ParentCo acquired all of the stock of SubCo on January 1, 2011, for $1,000,000. The parties immediately elected to file consolidated income tax returns. SubCo generated taxable income of $150,000 for 2011 and paid a dividend of $100,000 to ParentCo. In 2012, SubCo generated an operating loss of $350,000, and in 2013 it produced taxable income of $75,000. As of the last day of 2013, what was ParentCo's basis in the stock of SubCo?

Question

Quizplus · Accepted Answer

ParentCo's basis in SubCo's stock is adjusted for SubCo's income, losses, and dividends. Starting with $1,000,000, add 2011 income ($150,000), subtract 2011 dividend ($100,000), subtract 2012 loss ($350,000), and add 2013 income ($75,000), resulting in $775,000.

ParentCo Acquired All of the Stock of SubCo on January