Question 1

ParentCo and SubCo had the following items of income and deduction for the current year.  Compute ParentCo and SubCo's consolidated taxable income or loss.

Accepted Answer

A) $107,000. 
B) $108,000. 
C) $108,900. 
D) $115,800. 
E) $121,000.

Question 2

When the parent acquires 51% of a subsidiary U.S.corporation,the subsidiary can join the consolidated financial statements,but not the consolidated tax return of the parent.

Accepted Answer

A) True 
 B)False

Question 3

ParentCo purchased all of the stock of ChildCo on January 2,2012,and the two companies filed consolidated returns for 2012 and thereafter.Both entities were incorporated in 2011.Taxable income computations for the members include the following.Neither group member incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.No § 382 limit applies.  To what extent can ChildCo's 2011 losses be used by the group in 2014?

Accepted Answer

A) $135,000. 
B) $125,000. 
C) $75,000. 
D) $10,000. 
E) $0.

Question 4

Calendar year ParentCo acquired all of the stock of SubCo on January 1,2012,for $1,000,000.The parties immediately elected to file consolidated income tax returns.SubCo generated taxable income of $150,000 for 2012 and paid a dividend of $100,000 to ParentCo.In 2013,SubCo generated an operating loss of $350,000,and in 2014 it produced taxable income of $75,000.As of the last day of 2014,what was ParentCo's basis in the stock of SubCo?

Accepted Answer

A) $1,000,000. 
B) $875,000. 
C) $775,000. 
D) $0.

Question 5

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Accepted Answer

A) Professional sports team operating as a limited partnership. 
B) Japanese corporation engaged in multinational operations,including two-thirds of its activities in the U.S. 
C) Japanese corporation engaged in multinational operations,including one-third of its activities in the U.S. 
D) U.S.corporation engaged in the nuclear energy industry.

Question 6

Deferring recognition of an intercompany loss is one ____________________ (advantage/disadvantage)of electing to file consolidated returns.

Accepted Answer

The answer of Deferring recognition of an intercompany loss is...

Question 7

An example of an intercompany transaction is the use of the financial accounting software of the parent corporation by a subsidiary for an arm's length management fee.

Accepted Answer

A) True 
 B)False

Question 8

Calendar year ParentCo purchased all of the stock of SubCo on January 1,2012,for $500,000.SubCo produced a loss for 2012 of $150,000 and distributed cash of $25,000 to ParentCo.In 2013,SubCo generated a loss of $450,000;in 2014,it recognized net income of $45,000.What is ParentCo's capital gain or loss if it sells all of its SubCo stock to a nongroup member on January 1,2015,for $50,000?

Accepted Answer

A) $130,000. 
B) $50,000. 
C) ($80,000). 
D) ($50,000).

Question 9

In computing consolidated E & P,a negative adjustment is allowed for the group's Federal income tax payments.

Accepted Answer

A) True 
 B)False

Question 10

When excessive negative adjustments are made to the stock basis of the subsidiary,a(n)____________________ account is created,rather than giving the parent a negative tax basis in the stock.

Accepted Answer

The answer of When excessive negative adjustments are made to...

Question 11

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

Accepted Answer

A) Recognition of losses from certain intercompany transactions is deferred. 
B) The taxation of intercompany dividends is not eliminated. 
C) The tax basis of investments in the stock of subsidiaries is unaffected by members contributing to consolidated taxable income. 
D) The § 1231 loss of one member is not offset against the § 1231 gain of another member of the group.

Question 12

ParentCo owned 100% of SubCo for the entire year.ParentCo uses the accrual method of tax accounting,whereas SubCo uses the cash method.During the year,SubCo sold raw materials to ParentCo for $35,000 under a contract that requires no payment to SubCo until the following year. Exclusive of this transaction,ParentCo had income for the year of $30,000,and SubCo had income of $50,000.The group's consolidated taxable income for the year was:

Accepted Answer

A) $165,000. 
B) $150,000. 
C) $115,000. 
D) $80,000.

Question 13

All members of an affiliated group have ____________________ and ____________________ liability for each other's Federal income tax liabilities.
or

Accepted Answer

The answer of All members of an affiliated group have...

Question 14

Consolidated group members each must use the same tax year end.

Accepted Answer

A) True 
 B)False

Question 15

ParentCo and SubOne have filed consolidated returns since 2010.SubTwo was formed in 2012 through an asset spin-off from ParentCo.SubTwo has joined in the filing of consolidated returns since then.Taxable income computations for the members include the following.None of the group members incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.  If ParentCo does not elect to forgo the carryback of the 2013 net operating loss,how much of the 2013 consolidated net operating loss is carried back to offset prior years' income?

