On January 1,20X8,Putter Corporation acquired 40 percent of the voting shares of Shank Company for $65,000.Shank reported net income of $45,000 and paid dividends of $10,000 in 20X8.Putter reported operating income of $50,000 for the year.There is 80 percent exemption of intercompany dividends and the effective tax rate is 35 percent.Assume that the equity method is being used.
-For a subsidiary to be eligible to be included in a consolidated tax return,at least ________ of its stock must be held by the parent company or another company included in the consolidated return.
A)50 percent
B)40 percent
C)75 percent
D)80 percent

Question

Quizplus · Accepted Answer

To be eligible for inclusion in a consolidated tax return, at least 80% of the subsidiary's stock must be held by the parent company or another company included in the consolidated return. In this case, Putter Corporation acquired 40% of the voting shares of Shank Company, which is below the required threshold for consolidation.

On January 1,20X8,Putter Corporation Acquired 40 Percent of the Voting