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Flame Corporation acquired all of the outstanding Ember stock on January 1, 2019, for $200,000. The...

Flame Corporation acquired all of the outstanding Ember stock on January 1, 2019, for $200,000. The parties immediately elected to file consolidated Federal income tax returns. Ember reported taxable losses of $175,000 in 2019 and $60,000 in 2020. If Flame sells the Ember stock for $100,000 at the end of 2020, it recognizes a capital gain of $____?

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WorkWhen accumulated post-acquisition negative adjustments to the stock basis of the subsidiary exceed the acquisition price plus prior positiveadjustments, an excess loss account is created

a capital gain; $135,000.

upon acquiring a subsidiary, the parent corporation records a stock basis on its tax balance sheet equal to the acquisition price. At the end ofevery consolidated return year, the parent records one or more adjustments to this stock basis, as in the financial accounting "equity" method.This treatment prevents double taxation shares.

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