Question

Corporation Powns 93 percent of the outstanding stock of Corporation T. This year, the corporation's records provide the following information. Ordinary operating income (loss) Capital gain (loss) Section 1231 gain (loss) Corporation P $540,000 (8,700) (1,400) Corporation T $(220,000) 6,400 5,800 a. Compute each corporation's taxable income if each files a separate tax return. b. Compute consolidated taxable income if Corporation P and Corporation T file a consolidated tax return. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Compute consolidated taxable income if Corporation P and Corporation T file a consolidated tax return.

Answer 1

Solution:

a)

	Corporation P's	Corporation T's
	Separate return	Separate return
Ordnary operation income (loss)	$540,000	$(220,000)
Capital gain	0	6,400
Section 1231 gain(loss)	(1,400)	5,800
Capital loss (deductible to extent of capital and section 1231 gain)	0	0
Taxable income (NOL)	$538,600	$(207,800)

b)

	Consolidate return
Ordinary operating income	$518,000
Capital gain	$6,400
Net section 1231 gain	$4,400
Deductible capital loss	($8,700)
taxable income	$520,100