Cardinal owned 100% of Bluejay for the entire year, and both companies use the accrual method of tax accounting.During the year, Bluejay purchased $30,000 of supplies from Cardinal.In addition, Bluejay provided certain accounting services to Cardinal for $10,000.Including these transactions, Cardinal's separate taxable income was $80,000, and Bluejay's separate taxable income was $50,000.What is the group's consolidated taxable income for the year?

Question

Quizplus · Accepted Answer

The consolidated taxable income is the combined taxable income of the parent company and its subsidiaries, eliminating any intercompany transactions. In this case, the intercompany transactions are the purchase of supplies by Bluejay from Cardinal and the provision of accounting services by Bluejay to Cardinal. The purchase of supplies by Bluejay from Cardinal is eliminated because it is a transaction between two members of the consolidated group. The provision of accounting services by Bluejay to Cardinal is also eliminated because it is a transaction between two members of the consolidated group. Therefore, the consolidated taxable income is the sum of Cardinal's separate taxable income and Bluejay's separate taxable income, which is $80,000 + $50,000 = $130,000.

Cardinal Owned 100% of Bluejay for the Entire Year, and Both