ParentCo owned 100% of SubCo for the entire year, and both companies use the accrual method of tax accounting. During the year, SubCo purchased $20,000 of supplies from ParentCo. In addition, SubCo provided internal audit services to ParentCo, which were worth $40,000. Including these transactions, ParentCo's separate taxable income was $75,000, and SubCo's separate taxable income was $100,000. What is the group's consolidated taxable income for the year?
A) $215,000
B) $195,000
C) $175,000
D) $155,000

Question

Quizplus · Accepted Answer

The consolidated taxable income is calculated by adding the separate taxable incomes of ParentCo and SubCo and then eliminating intercompany transactions. ParentCo's income is $75,000, and SubCo's is $100,000, totaling $175,000. The $20,000 supply purchase and $40,000 audit service are intercompany transactions and do not affect the consolidated taxable income.

ParentCo Owned 100% of SubCo for the Entire Year, and Both