Question
Lake acquired a controlling interest in Boxwood several years ago. During the current fiscal period, the two companies individually reported the following income (exclusive of
Lake acquired a controlling interest in Boxwood several years ago. During the current fiscal period, the two companies individually reported the following income (exclusive of any investment income):
Lake | $ | 363,000 |
Boxwood | 120,000 | |
Lake paid a $60,000 cash dividend during the current year, and Boxwood distributed $5,000.
Boxwood sells inventory to Lake each period. Intra-entity gross profits of $22,400 were present in Lake's beginning inventory for the current year, and its ending inventory carried $41,500 in intra-entity gross profits.
View each of the following questions as an independent situation. The effective tax rate for both companies is 21 percent.
a.If Lake owns a 60 percent interest in Boxwood, what total income tax expense must be reported on a consolidated income statement for this period?
b.If Lake owns a 60 percent interest in Boxwood, what total amount of income taxes must be paid by these two companies for the current year?
c.If Lake owns a 90 percent interest in Boxwood and a consolidated tax return is filed, what amount of income tax expense would be reported on a consolidated income statement for the year?
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