ParentCo and SubCo recorded the following items of income and deduction for the current tax year. Compute ParentCo and SubCo's consolidated taxable income or loss.
A) $95,000
B) $99,000
C) $104,400
D) $116,000
E) $120,000

Question

ParentCo and SubCo recorded the following items of income and deduction for the current tax year.  Compute ParentCo and SubCo's consolidated taxable income or loss.
A) $95,000 
B) $99,000 
C) $104,400 
D) $116,000 
E) $120,000

Quizplus · Accepted Answer

To compute the consolidated taxable income, we need to add up the taxable income of ParentCo and SubCo and then adjust for intercompany transactions.

ParentCo: 
Gross Income: $300,000 
Deductions: ($120,000) 
Taxable Income: $180,000

SubCo: 
Gross Income: $225,000 
Deductions: ($70,000) 
Taxable Income: $155,000

Consolidated Taxable Income: 
ParentCo taxable income: $180,000 
SubCo taxable income: $155,000 
Intercompany transactions: ($30,600)

$180,000 + $155,000 - $30,600 = $304,400

However, since ParentCo owns 60% of SubCo, we need to only include 60% of SubCo's taxable income in the consolidated taxable income calculation:

$180,000 + (60% x $155,000) - $30,600 = $104,400

Therefore, the correct answer is C.

ParentCo and SubCo Recorded the Following Items of Income and Deduction