On January 1, 2020, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years 2020 and 2021 follows  (credit balances indicated by parentheses):       2020     2021   Abbey Company:             Sales $ (784,000 ) $ (890,000 ) Operating expenses   540,000     546,000   Intra-entity gross profits in ending inventory (included in above figures)   (122,000 )   (235,000 ) Dividend income—Benjamin Company   (9,000 )   (

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On January 1, 2020, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years 2020 and 2021 follows  (credit balances indicated by parentheses):

 

    2020     2021  
Abbey Company:            
Sales $ (784,000 ) $ (890,000 )
Operating expenses   540,000     546,000  
Intra-entity gross profits in ending inventory (included in above figures)   (122,000 )   (235,000 )
Dividend income—Benjamin Company   (9,000 )   (40,500 )
Benjamin Company:            
Sales   (275,000 )   (284,000 )
Operating expenses   156,000     182,000  
Dividends paid   (10,000 )   (45,000 )
 

 

Assume that a tax rate of 21 percent is applicable to both companies.

 

  1. On consolidated financial statements for 2021, 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?

  2. On consolidated financial statements for 2021, what are the income tax expense and income tax currently payable if they choose to file separate returns?

 Answer is complete but not entirely correct.

 
 
 
    Amount
a. Income tax expense $69,930   correct
  Income tax payable $69,930  correct
b. Income tax expense $69,930   correct
  Income tax payable $69,930    answer incorrect
Expert Solution
Step 1

Taxation refers to the imposition of compulsory financial obligations by the government on individuals or companies. In the world, almost every country imposes taxes on its citizens or entities, in order to meet government expenditures or for other purposes.

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