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.

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Question: Boulder Corporation owns all of the stock of PebbleCo, so together they constitute a Federal affi…
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Situation If the Group Files a Consolidated Return If Separate Income Tax Returns Continue to Be
Filed
a. What amount of the $1,000,000 cash dividend paid by PebbleCo to
Boulder is taxable?
$ $
b. Taxable income for both group members this year is $50,000
each. What is the income tax? Assume that Boulder is allocated the
15% tax bracket.
$ $
c. Boulder’s tax liability is $95,000, and Pebble’s liability
totals $75,000. For what amount is Boulder liable?
$ $
d. Boulder uses the LIFO method for its inventories, but Pebble
wants to use FIFO for its own inventories.
Allowed Allowed

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