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 $80,000.What is the group's consolidated taxable income for the year?
A)$215,000.
B)$195,000.
C)$175,000.
D)$155,000.
E)Some other amount.

Question

Quizplus · Accepted Answer

As a general rule,intercompany transactions are not eliminated by group members,but the transactions tend to cancel each other out.In this instance,ParentCo has $20,000 of income from the sale of supplies to SubCo,and SubCo has a $20,000 deduction.SubCo has $40,000 of income for the services rendered to ParentCo,and ParentCo has a $40,000 deduction.Thus,consolidated taxable income in this instance is $155,000,the sum of the ParentCo and SubCo separate taxable incomes.

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