On January 1, 2017, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows: 2017 2018 Abbey Company: Sales$(684,000)$(1,004,000)Operating expenses 462,000 516,000 Intra-entity gross profits in ending inventory (included in above figures) (213,000) (247,000)Dividend income—Benjamin Company (13,500) (31,500)Benjamin Company: Sales (307,000) (361,000)Operating expenses 162,000 209,000 Dividends paid (15,000) (35,000) Assume that a tax rate of 40 percent is applicable to both companies. On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group?On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns?

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Answered: On January 1, 2017, Abbey acquires 90…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 2017, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows:

		2017			2018
Abbey Company:
Sales	$	(684,000	)	$	(1,004,000	)
Operating expenses		462,000			516,000
Intra-entity gross profits in ending inventory (included in above figures)		(213,000	)		(247,000	)
Dividend income—Benjamin Company		(13,500	)		(31,500	)
Benjamin Company:
Sales		(307,000	)		(361,000	)
Operating expenses		162,000			209,000
Dividends paid		(15,000	)		(35,000	)

Assume that a tax rate of 40 percent is applicable to both companies.

On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group?
On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns?

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