Question 1

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.

Question 2

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 3

Identify which of the following statements is true.

Accepted Answer

A) A built-in deduction accrues in a separate return year, but is not recognized in a consolidated return year. 
B) Section 382 adopts a single-entity approach in determining ownership changes. 
C) The 50-percentage-point minimum stock ownership change that triggers the Sec. 382 loss limitation rules will not occur in acquisitive transactions involving a group of corporations filing consolidated returns. 
D) All of the above are false.

Question 4

Parent and Subsidiary Corporations form an affiliated group. In 2019, the initial year of operation, Parent and Subsidiary filed separate returns. In 2020 group files a consolidated return. Taxable Income  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

Question 5

What are the differences between a controlled group and an affiliated group?

Accepted Answer

The answer of What are the differences between a controlled...

Question 6

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 7

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

Accepted Answer

A) 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 
B) cash dividend payment from a subsidiary corporation to its parent corporation 
C) sale of inventory from a subsidiary corporation to its parent corporation 
D) None of the above transactions require the deferral and later recognition of income.

Question 8

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

Accepted Answer

The answer of What types of corporations are not includible...

Question 9

Blair and Cannon Corporations are members of an affiliated group. No prior net Sec. 1231 losses have been reported by any group member. The two corporations report consolidated ordinary income of $100,000 and gains and losses from property transactions as follows.  Which of the following statements is correct?

Accepted Answer

A) The consolidated group reports a net short-term capital gain of $1,000. 
B) Blair Corporation's separate return reports a $4,000 net long-term capital gain. 
C) Cannon Corporation's separate return reports a $1,000 net long-term capital loss. 
D) All three of the above are correct.

Question 10

The IRS can attempt to collect taxes owed on a consolidated return from any of the members of the consolidated group.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

Accepted Answer

A) insurance companies 
B) S corporations 
C) car manufacturing corporation 
D) foreign corporations

Question 12

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-year...

Question 13

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, Utech, and Baxter Corporations are an affiliated group. 
B) Ajak, Tech, 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 14

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 15

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

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.

Question 17

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.

Question 18

To be an affiliated group, the parent corporation must directly own at least 80% of another group member.

Accepted Answer

A) True 
 B)False

Question 19

Identify which of the following statements is true.

Accepted Answer

A) If 100% of the stock of two corporations is owned by the same individual, the two corporations are eligible to file a consolidated return. 
B) The check-the-box regulations permit partnership and LLCs to elect C corporation tax treatment. 
C) A group of corporations that meets the parent-subsidiary controlled group requirements is always eligible to file a consolidated return. 
D) All of the above are false.

Question 20

Toby owns all of the single class of stock of James and Mony Corporations. James Corporation owns all of Volt Corporation's stock. Mony owns all of Wegnin Corporation. Mony and Wegnin Corporations are foreign corporations. Toby, James, and Volt are domestic corporations. Are the corporations part of an affiliated group?

Accepted Answer

The answer of Toby owns all of the single class...

Exam 8: Consolidated Tax Returns

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.

Parent and Subsidiary Corporations form an affiliated group. In 2019, the initial year of operation, Parent and Subsidiary filed separate returns. In 2020 group files a consolidated return. Taxable Income How much of the Subsidiary loss can be carried back to last year?

What are the differences between a controlled group and an affiliated group?

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

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

The IRS can attempt to collect taxes owed on a consolidated return from any of the members of the consolidated group.

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

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.

Identify which of the following statements is true.

To be an affiliated group, the parent corporation must directly own at least 80% of another group member.

Identify which of the following statements is true.