Calendar Year ParentCo Acquired All of the Stock of SubCo

question 20

Multiple Choice

Calendar year ParentCo acquired all of the stock of SubCo on January 1, 2013, for $1,000,000. The parties immediately elected to file consolidated income tax returns. SubCo generated taxable income of $250,000 for 2013 and paid a dividend of $100,000 to ParentCo. In 2014, SubCo generated an operating loss of $350,000, and in 2015 it produced taxable income of $750,000. As of the last day of 2015, what was ParentCo's basis in the stock of SubCo?

• A) $1,650,000
• B) $1,550,000
• C) $1,000,000
• D) $0

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Definitions:

Activity Cost Pools

A grouping of all costs associated with a particular activity, used in activity-based costing to allocate costs more accurately.

Machine-Hours

A measure of the amount of time a machine is operated for the purpose of producing goods.

Batches

Distinct groups of items or quantities produced or processed at the same time.

Overhead Cost

All costs on the income statement except for direct labor, direct materials, and direct expenses. Overhead costs relate to business operations and are not directly tied to a specific product or activity.