ParentCo owned 100% of SubCo for the entire year. ParentCo uses the accrual method of tax accounting whereas SubCo uses the cash method. During the year, SubCo sold raw materials to ParentCo for $35,000 under a contract that requires no payment to SubCo until the following year. Exclusive of this transaction, ParentCo had income for the year of $30,000, and SubCo had income of $50,000. The group's consolidated taxable income for the year was:
A) $165,000.
B) $150,000.
C) $115,000.
D) $80,000.

Question

Quizplus · Accepted Answer

The group's consolidated taxable income for the year is $80,000. This is calculated by adding ParentCo's income of $30,000 and SubCo's income of $50,000. The transaction between ParentCo and SubCo does not affect the consolidated taxable income because intercompany transactions are eliminated in consolidation.

ParentCo Owned 100% of SubCo for the Entire Year