Pretax operating incomes of Panitz Corporation and its 80%-owned subsidiary,Salazar Corporation,for the year 2014,are shown below.
Panitz and Salazar belong to an affiliated group.Salazar pays total dividends of $35,000 for the year.There are no unamortized book value/fair value differentials relating to Panitz's investment in Salazar.During the year,Panitz sold land to Salazar at a total loss of $15,000 which is included in its pretax operating income.Salazar still holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%.
$\begin{array}{lll}
&\text { Panitz}&\text { Salazar}\
\text { Sales revenue } & \$ 890,000 & \$ 700,000 \
\text { Loss on sale of land } & (15,000) & \
\text { Cost of sales } & (400,000) & (250,000) \
\text { Other expenses } & (350,000) & (350,000) \
\text { Depreciation expense } & (50,000) & (35,000)
\end{array}$ Pretax operating income
Required:
1.Determine the separate amounts of income tax expense for Panitz and Salazar as if they had filed separate tax returns.
2.Determine Panitz's net income from Salazar.

Question

Pretax operating incomes of Panitz Corporation and its 80%-owned subsidiary,Salazar Corporation,for the year 2014,are shown below.
Panitz and Salazar belong to an affiliated group.Salazar pays total dividends of $35,000 for the year.There are no unamortized book value/fair value differentials relating to Panitz's investment in Salazar.During the year,Panitz sold land to Salazar at a total loss of $15,000 which is included in its pretax operating income.Salazar still holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%.
 $\begin{array}{lll}
&\text { Panitz}&\text { Salazar}\
\text { Sales revenue } & \$ 890,000 & \$ 700,000 \
\text { Loss on sale of land } & (15,000) & \
\text { Cost of sales } & (400,000) & (250,000) \
\text { Other expenses } & (350,000) & (350,000) \
\text { Depreciation expense } & (50,000) & (35,000)
\end{array}$ Pretax operating income
  Required:
1.Determine the separate amounts of income tax expense for Panitz and Salazar as if they had filed separate tax returns.
2.Determine Panitz's net income from Salazar.

Quizplus · Accepted Answer

The Answer of Pretax operating incomes of Panitz Corporation and its 80%-owned subsidiary,Salazar Corporation,for the year 2014,are shown below.
Panitz and Salazar belong to an affiliated group.Salazar pays total dividends of $35,000 for the year.There are no unamortized book value/fair value differentials relating to Panitz's investment in Salazar.During the year,Panitz sold land to Salazar at a total loss of $15,000 which is included in its pretax operating income.Salazar still holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%.
 $\begin{array}{lll}
&\text { Panitz}&\text { Salazar}\
\text { Sales revenue } & \$ 890,000 & \$ 700,000 \
\text { Loss on sale of land } & (15,000) & \
\text { Cost of sales } & (400,000) & (250,000) \
\text { Other expenses } & (350,000) & (350,000) \
\text { Depreciation expense } & (50,000) & (35,000)
\end{array}$ Pretax operating income
  Required:
1.Determine the separate amounts of income tax expense for Panitz and Salazar as if they had filed separate tax returns.
2.Determine Panitz's net income from Salazar.

Pretax Operating Incomes of Panitz Corporation and Its 80%-Owned Subsidiary,Salazar