Exam 8: Consolidated Tax Returns

Why are other intercompany transactions not given any special treatment?

Blue and Gold Corporations are members of the Blue-Gold affiliated group, which filed a consolidated tax return for last year, reporting a $200,000 consolidated NOL. Small taxable income amounts were reported by Blue and Gold in separate tax returns filed in years prior to last year. Early in the current year, 100% of Blue's stock is purchased by Robert Martin who contributes additional funds to Blue Corporation sufficient to acquire all of Green Corporation's stock. For the current year, the affiliated group reports the following results (excluding the consolidated NOL deduction): Which of the following statements is correct?

Identify which of the following statements is true.

Gee Corporation purchased land from an unrelated corporation several years ago for $105,000. The land was used by Gee as a storage lot for company trucks. Gee sold the land to Wilkers, its 85%-owned subsidiary corporation, last year (July 3)for $115,000. The land was also used in Wilkers' trade or business. Wilkers Corporation sold the land this year (August 22)for $130,000 to a corporation that was not a member of the affiliated group. The $130,000 purchase price is to be collected in five equal, annual installments, commencing with the current year's sale date. What gains and losses are recognized, deferred, or restored by Gee and Wilkers Corporations?

Identify which of the following statements is true.

Parent Corporation purchases a machine (a five-year property)for $20,000. It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property. At the close of business on the last day of the first year, Parent sells the machine to a 100%-owned corporation (Subsidiary)for $18,000. Subsidiary immediately commences depreciating the machine as a five-year property using the regular MACRS rules. What gain is reported by Parent Corporation in the first year that Subsidiary Corporation depreciates the machine?

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

On January 1, 2020, Alpha Corporation purchases 100% of the stock of Omega Corporation for $2 million. During the year, Omega Corporation earns $300,000 of taxable income, $30,000 of tax-exempt income, and distributes $150,000 in dividends. Each company paid its own tax liability. What basis adjustment must Alpha Corporation make at year-end?

Which of the following events is an intercompany transaction?

Marietta and Alpharetta Corporation, two accrual method of accounting corporations that use the calendar year as their tax year, have filed consolidated tax returns for a number of years. Alpharetta Corporation, a 100% owned subsidiary of Marietta, is transferring a patent, equipment, and working capital to newly created Georgia Corporation in exchange for 100% of its stock. In 2018, the corporation will begin to produce parts for the computer industry. Georgia Corporation expects to incur organizational expenditures of $10,000 and start-up expenditures of $60,000. What tax issues should Georgia Corporation consider with respect to the selection of its overall accounting method, inventory method, and tax year, and the proper reporting of its organizational and start-up expenditures?

Identify which of the following statements is false.

Identify which of the following statements is true.

Parent Corporation sells land (a capital asset)to Subsidiary Corporation in an intercompany transaction, recognizing a $25,000 gain. Subsidiary holds the land as an investment for five years before selling the land to a nonmember of the group on an installment basis in a sale in which a $50,000 gain is realized. The sales proceeds are collectible in four equal installments with an appropriate interest amount being charged to the purchaser. Which statement is correct?

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

Jeffrey Corporation owns 85% of Placer Corporation and 25% of Mercer Corporation. Placer Corporation owns 60% of Mercer Corporation and 45% of Tyson Corporation. Jeffrey Corporation also owns 85% of Apple Corporation and Apple Corporation owns 30% of Tyson Corporation. Which of these corporations are members of an affiliated group if all percentages represent voting power and value held by the respective corporations?

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?

Penish and Sagen Corporations have filed consolidated tax returns for several calendar years. At the close of business on September 30, 2018, Penish Corporation sells all of its Sagen stock to June. What are the tax consequences to each corporation?

A consolidated 2018 NOL carryover is $36,000 at the beginning of 2019 is exists. Of the 2018 NOL, 25% of the loss is allocable to Duke Corporation. Duke Corporation leaves the group in the middle of the affiliated group's tax year. Before Duke's departure, it had earnings of $15,000 for the year, and the remainder of the affiliated group earned a total of $25,000, or $40,000 of taxable income for the group, excluding any NOL carryover. Following its departure from the affiliated group, Duke earned $8,000 in its first separate return. How much of the $36,000 NOL can Duke use on its first separate return?

An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.

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: Which of following statements is incorrect?