ParentCo owned 100% of SubCo for the entire year.ParentCo uses the accrual method of tax accounting,whereas SubCo uses the cash method.During the year,SubCo sold raw materials to ParentCo for $35,000 under a contract that requires no payment to SubCo until the following year.
Exclusive of this transaction,ParentCo had income for the year of $80,000,and SubCo had income of $50,000.The group's consolidated taxable income for the year was:
A)$165,000.
B)$130,000.
C)$95,000.
D)$80,000.

Question

Quizplus · Accepted Answer

Since ParentCo uses the accrual method and SubCo uses the cash method, the $35,000 raw materials sale will not be included in SubCo's income until the following year when payment is received. Therefore, the consolidated taxable income for this year will only include the $80,000 income of ParentCo and the $50,000 income of SubCo, totaling to $130,000.

ParentCo Owned 100% of SubCo for the Entire Year