1. When Pet Corporation acquired its 100% interest in Sin Corporation in a tax-free reorganization, Sin’s equipment had a fair value of $6,000,000 and a book value and tax basis of $4,000,000. If Pet’s effective tax rate is 34%, how much of the purchase price should be allocated to equipment and to deferred income taxes?
(a) $4,000,000 and $0, respectively
(b) $5,320,000 and $680,000, respectively
(c) $6,000,000 and $680,000, respectively
(d) $6,000,000 and $2,040,000, respectively
2. Car Corporation, whose effective income tax rate is 34%, received $200,000 dividends from its 30%-owned domestic equity investee during the current year and recorded $500,000 equity in the investee’s income. Car’s income tax expense for the year should include taxes on the investment of:
(a) $13,600
(a) $20,400
(c) $34,000
(d) $68,000
3. During 2011, Pal Corporation reported $60,000 investment income from Sap Corporation, its 30%-owned investee, and it received $30,000 dividends from Sap. Pal’s effective income tax rate is 34%, and it is entitled to an 80% dividends-received deduction on dividends received from Sap. On the basis of this information, Pal should:
(a) Report investment income from Sap of $57,960
(b) Increase its investment in Sap for 2011 in the amount of $27,960
(c) Credit its deferred income taxes in the net amount of $2,040 for 2011
(d) Debit its deferred income taxes in the net amount of $2,040 for 2011
4. Pin Corporation owns 35% of the voting stock of Sis Corporation, a domestic corporation. During 2011, Sis reports net income of $100,000 and pays dividends of $50,000. Pin’s effective income tax rate is 34%. What amounts should Pin record as income taxes currently payable and as deferred income taxes from its investment in Sis?
(a) $17,000 and $0, respectively
(b) $5,950 and $5,950, respectively
(c) $3,400 and $3,400, respectively
(d) $1,190 and $1,190, respectively
5. Pit Corporation and its 100%-owned domestic subsidiary, Sir Corporation, are classified as an affiliated group for tax purposes. During the current year, Sir pays $80,000 in cash dividends. Assuming a 34% income tax rate, how much income tax expense on this dividend should be reported in the consolidated income statement of Pit Corporation and Subsidiary?
(a) $0
(b) $27,200
(c) $5,440
(d) $2,720