Question 1

A consolidated return's tax liability is owed by

Accepted Answer

A) all group members in equal portions. 
B) the group member responsible for that portion of the tax liability. 
C) all group members who are severely liable. 
D) the parent corporation. 
A) all group members in equal portions. 
B) the group member responsible for that portion of the tax liability. 
C) all group members who are severely liable. 
D) the parent corporation.

Question 2

P and S comprise an affiliated group that filed consolidated returns in 2018,2019 and 2020.They report the following for 2018,2019 and 2020. Taxable Income
$\begin{array}{|l|r|r|r|} 
\hline& 2018 & 2019 & 2020 \
\hline \text { Parent } & 100 & 200 & 200 \
\hline \text { Subsidiary } & (500) & 100 & 100 \
\hline
\end{array}$ How much of the Subsidiary 2018 loss can be utilized against consolidated net income in 2019?

Accepted Answer

A) $240 
B) $400 
C) $300 
D) $80 
A) $240 
B) $400 
C) $300 
D) $80

Question 3

Alto and Bass Corporations have filed consolidated tax returns for several calendar years.At the close of business on September 30,Alto Corporation sells all of the Bass Corporation stock.What portion of Alto's and Bass's income for the current year will be included in the consolidated return,assuming its income is earned evenly throughout the year and all months have 30 days?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Alto } & \text { Bass } \
\hline 100 \% & 100 \% \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Alto } & \text { Bass } \
\hline 100 \% & 75 \% \
\hline
\end{array}$$ 
C)  $$\begin{array} { l l } 
\text { Alto } & \text { Bass } \
\hline 75 \% & 75 \%
\end{array}$$ 
D) none of the above 
A)  $$\begin{array} { | l | l | } 
\hline \text { Alto } & \text { Bass } \
\hline 100 \% & 100 \% \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Alto } & \text { Bass } \
\hline 100 \% & 75 \% \
\hline
\end{array}$$ 
C)  $$\begin{array} { l l } 
\text { Alto } & \text { Bass } \
\hline 75 \% & 75 \%
\end{array}$$ 
D) none of the above

Question 4

Identify which of the following statements is true.

Accepted Answer

A) Rules for carryforward and carryback of a consolidated net capital loss and a consolidated NOL are the same with the exception of the carryforward period. 
B) Capital loss carrybacks and carryforwards are all treated as short-term capital losses. 
C) A member leaving an affiliated group cannot use capital loss carryovers that originated in one of its previous separate return years. 
D) All of the above are false. 
A) Rules for carryforward and carryback of a consolidated net capital loss and a consolidated NOL are the same with the exception of the carryforward period. 
B) Capital loss carrybacks and carryforwards are all treated as short-term capital losses. 
C) A member leaving an affiliated group cannot use capital loss carryovers that originated in one of its previous separate return years. 
D) All of the above are false.

Question 5

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

Accepted Answer

A) corporations exempt from tax under Sec.501 
B) real estate investment trusts 
C) closely held corporations 
D) foreign corporations 
A) corporations exempt from tax under Sec.501 
B) real estate investment trusts 
C) closely held corporations 
D) foreign corporations

Question 6

Cardinal and Bluebird Corporations both use a calendar year as their tax year.At the close of business on June 30,Cardinal Corporation buys all of Bluebird Corporation's stock.If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year,what portion of Bluebird's income will be included in the consolidated return? (Assume all months have 30 days.)

Accepted Answer

A) 100% 
B) 50% 
C) 0% 
D) none of the above 
A) 100% 
B) 50% 
C) 0% 
D) none of the above

Question 7

Parent and Subsidiary Corporations form an affiliated group.In 2018,the initial year of operation,Parent and Subsidiary filed separate returns.In 2019,the group files a consolidated return. Taxable Income
$$\begin{array} { | l | r | r | } 
\hline & { \mathbf { 2 0 1 8 } } & \mathbf { 2 0 1 9 } \
\hline \text { Parent } & ( \$ 16,000 ) & \$ 20,000 \
\hline \text { Subsidiary } & 10,000 & ( 21,000 ) \
\hline
\end{array}$$ How much of the Subsidiary loss can be carried back to last year?

Accepted Answer

A) $0 
B) $1,000 
C) $10,000 
D) none of the above 
A) $0 
B) $1,000 
C) $10,000 
D) none of the above

Question 8

Identify which of the following statements is true.

