Problem 830 LO 3 Boulder Corporation owns all of the stock o

Problem 8-30 (LO. 3) Boulder Corporation owns all of the stock of PebbleCo, so together they constitute a Federal affiliated group and a parent-subsidiary controlled group. By completing the following table, delineate for Boulder\'s tax department some of the effects of an election to file Federal consolidated income tax returns If an amount is zero, enter \"O\" Click here to access the corporate tax schedule If the Group Files a If Separate Income Tax Consolidated Returns Continue to Be Situation Return Filed a. What amount of the $1,000,000 cash dividend paid by PebbleCo to 0 0 Boulder is taxable? b. Taxable income for both group members this year is $50,000 each Assuming that Boulder is allocated the 15% tax bracket, what is the income tax? Boulder\'s tax liability is $95,000, and Pebble\'s liability totals $75,000 For what amount is Boulder liable? c. $170,000 d. Boulder uses the LIFO method for its inventories, but Pebble wants to use FIFO for its own inventories Allowed Allowed

Solution

If the Group Filler a Consolidated Return (a) There will be no Tax on inter Company Transfer. So, \"0\" tax. (b) Income Tax Should be Calculated on Combine income i.e. ( $50000+$5000)=$100000 Tax is 15% of $100000=$15000 ( c) Boulder Shall be liable for Whole Amount i.e. $170000 (d) Allowed but it should clearly resemble in its financial Statement & impact of that method. If Separate income Tax Return Continue to be filed (a) $1000000 Whole Amount of dividend should be liable to tax (b) No Clubbing of Income , Hence Boulder is tax = $150000X15%= $7500 ( c) $9500, His own liability Should be considered. ( d) Allowed, Separate Statement Containing effect Should be given