Problem: 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:
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2017
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2018
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Abbey Company:
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|
|
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Sales
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($692,000)
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($1,098,000)
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Operating expenses
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444,000
|
672,000
|
|
Intra-entity gross profits in ending inventory (included in above figures)
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-167,000
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-186,000
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Dividend income-Benjamin Company
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-9,000
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-40,500
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Benjamin Company:
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|
|
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Sales
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-269,000
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-351,000
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Operating expenses
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129,000
|
170,000
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Dividends paid
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-10,000
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-45,000
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Assume that a tax rate of 40 percent is applicable to both companies.
Required:
Question 1: 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?
Question 2: 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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