Calendar Year ParentCo Acquired All of the Stock of SubCo

question 19

Multiple Choice

Calendar year ParentCo acquired all of the stock of SubCo on January 1, Year 1, for $1,000,000. The parties immediately elected to file consolidated income tax returns. SubCo generated taxable income of $250,000 for Year 1 and paid a dividend of $100,000 to ParentCo. In Year 2, SubCo generated an operating loss of $350,000, and in Year 3 it produced taxable income of $750,000. As of the last day of Year 3, 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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