Pretax Operating Incomes of Panitz Corporation and Its 80%-Owned Subsidiary,Salazar

question 28

Essay

Pretax operating incomes of Panitz Corporation and its 80%-owned subsidiary,Salazar Corporation,for the year 2014,are shown below.
Panitz and Salazar belong to an affiliated group.Salazar pays total dividends of $35,000 for the year.There are no unamortized book value/fair value differentials relating to Panitz's investment in Salazar.During the year,Panitz sold land to Salazar at a total loss of $15,000 which is included in its pretax operating income.Salazar still holds this land at the end of the year.The marginal corporate tax rate for both corporations is 34%.
$\begin{array}{lll}&\text { Panitz}&\text { Salazar}\\\text { Sales revenue } & \$ 890,000 & \$ 700,000 \\\text { Loss on sale of land } & (15,000) & \\\text { Cost of sales } & (400,000) & (250,000) \\\text { Other expenses } & (350,000) & (350,000) \\\text { Depreciation expense } & (50,000) & (35,000)\end{array}$ Pretax operating income
Required:
1.Determine the separate amounts of income tax expense for Panitz and Salazar as if they had filed separate tax returns.
2.Determine Panitz's net income from Salazar.

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Definitions:

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