Parent and Subsidiary Corporations Have Filed Calendar-Year Consolidated Tax Returns

question 16

Multiple Choice

Parent and Subsidiary Corporations have filed calendar-year consolidated tax returns for several years. Parent Corporation uses the cash method of accounting while Subsidiary Corporation uses the accrual method of accounting. If Parent lends Subsidiary money

• A)the interest expense is deductible when accrued.
• B)the interest expense and interest income may be reported in different consolidated return years.
• C)the interest income is reported when the interest expense is accrued by Subsidiary.
• D)the interest expense deduction is taken when Parent reports the interest income.

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Definitions:

Moving Expenses

Costs incurred by an individual or household for relocating to a new residence, which can sometimes be deducted for tax purposes if they are related to starting a new job.

Qualified Education Loans

Loans taken out exclusively for paying higher education expenses that are eligible for certain tax benefits.

Deduction Limit

The maximum amount that can be deducted from taxable income for various expenses or contributions, set by tax regulations.

Tax Free

Referring to certain income, transactions, or financial products not subject to tax by the government.