Accepted Answer

A) $80,000. 
B) $40,000. 
C) $30,000. 
D) $0.

Question 16

When both apply,the § 382 NOL limitation rules override the ____________________ limits.
or

Accepted Answer

The answer of When both apply,the § 382 NOL limitation...

Question 17

Parent's basis in the stock of Child,its subsidiary,is $1 million at the beginning of the year.Child's share of consolidated taxable income this year is a $1.25 million operating loss.Parent's basis in the Child stock now is zero.Explain.

Accepted Answer

The answer of Parent's basis in the stock of Child,its...

Question 18

A parent-subsidiary controlled group exists where there is ____________________ percent ownership of all of the affiliates within the group,and there is an identifiable ____________________ corporation.
or

Accepted Answer

The answer of A parent-subsidiary controlled group exists where there...

Question 19

ParentCo and SubCo had the following items of income and deduction for the current year.  Compute ParentCo and SubCo's taxable income or loss computed on a separate basis.
ParentCo SubCo

Accepted Answer

A) $82,800 $33,000 
B) $78,300 $30,600 
C) $80,000 $33,000 
D) $81,000 $33,000 
E) $82,800 $30,600

Question 20

Which of the following is not a requirement that must be met before a group files a consolidated return?

Accepted Answer

A) None of the corporations can be ineligible under the Code to file on a consolidated basis with the others. 
B) All of the corporations must be members of an affiliated group. 
C) None of the group members can use the LIFO method of accounting for inventories. 
D) The group members must share a common tax year end.

Exam 8: Consolidated Tax Returns

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's consolidated taxable income or loss.

When the parent acquires 51% of a subsidiary U.S.corporation,the subsidiary can join the consolidated financial statements,but not the consolidated tax return of the parent.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Deferring recognition of an intercompany loss is one ____________________ (advantage/disadvantage)of electing to file consolidated returns.

An example of an intercompany transaction is the use of the financial accounting software of the parent corporation by a subsidiary for an arm's length management fee.

In computing consolidated E & P,a negative adjustment is allowed for the group's Federal income tax payments.

When excessive negative adjustments are made to the stock basis of the subsidiary,a(n)____________________ account is created,rather than giving the parent a negative tax basis in the stock.

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

All members of an affiliated group have and liability for each other's Federal income tax liabilities. or

Consolidated group members each must use the same tax year end.

When both apply,the § 382 NOL limitation rules override the ____________________ limits. or

Parent's basis in the stock of Child,its subsidiary,is $1 million at the beginning of the year.Child's share of consolidated taxable income this year is a $1.25 million operating loss.Parent's basis in the Child stock now is zero.Explain.

A parent-subsidiary controlled group exists where there is percent ownership of all of the affiliates within the group,and there is an identifiable corporation. or

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. ParentCo SubCo

Which of the following is not a requirement that must be met before a group files a consolidated return?

Exam 8: Consolidated Tax Returns

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's consolidated taxable income or loss.

When the parent acquires 51% of a subsidiary U.S.corporation,the subsidiary can join the consolidated financial statements,but not the consolidated tax return of the parent.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Deferring recognition of an intercompany loss is one ____________________ (advantage/disadvantage)of electing to file consolidated returns.

An example of an intercompany transaction is the use of the financial accounting software of the parent corporation by a subsidiary for an arm's length management fee.

In computing consolidated E & P,a negative adjustment is allowed for the group's Federal income tax payments.

When excessive negative adjustments are made to the stock basis of the subsidiary,a(n)____________________ account is created,rather than giving the parent a negative tax basis in the stock.

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

All members of an affiliated group have ____________________ and ____________________ liability for each other's Federal income tax liabilities. or

Consolidated group members each must use the same tax year end.

When both apply,the § 382 NOL limitation rules override the ____________________ limits. or

Parent's basis in the stock of Child,its subsidiary,is $1 million at the beginning of the year.Child's share of consolidated taxable income this year is a $1.25 million operating loss.Parent's basis in the Child stock now is zero.Explain.

A parent-subsidiary controlled group exists where there is ____________________ percent ownership of all of the affiliates within the group,and there is an identifiable ____________________ corporation. or

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. ParentCo SubCo

Which of the following is not a requirement that must be met before a group files a consolidated return?

All members of an affiliated group have and liability for each other's Federal income tax liabilities. or

A parent-subsidiary controlled group exists where there is percent ownership of all of the affiliates within the group,and there is an identifiable corporation. or