Question

1. A corporation organized in Germany and wholly owned by the U.S. parent can be included in a Federal consolidated return.

True

False

2. When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price, the parent's basis in the subsidiary's stock becomes negative.

True

False

3. When a subsidiary sells to the parent some business-use property that has appreciated from its $20,000 basis to a $50,000 fair market value, the subsidiary immediately recognizes $30,000 ordinary income on the consolidated return.

True

False

4. Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

a.The tax basis of investments in the stock of subsidiaries is unaffected by members contributing to consolidated taxable income.

b.Recognition of losses from certain intercompany transactions is deferred.

c.The § 1231 loss of one member is not offset against the § 1231 gain of another member of the group.

d.All of these choices are disadvantages of a consolidation election.

5. Conformity among the members of a consolidated group must be implemented for which of the following tax items?

a.Use of foreign tax payments (i.e., as a credit or deduction).

b.Tax accounting method (i.e., cash or accrual).

c.Tax year-end.

d.Inventory accounting method (e.g., FIFO or dollar-cost averaging).

Answer 1

1. This statement is false. Only companies which are organized in America can be included in federal consolidated return.

2. This statement is false. In this situation , a excess loss account will be created because stock basis in a subsidiary can not be less than zero.

3. This statement is false. Gain will be recognized only when asset leaves the group by any kind of transaction. So there will be a eliminating entry with $30000.

4. Answer is option B. Recognition of losses from certain intercompany transactions are deferred.

5. Answer is option C. All companies must use the same tax year end for a easy consolidation.