ParentCo Owned 100% of SubCo for the Entire Year, and Both

question 144

Multiple Choice

ParentCo owned 100% of SubCo for the entire year, and both companies use the accrual method of tax accounting. During the year, SubCo purchased $20,000 of supplies from ParentCo. In addition, SubCo provided internal audit services to ParentCo, which were worth $40,000. Including these transactions, ParentCo's separate taxable income was $75,000, and SubCo's separate taxable income was $100,000. What is the group's consolidated taxable income for the year?

• A) $215,000
• B) $195,000
• C) $175,000
• D) $155,000

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Definitions:

Profit-Maximizing

A strategy where a firm determines the price and output level that returns the greatest profit.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices to different buyers, often based on their willingness to pay, market segment, or geographical location.

Service Industries

Industries that provide services rather than producing goods, such as healthcare, banking, and education.

Resell Products

The act of selling again or selling something that one has bought, to another consumer or market.