Q. Solve the below Application Problems Note: Please no copy from the textbook A
ID: 2576474 • Letter: Q
Question
Q. Solve the below Application Problems
Note: Please no copy from the textbook
A.
B.
Corporation P owns 93 percent of the outstanding stock of Corporation T. This year, the corporations' records provide the following information. Corporation P Corporation T Ordinary operating income (loss)$500,000(200,000) Capital gain (loss) (8,300) 6,000 Section 1231 gain (loss) 1,000) 5,000 a. Compute each corporation's taxable income if they fi le separate tax returns. b. Compute consolidated taxable income if Corporation P and Corporation T file a consolidated tax return.Explanation / Answer
Solution A
a. Corporation P’s Corporation T’s
Separate Return Separate Return
Ordinary operating income (loss) $500,000 $(200,000)
Capital gain -0- 6,000
Section 1231 gain (loss) (1,000) 5,000
Capital loss (deductible to extent of
capital and Section 1231 gain -0- -0-
Taxable income (NOL) $499,000 $(189,000)
b. Consolidated Return
Ordinary operating income $300,000
Capital gain 6,000
Net Section 1231 gain 4,000
Deductible capital loss (8,300)
Taxable income $301,700
Solution B.
Because Camco had an NOL for the first year, it cannot deduct any of the $5,000 contribution but can only carry the contribution forward to the second year. In the second year, Camco's charitable contribution deduction is limited to 10% of taxable income after the NOL carryforward deduction. Consquently, Camco is allowed an $11,860 chartiable contribution deduction ($10,000 current year contribution + $1,860 carryforward),and its taxable income is $106,740.
Income from operations $210,600
NOL carryforward deduction (92,000)
Taxable income before charitable contribution 118,600
Charitable contribution deduction (11,860)
Taxable income $106,740
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