Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. Each company's operating and dividend income for the current time period follow, as well as the effects of unrealized gains. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%. Using percentage allocation method, how much income tax expense is assigned to Hill?

Question

Tower Company owns 85% of Hill Company. The two companies engaged in several intra-entity transactions. Each company's operating and dividend income for the current time period follow, as well as the effects of unrealized gains. No income tax accruals have been recognized within these totals. The tax rate for each company is 30%.  Using percentage allocation method, how much income tax expense is assigned to Hill?

Quizplus · Accepted Answer

Consolidated Income Tax = $73,500Parent's Portion of the Consolidated Income $200,000 - $25,000 = $175,000/Consolidated Income $245,000 = 71.5%Sub's Portion of the Consolidated Income $80,000 - $10,000 = $70,000/Consolidated Income $245,000 = 28.5%Consolidated Income Tax $73,500 × .285 = $21,000

Tower Company Owns 85% of Hill Company