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:

Process Cost System

A method of accounting used for industries where production is continuous, allocating costs to products based on the processes they go through.

Identical Units

Units that are uniform in every aspect, including features, quality, and performance, typically used in manufacturing and inventory contexts.

Continuous Basis

An approach to monitoring, recording, or operating that occurs without interruption or on an ongoing basis, often used in the context of production or financial transactions.

Process Cost System

A financial recording system designed to allocate expenses to identical items produced in bulk through an ongoing process.