Cardinal and Bluebird Corporations Both Use a Calendar Year as Their

question 55

Multiple Choice

Cardinal and Bluebird Corporations both use a calendar year as their tax year. At the close of business on June 30, Cardinal Corporation buys all of Bluebird Corporation's stock. If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year, what portion of Bluebird's income will be included in the consolidated return? (Assume all months have 30 days.)

• A)100%
• B)50%
• C)0%
• D)none of the above

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Definitions:

Cash Equivalent

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Compensating Balance

A minimum bank account balance that a borrower agrees to maintain as a condition for obtaining a loan, often used to offset the bank's credit risk.

Legal Restrictions

Regulations or limitations prescribed by law that affect the actions of individuals, businesses, or governments.

Compensating Balance

A compensating balance is a minimum account balance that a borrower agrees to maintain in an account with a lender as part of a loan agreement.