Question

On January 1, 2017, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows: 2017 2018 18 $ (710,000) 440,000 $(1,102,000) 666,000 Abbey Company: Sales Operating expenses Intra-entity gross profits in ending inventory (included in above figures) Dividend income-Benjamin Company Benjamin Company: Sales Operating expenses Dividends paid (125,000) (9,000) (222,000) (40,500) (328,000) 202,000 (10,000) (400,000) 230,000 (45,000) Assume that a tax rate of 40 percent is applicable to both companies. a. On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group? b. On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns? Income tax expense Income tax payable Income tax expense Income tax payable

Answer 1

$ 125,000 As per the financial inbormation too the aboill two companies or the years 2017 and 2018 the details of the income tax ennense and income tau palable ane bollows. (a) consolidated miluon! - Abbey income -2018/60129 -eneinso) $ 436,000 Benjamin's income-2018/soles -Emp) $170,000 2017 gain nealised in 2018 | 2018 dooessed gain - $ 222,000 jaxable income 2 509,000 H07. Tax rate income tax payable-luorint 19203, In absence of ant llind of tempisart dibberene income tan Enaimbe shall be some as income tax payable $203,600 The unnealised gain is not taxed untii walised divided income is not important recause a. consolidated return is reino billed]

b) mbbey will nopett tanable income of $ 436,CCO the Unnealised sain can't be deobene do 1. The divided would not be tanable because Benjamin meets the criteria to be a member cd an abbiliated 9800P, A consolidated neturn is not a requirement for these divided to be Eniluded. Income tax payable by Abbel would he 174,400 [H36,000 XHOZ. To deteomike the inomprar imponse 6oo the temparadt dibberence must ke falcon into alioen). I particulars Amount Tanable income $436,000 E crain taxed in 2017 through realised g 125,000 in 2018 Gain tand in 2018 through not - $ 222,000 i nealised $ 339,000 2018 nealised income subredt 30 the neturns 40% A Tax rate Income tax rnpense $135,000 Benjamin will have an entinse and Parable $ 68,000 C$ 170,000 X 407]