

$

(1,062,000

)

      Operating expenses

446,000

594,000

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

(169,000

)

(237,000

)

      Dividend income—Slinton Company

(9,000

)

(40,500

)

  Slinton Company:

      Sales

(293,000

)

(359,000

)

      Operating expenses

124,000

194,000

      Dividends paid

(10,000

)

(45,000

)

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

  

a.

On consolidated financial statements for 2014, 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 2014, what are the income tax expense and income tax currently payable if they choose to file separate returns?

     

		2013			2014
Piranto Company:
Sales	$	(683,000	)	$	(1,062,000	)
Operating expenses		446,000			594,000
Unrealized gross profits as of end of year        (included in above figures)		(169,000	)		(237,000	)
Dividend income—Slinton Company		(9,000	)		(40,500	)
Slinton Company:
Sales		(293,000	)		(359,000	)
Operating expenses		124,000			194,000
Dividends paid		(10,000	)		(45,000	)
Assume that a tax rate of 40 percent is applicable to both companies.    a. On consolidated financial statements for 2014, 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 2014, what are the income tax expense and income tax currently payable if they choose to file separate returns?

Solution

a. Calculation for Income Tax Expense And Tax Payable for 2014 Particular Piranto Company Slinton Company Consolidated Income Sales $1,062,000 $359,000 $1,421,000 Less: Operating Expense -$594,000 -$194,000 -$788,000 Net Income $468,000 $165,000 $633,000 Add; Unrealised Gross profit for the year 2013 $169,000 Less: Unrealised Gross profit for the year 2014 -$237,000 Net Taxable Income $565,000 Tax Rate 40% Income tax Expense $226,000 Income Tax Payable $226,000 Note: No Temporary Difference because they have Unrealized profit for Tax and Fiancial purpose. The Dividend paid are not taxable due to 90 % holding by Piranto Company b. Calculation for Income Tax Expense And Tax Payable for 2014 Particular Piranto Company Slinton Company Sales $1,062,000 $359,000 Less: Operating Expense -$594,000 -$194,000 Net Income $468,000 $165,000 Add; Unrealised Gross profit for the year 2013 $169,000 Less: Unrealised Gross profit for the year 2014 -$237,000 Net Taxable Income $400,000 $165,000 Tax Rate 40% 40% Income Tax Payable $160,000 $66,000 Note: Dividend would not be taxable because slinton stills meet the criteria to be member of an Affilated Group