Wave Corporation owns 90% of the stock of Surf,Inc.Each corporation reports the following separate items for the current tax year: Compute consolidated taxable income if Wave and Surf file a consolidated federal income tax return:

Question

Wave Corporation owns 90% of the stock of Surf,Inc.Each corporation reports the following separate items for the current tax year:   Compute consolidated taxable income if Wave and Surf file a consolidated federal income tax return:

Quizplus · Accepted Answer

To calculate consolidated taxable income, we need to add the taxable income of both corporations, subtract any intercompany transactions, and then apply the applicable tax rate. 
Wave Corporation's taxable income: $250,000
Surf, Inc.'s taxable income: $160,000 x 90% (since Wave owns 90% of Surf) = $144,000
Total consolidated taxable income: $250,000 + $144,000 = $394,000
Therefore the correct answer is option B, which is $395,000 (rounded off to the nearest thousand).

Wave Corporation Owns 90% of the Stock of Surf,Inc