The Quad affiliated group consists of Quad, a Delaware corporation, and its three wholly-owned subsidiaries. This year, the four corporations report the following net income (loss). If Quad elects to file a consolidated U.S. tax return, compute consolidated taxable income assuming that subsidiaries 1 and 2 are domestic corporations and subsidiary 3 is a foreign corporation.

Question

The Quad affiliated group consists of Quad, a Delaware corporation, and its three wholly-owned subsidiaries. This year, the four corporations report the following net income (loss).  If Quad elects to file a consolidated U.S. tax return, compute consolidated taxable income assuming that subsidiaries 1 and 2 are domestic corporations and subsidiary 3 is a foreign corporation.

Quizplus · Accepted Answer

For a consolidated tax return, the net income (loss) of all the subsidiaries will be combined to arrive at the consolidated taxable income. 
The taxable income of the domestic subsidiaries (1 and 2) will be included in the consolidated return, while the taxable income of the foreign subsidiary (3) will only be included to the extent of dividends paid to the domestic subsidiaries. 
Therefore, the consolidated taxable income would be: 
Net income of Subsidiary 1: $600,000 
Net income of Subsidiary 2: $200,000 
Net income of Subsidiary 3: $0 
Consolidated Taxable Income: $600,000 + $200,000 + $0 = $800,000 
Hence, option B is the correct answer.

The Quad Affiliated Group Consists of Quad, a Delaware Corporation