Calendar year ParentCo acquired all of the stock of SubCo on January 1,2012,for $1,000,000.The parties immediately elected to file consolidated income tax returns.SubCo generated taxable income of $150,000 for 2012 and paid a dividend of $100,000 to ParentCo.In 2013,SubCo generated an operating loss of $350,000,and in 2014 it produced taxable income of $75,000.As of the last day of 2014,what was ParentCo's basis in the stock of SubCo?
A)$1,000,000.
B)$875,000.
C)$775,000.
D)$0.

Question

Quizplus · Accepted Answer

ParentCo's basis in SubCo's stock is adjusted by SubCo's income, losses, and dividends. Starting with the initial basis of $1,000,000, add SubCo's 2012 income of $150,000, subtract the 2012 dividend of $100,000, subtract the 2013 loss of $350,000, and add the 2014 income of $75,000. This results in a basis of $775,000.

Calendar Year ParentCo Acquired All of the Stock of SubCo