Accepted Answer

A) The charitable contribution deduction is calculated on a separate return basis for each group member,and the separate company deductions of the individual group members are totaled to arrive at the consolidated deduction. 
B) An affiliated group member cannot carry over any unused charitable contribution deduction from a consolidated return year to a separate return year if the member leaves the group prior to the end of the current consolidated return year. 
C) Charitable contributions,which cannot be deducted in a consolidated return due to the 10% deduction limitation,can be carried forward indefinitely by the affiliated group. 
D) All of the above are false. 
A) The charitable contribution deduction is calculated on a separate return basis for each group member,and the separate company deductions of the individual group members are totaled to arrive at the consolidated deduction. 
B) An affiliated group member cannot carry over any unused charitable contribution deduction from a consolidated return year to a separate return year if the member leaves the group prior to the end of the current consolidated return year. 
C) Charitable contributions,which cannot be deducted in a consolidated return due to the 10% deduction limitation,can be carried forward indefinitely by the affiliated group. 
D) All of the above are false.

Question 9

Which of the following is not reported by an affiliated group on a consolidated basis?

Accepted Answer

A) capital gain 
B) section 1231 gain 
C) casualty & theft gain 
D) All of the above are included. 
A) capital gain 
B) section 1231 gain 
C) casualty & theft gain 
D) All of the above are included.

Question 10

A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.

Accepted Answer

A) True 
 B)False

Question 11

Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.

Accepted Answer

A) True 
 B)False

Question 12

Parent Corporation sells land (a capital asset)to Subsidiary Corporation in an intercompany transaction,realizing a $25,000 gain.Subsidiary uses the land for five years in its trade or business before selling the land to a nonmember of the group in a cash sale in which a $50,000 gain is realized.Which statement is correct?

Accepted Answer

A) A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation.A $50,000 Sec.1231 gain is included in consolidated taxable income when Subsidiary sells the land. 
B) A $25,000 capital gain and a $50,000 Sec.1231 gain are included in consolidated taxable income when Subsidiary sells the land. 
C) A $75,000 Sec.1231 gain ($25,000 from Parent and $50,000 from Subsidiary)is included in consolidated taxable income in the year Subsidiary sells the land (assuming no recapture of previously deducted Sec.1231 losses must occur). 
D) None of the above are correct. 
A) A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation.A $50,000 Sec.1231 gain is included in consolidated taxable income when Subsidiary sells the land. 
B) A $25,000 capital gain and a $50,000 Sec.1231 gain are included in consolidated taxable income when Subsidiary sells the land. 
C) A $75,000 Sec.1231 gain ($25,000 from Parent and $50,000 from Subsidiary)is included in consolidated taxable income in the year Subsidiary sells the land (assuming no recapture of previously deducted Sec.1231 losses must occur). 
D) None of the above are correct.

Question 13

Boxcar Corporation and Sidecar Corporation,an affiliated group,reports the following results for the current year: $$\begin{array} { | c | c | c | c | } 
\hline \text { Corporation } & \begin{array} { c } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { STCG/STCL } & \text { LTCG/LTCL } \
\hline \text { Boxcar } & \$ 10,000 & \$ 10,000 & ( \$ 5,000 ) \
\text { Sidecar } & 30,000 & ( 12,000 ) & 16,000 \
\hline
\end{array}$$ What is the affiliated group's consolidated regular tax liability?

Accepted Answer

A) $7,700 
B) $10,290 
C) $11,000 
D) $49,000 
A) $7,700 
B) $10,290 
C) $11,000 
D) $49,000

Question 14

Jackson and Tanker Corporations are members of an affiliated group.The two corporations have been affiliated since they were formed last year.Both corporations have always used a calendar year as their tax year.Tanker,the subsidiary,has a separate return year NOL of $14,000 from last year.Jackson Corporation has a separate return year NOL of $16,000 from last year.Commencing this year,the two corporations filed a consolidated tax return.The NOLs can be carried over

Accepted Answer

A) to a consolidated return year and both are SRLY (separate return limitation year)losses. 
B) to a consolidated return year and Tanker's loss is a SRLY loss. 
C) to a consolidated return year without limit. 
D) to a consolidated return year and Jackson's loss is a SRLY loss. 
A) to a consolidated return year and both are SRLY (separate return limitation year)losses. 
B) to a consolidated return year and Tanker's loss is a SRLY loss. 
C) to a consolidated return year without limit. 
D) to a consolidated return year and Jackson's loss is a SRLY loss.

