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 “0”.
Click here to access the corporate tax schedule.
|Situation||If the Group Files a Consolidated Return||If Separate Income Tax Returns Continue to Be
|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.