Company S is an 80%-owned subsidiary of Company P. On January 1, 20X1, Company P sold equipment to Company S at a $50,000 profit. Assume a 30% corporate tax rate and an 80% dividend exclusion. The equipment has a 5-year life. The question is, would taxes have been paid on this profit and what adjustments (if needed) for the tax would be made, if:

a. Company P and S are an “affiliated firm” and file a consolidated tax return?

b. Company P and S are not an “affiliated firm” and file separate tax returns?

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