Atom Ventures Inc Assuming That AV Follows the General Rules for Reporting Its

question 50

Essay

Atom Ventures Inc. (AV) owns stock in the Primo and Faraday corporations. The following summarizes information relating to AV's investment in Primo and Faraday as follows: $$\begin{array} { | c | r | c | r | } \hline \text { Corporation } & \begin{array} { c } \text { Corporation's } \\\text { earnings for year }\end{array} & \text { Atom's ownership } & \begin{array} { c } \text { Dividends distributed } \\\text { to Atom during year }\end{array} \\\hline \text { Primo } & \$ 625,000 & 35 \% & \$ 125,000 \\\hline \text { Faraday } & \$ 940,000 & 10 \% & \$ 50,000 \\\hline\end{array}$$ Assuming that AV follows the general rules for reporting its income from these investments, what is the amount of AV's book-tax difference associated with the investment in these corporations (disregarding the dividends received deduction)? Is it favorable or unfavorable? Is it permanent or temporary?

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Definitions:

Decentralization

The distribution of decision-making power away from a central authority, allowing for greater autonomy at lower levels of an organization.

Authority

The power or right to give orders, make decisions, and enforce obedience.

Support Department Allocation Rates

Ratios or percentages used to distribute the costs of support departments to producing or service departments based on agreed-upon methods.

Operating Income

The amount of profit realized from a business's operations after deducting operating expenses such as wages, depreciation, and cost of goods sold.