Question 1

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not
-Ownership level of parent at which a subsidiary can join the consolidated group.

Accepted Answer

The ownership level of a subsidiary joining the consolidated group is treated differently for financial accounting and Federal income tax purposes. Financial accounting requires the parent company to have a controlling interest of more than 50% in the subsidiary, while Federal income tax purposes require the parent to have at least 80% ownership. Therefore, the tax and book treatment differ.

Question 2

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary
-Increase in affiliate's E & P

Accepted Answer

The answer of Match each of the following items with...

Question 3

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary
-Member's operating loss

Accepted Answer

A member's operating loss decreases the parent's basis in the stock of a subsidiary.

Question 4

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return
-Compensation deductions

Accepted Answer

Compensation deductions are not a group item and therefore are not computed on a consolidated tax return, as they pertain to individual employees and their personal tax liability.

Question 5

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return
-Domestic production activities deduction

Accepted Answer

The answer of Match each of the following items with...

Question 6

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not
-Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.

Accepted Answer

The treatment for financial accounting and Federal income tax purposes will differ because while Brazil corporation will be consolidated for financial accounting purposes, it will not be automatically included in the consolidated federal income tax return. Separate steps will be required to elect to consolidate for tax purposes or file a separate return.

Question 7

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary
-Member's operating gains/profits

Accepted Answer

Member's operating gains/profits increase the stock basis of subsidiary.

Question 8

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return
-Net operating loss

Accepted Answer

Net operating loss is computed on a group basis on a consolidated tax return, as it takes into account the combined income and losses of all the companies within the group.

Question 9

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not
-Joining the consolidated group is mandatory if ownership requirements are met by the entities.

Accepted Answer

Joining a consolidated group for tax purposes is not mandatory even if ownership requirements are met; entities may choose to file separately. This creates a situation where the tax treatment (choice to consolidate or not) can differ from the book treatment, where consolidation is generally required if control exists.

Question 10

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary
-Dividend paid to parent out of affiliate's E & P

Accepted Answer

Dividend paid to parent out of affiliate's E&P decreases the parent's basis in the stock of the subsidiary.

Question 11

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return
-Interest income from Detroit School District bonds

Accepted Answer

Since interest income from Detroit School District bonds is not earned by a subsidiary or affiliate or included in a combined income tax return, it is not a group item on a consolidated tax return.

Question 12

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return
-Charitable contributions

Accepted Answer

Charitable contributions made by a corporate taxpayer are generally deductible, but they are subject to a limitation. Specifically, the deduction is limited to 10% of the corporation's taxable income before certain deductions, including the charitable contribution deduction itself, any net operating loss carryback, and any capital loss carrybacks. This limitation ensures that corporations cannot use charitable contributions to excessively reduce their taxable income.

Question 13

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary
-Member's capital gain

Accepted Answer

A member's capital gain increases the stock basis of the subsidiary.

Question 14

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return
-Dividends received deduction

Accepted Answer

The dividends received deduction is a group item, meaning it is computed on a consolidated tax return.

Question 15

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not
-Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.

Accepted Answer

For financial accounting purposes, the partnership would be included in the consolidated financial statements since the parent owns 100%. However, for Federal income tax purposes, partnerships are not included in consolidated tax returns. Therefore, the tax and book treatment differ.

Question 16

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return
-Choice of tax year-ends by affiliates

Accepted Answer

The answer of Match each of the following terms with...

Question 17

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary
-Member's operating loss, when stock basis = $0

Accepted Answer

The answer of Match each of the following items with...

Question 18

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not
-Sales amounts (after returns and allowances) are combined in the consolidation process.

Accepted Answer

For both financial accounting and Federal income tax purposes, sales amounts after returns and allowances are treated similarly. They are recognized in a way that reflects the actual revenue earned, after accounting for any returns or allowances, ensuring that the reported revenue is accurate for both bookkeeping and tax reporting.

Quiz 8: Consolidated Tax Returns

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not -Ownership level of parent at which a subsidiary can join the consolidated group.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Increase in affiliate's E & P

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Member's operating loss

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Compensation deductions

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Domestic production activities deduction

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not -Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Member's operating gains/profits

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Net operating loss

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not -Joining the consolidated group is mandatory if ownership requirements are met by the entities.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Dividend paid to parent out of affiliate's E & P

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Interest income from Detroit School District bonds

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Charitable contributions

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Member's capital gain

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Dividends received deduction

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not -Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return -Choice of tax year-ends by affiliates

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Member's operating loss, when stock basis = $0

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not -Sales amounts (after returns and allowances) are combined in the consolidation process.