Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of Gamma, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows: What is Beta's accrual-based income for 2011?

Question

Alpha Corporation owns 100 percent of Beta Company, and Beta owns 80 percent of Gamma, Inc., all of which are domestic corporations. Information for the three companies for the year ending December 31, 2011 follows:  What is Beta's accrual-based income for 2011?

Quizplus · Accepted Answer

Beta's accrual-based income is calculated as follows:
Beta's net income = $240,000 ($800,000 - $450,000 - $110,000)
Beta's dividend received deduction = $72,000 ($240,000 x 30%)
Beta's taxable income = $168,000 ($240,000 - $72,000)
Beta's taxable income includes its 80% share of Gamma's income of ($350,000 x 80%) = $280,000
Therefore, Beta's total taxable income is $448,000 ($168,000 + $280,000)
Beta's accrual-based income is $276,800 ($448,000 x 80%)

Alpha Corporation Owns 100 Percent of Beta Company, and Beta