Parent and Subsidiary Corporations have filed calendar-year consolidated tax returns for several years. Parent Corporation uses the cash method of accounting while Subsidiary Corporation uses the accrual method of accounting. If Parent lends Subsidiary money
A)the interest expense is deductible when accrued.
B)the interest expense and interest income may be reported in different consolidated return years.
C)the interest income is reported when the interest expense is accrued by Subsidiary.
D)the interest expense deduction is taken when Parent reports the interest income.

Question

Quizplus · Accepted Answer

DInterest income and expense between members of a consolidated group are recognized when the corresponding expense or income is recognized by the other member. This means that the interest income is reported when the interest expense is accrued by the Subsidiary (C), and the interest expense deduction is taken when Parent reports the interest income (D), ensuring matching of income and deductions within the consolidated return.

Parent and Subsidiary Corporations Have Filed Calendar-Year Consolidated Tax Returns