1. a. Poison Co. buys inventory from Savory, Inc., their 80%-owned subsidiary, paying $10k. S had originally purchased the inventory for 7k.3 years later, when P sells the inventory to Q Co. for 11k, what should the related workpaper entry be? Assume consolidated tax filing. [MI/NCI: 600 dr.] b. What additional entry would be made if P and S filed taxes separately? Assume a 40% tax rate. c. How would the entries in a. and b. appear had the interfirm transfer been downstream?

2. a.Seance Co. buys equipment from Paranormal Co. for 12k. The equipment cost P 18k when P purchased it 5 years ago. P had been depreciating the equipment S-L, -0- s.v., over its expected useful life 10 years. Provide the workpaper elimination entry to fix this.b. How would this entry appear had P and S been filing taxes separately? Assume a 40% top marginal rate. [DTA 1200]

3. Sundae Inc. sells land to Parfait Co. for 9k. The land had cost S 10k 5 years ago. Provide the workpaper entry to make when P sells the land to Q 3 years later for 15k.Assume P owns 80% of S; taxes are filed separately by P and S at 40%. [MI/NCI net: 120 cr.]