Question

On January 1, 2013, Piranto acquires 90 percent of Slinton’s outstanding shares. Financial information for these two companies for the years of 2013 and 2014 follows: Note: Parentheses indicate a credit balance.

2013 2014

Piranto Company:

Sales $ (751,000 ) $ (974,000 )

Operating expenses 490,000 530,000

Unrealized gross profits as of end of year (included in above figures) (164,000 ) (204,000 )

Dividend income—Slinton Company (13,500 ) (31,500 )

Slinton Company:

Sales (319,000 ) (363,000 )

Operating expenses 200,000 210,000

Dividends paid (15,000 ) (35,000 )

Assume that a tax rate of 40 percent is applicable to both companies.

  

a.	On consolidated financial statements for 2014, what are the income tax expense and the income tax currently payable if Piranto and Slinton file a consolidated tax return as an affiliated group?

     

b.	On consolidated financial statements for 2014, what are the income tax expense and income tax currently payable if they choose to file separate returns?

     

Answer 1