Question 1

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?

Accepted Answer

A)  The portion of last year's NOL that is not used as a carryback can be carried over, but is used only against the Blue's and Gold's taxable income. 
B)  Last year's NOL cannot be carried back. 
C)  The portion of last year's NOL that is not used as a carryback can be carried over against the current consolidated taxable income, but is subject to the Sec. 382 limitation. 
D)  The portion of last year's NOL that is not used as a carryback can be carried over the current year but is only used against Blue's taxable income.

Question 2

Identify which of the following statements is true.

Accepted Answer

A)  If a corporation becomes a member of an affiliated group within the first thirty days of the corporation's tax year, the corporation can elect not to file a short- period tax return. 
B)  When a corporation joins in filing a consolidated return, taxable income of the member is combined with other members' taxable income prior to any adjustments. 
C)  A corporation may be required to file a separate return and file with an affiliated group in the same calendar year. 
D)  All of the above are false.

Question 3

Jason and Jon Corporations are members of an affiliated group whose taxable incomes (before dividends) are
$90,000 and $100,000, respectively. Jason Corporation owns all of the Jon stock. Jon Corporation received a dividend from a less- than- 20%- owned corporation of $10,000 and $25,000 from a 100%- owned nonconsolidated insurance company. Jon Corporation distributed a $40,000 dividend to Jason Corporation. Jason Corporation also received dividends from a 25%- owned corporation of $20,000. The consolidated dividends- received deduction for federal income tax purposes is what?

Accepted Answer

The answer of Jason and Jon Corporations are members of...

Question 4

Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the filing of consolidated returns, at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?

Accepted Answer

A)   
B)   
C)   
D)

Question 5

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 depreciation can be claimed by Subsidiary Corporation in the first year it uses the machine?

Accepted Answer

The answer of Parent Corporation purchases a machine (a five-...

Question 6

Identify which of the following statements is true.

Accepted Answer

A)  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. 
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)  The basic accounting method elections that are used by the seller in intercompany transactions do not override the intercompany transaction rules. 
D)  All of the above are true.

Question 7

Which of the following events is an intercompany transaction that requires the deferral and later recognition of income?

Accepted Answer

A)  cash dividend payment from a subsidiary corporation to its parent corporation 
B)  sale of inventory from a subsidiary corporation to its parent corporation 
C)  accrual of rentals on a lease of real property owned by one group member that is used by another group member; both group members use the accrual method of accounting 
D)  None of the above transactions require the deferral and later recognition of income.

Question 8

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?

Accepted Answer

The answer of Jeffrey Corporation owns 85% of Placer Corporation...

Question 9

Why are other intercompany transactions not given any special treatment?

Accepted Answer

The answer of Why are other intercompany transactions not given...

Question 10

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?

Accepted Answer

The answer of A consolidated 2018 NOL carryover is $36,000...

Question 11

What issues determine whether an affiliated group exists?

Accepted Answer

The answer of What issues determine whether an affiliated group...

Question 12

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

Accepted Answer

A)  Ajak, Tech, and Baxter Corporations are an affiliated group. 
B)  Ajak, Tech, Utech, and Baxter Corporations are an affiliated group. 
C)  Ajak, Tech, and Utech Corporations are an affiliated group. 
D)  None of the above are correct.

Question 13

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?

Accepted Answer

The answer of Marietta and Alpharetta Corporation, two accrual method...

Question 14

All of the stock of Hartz and Ryder Corporations is owned by Morgen. Hartz Corporation has been reporting
$150,000 of taxable income for each of the past five years. Ryder Corporation has been reporting $30,000 in NOLs for the same period, which totals $150,000. Approximately one- third of Hartz's profits come from sales to Ryder. Intercompany sales between Hartz and Ryder have increased during each of the last five years. What tax issues should Morgen consider with respect to his investments in Hartz and Ryder Corporations?

Accepted Answer

The answer of All of the stock of Hartz and...

Question 15

Which of the following statements is true?

Accepted Answer

A)  The general business credit can be carried back 3 years and forward 15 years. 
B)  The general business credit can be carried forward indefinitely. 
C)  A consolidated group determines its general business credit on a consolidated basis. 
D)  The general business credit cannot be carried forward or backward.

Question 16

The treatment of capital loss carrybacks and carryovers is similar to NOLs.

Accepted Answer

A) True 
 B)False

Question 17

Identify which of the following statements is false.

Accepted Answer

A)  The basis to the purchasing member of property acquired in an intercompany transaction is the amount of cash paid to the selling member. 
B)  In general, buyers and sellers engaging in an intercompany transaction are treated as separate entities. 
C)  The holding period for property acquired in an intercompany transaction begins when the corresponding item is reported. 
D)  Inventory sales between group members are an example of an intercompany transaction.

Question 18

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 Jackson's loss is a SRLY loss. 
C)  to a consolidated return year and Tanker's loss is a SRLY loss. 
D)  to a consolidated return year without limit.

Question 19

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Consolidated Tax Returns

Identify which of the following statements is true.

Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the filing of consolidated returns, at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?

Identify which of the following statements is true.

Which of the following events is an intercompany transaction that requires the deferral and later recognition of income?

Why are other intercompany transactions not given any special treatment?

What issues determine whether an affiliated group exists?

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

Which of the following statements is true?

The treatment of capital loss carrybacks and carryovers is similar to NOLs.

Identify which of the following statements is false.

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

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