Eadias Corp., a cash basis taxpayer, and Eastes Corp., an accrual basis taxpayer

Question

Eadias Corp., a cash basis taxpayer, and Eastes Corp., an accrual basis taxpayer, are parent-subsidiary corporation. During year 3, Eadias bought and paid for $150,000 in supplies from Eastes. Additionally, on December 1 or year 3, the two corporations entered into an agreement whereby Eadias would provide consulting services to Eastes, with each month's services being payable on the 15th day of the following month.

During December of year 3, Eadias provided services under this agreement worth $20,000, Including all of the above transactions, Eadias 's taxable income for the year amounted to $510,000, while Eastes's amounted to $250,000. How much taxable income should Eadias and Eastes report on the year 3 consolidated tax return?

$760,000

Explanation / Answer

Solution: 630,000

Working:

Eadias 's taxable income 510,000 Eastes's taxable inome 250,000 Minus: Eadias supplies from Eastes -150,000 Plus:Eadias services under agreement 20,000 Taxable income of Eadias and Eastes 630,000

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