Question 15

Identify which of the following statements is true.

Accepted Answer

A) The basic accounting method elections that are used by the seller in intercompany transactions do not override the intercompany transaction rules. 
B) P and S are members of an affiliated group that has filed consolidated tax returns for a number of years.The sale of inventory by P,which was acquired from S in an intercompany transaction,outside the affiliated group triggers the restoration of gain by S. 
C) Last year,P,S,and T Corporations have filed consolidated tax returns for a number of years.Last year P Corporation sold land (a Sec.1231 asset)to T at a $75,000 profit.The gain was deferred by P in last year's consolidated tax return.P sold the T stock to Mike on June 1 of this year.The stock sale will require P to report in its income the gain that was deferred on the land sale. 
D) All of the above are true. 
A) The basic accounting method elections that are used by the seller in intercompany transactions do not override the intercompany transaction rules. 
B) P and S are members of an affiliated group that has filed consolidated tax returns for a number of years.The sale of inventory by P,which was acquired from S in an intercompany transaction,outside the affiliated group triggers the restoration of gain by S. 
C) Last year,P,S,and T Corporations have filed consolidated tax returns for a number of years.Last year P Corporation sold land (a Sec.1231 asset)to T at a $75,000 profit.The gain was deferred by P in last year's consolidated tax return.P sold the T stock to Mike on June 1 of this year.The stock sale will require P to report in its income the gain that was deferred on the land sale. 
D) All of the above are true.

Question 16

Identify which of the following statements is true.

Accepted Answer

A) P Corporation receives a dividend from its 100%-owned subsidiary corporation S.P and S have filed consolidated tax returns for a number of years.The dividend payment is out of S's earnings and profits and reduces P's investment in S.The dividend is an intercompany transaction and excluded from P's gross income. 
B) The consolidated dividends-received deduction percentage for dividends received by one affiliated group member from another affiliated group member is always 100%. 
C) The dividends-received deduction claimed when a $50,000 dividend is received from a 100%-owned nonconsolidated life insurance company is $35,000 (ignoring any dividends-received deduction limitations). 
D) All of the above are false. 
A) P Corporation receives a dividend from its 100%-owned subsidiary corporation S.P and S have filed consolidated tax returns for a number of years.The dividend payment is out of S's earnings and profits and reduces P's investment in S.The dividend is an intercompany transaction and excluded from P's gross income. 
B) The consolidated dividends-received deduction percentage for dividends received by one affiliated group member from another affiliated group member is always 100%. 
C) The dividends-received deduction claimed when a $50,000 dividend is received from a 100%-owned nonconsolidated life insurance company is $35,000 (ignoring any dividends-received deduction limitations). 
D) All of the above are false.

Question 17

Last year,Trix Corporation acquired 100% of Track Corporation.The acquisition occurred on July 1,which was five months after Track's creation.The corporations filed separate returns that year and have filed consolidated returns since then.The group results for the years,excluding the NOL deduction,are shown below. $$\begin{array} { | c | c | c | } 
\hline \text { Corporation } & \begin{array} { c } 
\text { Taxable Income } \
\text { Last year }
\end{array} & \begin{array} { c } 
\text { Taxable Income } \
\text { Current year }
\end{array} \
\hline \text { Trix } & ( \$ 12,000 ) & \$ 34,000 \
\text { Track } & ( 10,000 ) & ( 2,000 ) \
\text { Consolidated Taxable } & ( \$ 22,000 ) & \$ 32,000 \
\text { Income } &  \
\hline
\end{array}$$ Which of the following statements is incorrect?

Accepted Answer

A) Last year is an SRLY (separate return limitation year)with respect to Track Corporation. 
B) Track's last year loss is offset against the consolidated current taxable income. 
C) Track's last year loss can be used to offset the current year's consolidated taxable income. 
D) None of Track's last year's loss can be used to offset the current year's consolidated taxable income. 
A) Last year is an SRLY (separate return limitation year)with respect to Track Corporation. 
B) Track's last year loss is offset against the consolidated current taxable income. 
C) Track's last year loss can be used to offset the current year's consolidated taxable income. 
D) None of Track's last year's loss can be used to offset the current year's consolidated taxable income.

