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:

Unused Capacity

Available but not currently utilized production or service capacity within a business.

Fixed Manufacturing Overhead

Costs associated with manufacturing that do not vary with the level of production, such as rent, salaries, and insurance.

Machine-Hours

A measure of production time used in manufacturing, calculated by multiplying the number of machines by the hours they are operated.

Machine-Hours

An indicator of the amount of time machines are actively running, reflecting the cumulative hours of operation over a defined timeframe.