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.
a. Tax and book treatment is the same
b. Tax and book treatment differ
-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 2

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.
a. Group item
b. Not a group item
-Domestic production activities deduction

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 is computed on a group basis on a consolidated tax return.
a. Group item
b. Not a group item
-Interest income from Detroit School District bonds

Accepted Answer

Interest income from Detroit School District bonds is typically tax-exempt and is not a group item because it is specific to the entity that owns the bonds, rather than being a result of the consolidation process.

Question 4

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.
a. Tax and book treatment is the same
b. Tax and book treatment differ
-Ownership level of parent at which a subsidiary can join the consolidated group.

Accepted Answer

For financial accounting purposes, a parent company can consolidate a subsidiary if it owns more than 50% of the subsidiary's voting stock. However, for federal income tax purposes, the ownership level required for a subsidiary to join a consolidated tax return group is at least 80%. Therefore, the treatment between book (financial accounting) and tax purposes differs.

Question 5

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.
a. Increases stock basis of subsidiary
b. Decreases stock basis of subsidiary
c. No effect on stock basis of subsidiary
-Dividend paid to parent out of affiliate's E & P

Accepted Answer

A dividend paid to the parent out of the affiliate's Earnings and Profits (E & P) decreases the parent's basis in the stock of the subsidiary. This is because the dividend is considered a return on the parent's investment in the subsidiary.

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.
a. Tax and book treatment is the same
b. Tax and book treatment differ
-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.

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.
a. Increases stock basis of subsidiary
b. Decreases stock basis of subsidiary
c. No effect on stock basis of subsidiary
-Member's operating gains/profits

Accepted Answer

Member's operating gains or profits increase the parent's basis in the stock of a subsidiary because these gains increase the value of the subsidiary, which is reflected in the parent's investment value.

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.
a. Group item
b. Not a group item
-Dividends received deduction

Accepted Answer

The dividends received deduction would increase current Earnings and Profits (E&P) because it is an item that reduces taxable income but does not reduce E&P.

Question 9

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.
a. Group item
b. Not a group item
-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 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.
a. Increases stock basis of subsidiary
b. Decreases stock basis of subsidiary
c. No effect on stock basis of subsidiary
-Increase in affiliate's E & P

Accepted Answer

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

Question 11

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.
a. Tax and book treatment is the same
b. Tax and book treatment differ
-Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.

Accepted Answer

For financial accounting purposes, a U.S. partnership cannot join a consolidated group because consolidated financial statements typically include corporations, not partnerships. However, for Federal income tax purposes, there are specific rules and elections (e.g., the check-the-box regulations) that might allow a disregarded entity or a partnership to be treated as part of a consolidated group under certain conditions, indicating a difference in treatment between tax and book purposes.

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.
a. Group item
b. Not a group item
-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.
a. Increases stock basis of subsidiary
b. Decreases stock basis of subsidiary
c. No effect on stock basis of subsidiary
-Member's capital gain

Accepted Answer

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

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.
a. Group item
b. Not a group item
-Compensation deductions

Accepted Answer

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

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.
a. Tax and book treatment is the same
b. Tax and book treatment differ
-Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.

Accepted Answer

For Federal income tax purposes, a foreign corporation generally cannot join a U.S. consolidated tax return group. However, for financial accounting purposes, if a U.S. parent company owns 100% of a foreign subsidiary, it typically consolidates the financial statements of that subsidiary with its own. Therefore, the tax and book treatments differ in this scenario.

Quiz 8: Consolidated Tax Returns

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. a. Group item b. Not a group item -Domestic production activities deduction

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. a. Group item b. Not a group item -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. a. Group item b. Not a group item -Dividends received deduction

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. a. Group item b. Not a group item -Net 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. a. Group item b. Not a group item -Charitable contributions

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. a. Group item b. Not a group item -Compensation deductions