ParentCo and SubCo are calendar year corporations that keep their
respective books on the accrual basis. The companies have taxable income
of $200,000 and $250,000, respectively, for tax year 2013 (before
consolidation adjustments, elimination entries and charitable
deductions). The following transactions are included:
Land was sold by ParentCo to a third party for $100,000. The land was
acquired from SubCo in 2011. SubCo acquired the land in 2008 for
ParentCo’s taxable income includes a $12,000 dividend SubCo paid to ParentCo.
ParentCo lends SubCo $150,000 in January 2013. SubCo repaid the loan with $6,000 interest in December 2013.
ParentCo and SubCo contribute $17,000 and $11,000 to charity, respectively.
SubCo earned $1,600 of tax exempt interest income which is not included in SubCo’s $250,000 taxable income.
Calculate the consolidated taxable income and
consolidated tax liability of ParentCo and SubCo for 2013. Than
calculate the basis of ParentCo’s stock at the end of 2013, assuming
that it was $1,000,000 at the beginning of the year.