Question 18

Ajax and Brindel Corporations have filed consolidated returns for several calendar years.Ajax acquires land for $60,000 on January 1 of last year.On September 1 of this year,Ajax sells the land to Brindel for $90,000.The basis and holding period for the land acquired by Brindel are:

Accepted Answer

A)  $$\begin{array} { | l | l |} 
\hline &\text { Holding Period Begins } \
\text { Basis } & \text { On } \
\hline \$ 60,000 & \text { january 2 of last year } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline &\text { Holding Period Begins } \
\text { Basis } & \text { On } \
\hline \$ 90,000 & \text { Tanuary 2 of last year } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline &\text { Holding Period Begins } \
\text { Basis } & \text { On } \
\hline \$ 90,000 & \text { September } 2 \text { of this year } \
\hline
\end{array}$$ 
D) none of the above 
A)  $$\begin{array} { | l | l |} 
\hline &\text { Holding Period Begins } \
\text { Basis } & \text { On } \
\hline \$ 60,000 & \text { january 2 of last year } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline &\text { Holding Period Begins } \
\text { Basis } & \text { On } \
\hline \$ 90,000 & \text { Tanuary 2 of last year } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline &\text { Holding Period Begins } \
\text { Basis } & \text { On } \
\hline \$ 90,000 & \text { September } 2 \text { of this year } \
\hline
\end{array}$$ 
D) none of the above

Question 19

The Alto-Baxter affiliated group filed a consolidated return for the first time last year.The group does not come under the "large" corporation rules.For last year,the group reports a tax liability of $60,000.Cooper Corporation has a $30,000 tax liability last year.This year,the Alto-Baxter affiliated group purchased all of the Cooper stock.This year,the Alto-Baxter-Cooper group reports a $110,000 consolidated tax liability.To avoid penalties for the current year,the group must make timely estimated tax payments of how much during the year?

Accepted Answer

A) $60,000 
B) $90,000 
C) $110,000 
D) No estimated tax payments are required. 
A) $60,000 
B) $90,000 
C) $110,000 
D) No estimated tax payments are required.

Question 20

Roland,Shedrick,and Tyrone Corporations formed an affiliated group a number of years ago,which has since filed consolidated tax returns.No prior Sec.1231 losses have been reported by any group member.The group had a consolidated capital loss carryover last year.For the current year,the group reports the following results: $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Corporation } & \begin{array} { c } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { STCG/STCL } & \text { LTCG/LTCL } & \begin{array} { c } 
\text { Sec. 1231 } \
\text { Gains and Losses }
\end{array} \
\hline \text { Roland } & \$ 25,000 & \$ 4,000 & ( \$ 2,000 ) & ( \$ 5,000 ) \
\text { Shedrick } & 30,000 & ( 2,000 ) & 14,000 & ( 2,000 ) \
\text { Tyrone } & 20,000 & ( 3,000 ) & 8,000 & ( 3,000 ) \
\hline
\end{array}$$ Which of following statements is incorrect?

Accepted Answer

A) No Sec.1231 recapture can occur this year. 
B) The net capital gain is taxed at the regular corporate tax rates. 
C) The Sec.1231 loss is treated as an ordinary loss. 
D) The net capital gain is $20,000. 
A) No Sec.1231 recapture can occur this year. 
B) The net capital gain is taxed at the regular corporate tax rates. 
C) The Sec.1231 loss is treated as an ordinary loss. 
D) The net capital gain is $20,000.

Exam 8: Consolidated Tax Returns

A consolidated return's tax liability is owed by

Identify which of the following statements is true.

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

Identify which of the following statements is true.

Which of the following is not reported by an affiliated group on a consolidated basis?

A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.

Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.

Boxcar Corporation and Sidecar Corporation,an affiliated group,reports the following results for the current year: Corporation Ordinary Income STCG/STCL LTCG/LTCL Boxcar \ 10,000 \ 10,000 (\ 5,000) Sidecar 30,000 (12,000) 16,000 What is the affiliated group's consolidated regular tax liability?

Identify which of the following statements is true.

Identify which of the following statements is true.

Ajax and Brindel Corporations have filed consolidated returns for several calendar years.Ajax acquires land for $60,000 on January 1 of last year.On September 1 of this year,Ajax sells the land to Brindel for $90,000.The basis and holding period for the land acquired by Brindel are:

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