Problem: Garrison holds a controlling interest in Robertson’s outstanding stock. For the current year, the following information has been gathered about these two companies: Garrison uses the initial value method to account for the investment in Robertson. Garrison’s separate operating income figure does not include dividend income for the current year. c. Assume that Garrison owns 70 percent of Robertson’s voting stock. What total amount of income tax expense does a consolidated income statement recognize? Garrison Robertson Separate operating income $ 300,000 $ 200,000 (includes $50,000 intra-entity gross profit in ending inventory) Dividends paid 32,000 50,000 Tax rate 40% 40%
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I’m having a hard time understanding how to arrive at the answer of $6,720 for this problem. I can see the answer on the website but I want to understand how to arrive at this number. Thank you for your help.
Problem:
Garrison holds a controlling interest in Robertson’s outstanding stock. For the current year, the following information has been gathered about these two companies:
Garrison uses the initial value method to account for the investment in Robertson. Garrison’s separate operating income figure does not include dividend income for the current year.
c. Assume that Garrison owns 70 percent of Robertson’s voting stock. What total amount of income tax expense does a consolidated income statement recognize?
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Garrison |
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Robertson |
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Separate operating income |
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300,000 |
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$ |
200,000 |
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(includes $50,000 intra-entity gross profit in ending inventory) |
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Dividends paid |
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32,000 |
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50,000 |
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Tax rate |
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40% |
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40% |
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