Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 4

Company S is an 80% owned subsidiary of Company P. For 2011, Company P reports internally generated income before tax of $100,000. Company S reports an income before tax of $40,000. A 30% tax rate applies to both companies. Calculate consolidated net income (after taxes) and the distribution of income to the controlling and noncontrolling interests, if:
a. The consolidated firm meets the requirements of an affiliated firm and files a consolidated tax return.
b. The consolidated firm does not meet the requirements of an affiliated firm and files separate tax returns.
Assume an 80% dividend exclusion rate.