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): Abbey Company: Sales Operating expenses Intra-entity gross profits in ending inventory (included in above figures) Dividend income-Benjamin Company Benjamin Company: Sales Operating expenses Dividends paid 2020 2021 $ (710,000) $(1,102,000) 440,000 666,000 (125,000) (222,000) (9,000) (40,500) (328,000) (400,000) 202,000 230,000 (10,000) (45,000)
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): Abbey Company: Sales Operating expenses Intra-entity gross profits in ending inventory (included in above figures) Dividend income-Benjamin Company Benjamin Company: Sales Operating expenses Dividends paid 2020 2021 $ (710,000) $(1,102,000) 440,000 666,000 (125,000) (222,000) (9,000) (40,500) (328,000) (400,000) 202,000 230,000 (10,000) (45,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
Operating expenses
Intra-entity gross profits in ending inventory (included in
above figures)
Benjamin Company:
Dividend income-Benjamin Company
Operating expenses
Dividends paid
Sales
$ (710,000) $ (1,102,000)
440,000
666,000
(125,000)
(9,000)
(222,000)
(40,500)
(328,000)
202,000
(10,000)
(400,000)
230,000
(45,000)
Assume that a tax rate of 21 percent is applicable to both companies.
a. 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?
b. On consolidated financial statements for 2021, what are the income tax expense and income tax currently payable if they choose to
file separate returns?
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