Compare separate and consolidated tax filings
The pretax accounting incomes of Pit Corporation and its 100 percent owned subsidiary, Sol Company, for 2011 are as follows (in thousands):
|
Pit |
Sol |
|
|
Sales |
$1,000 |
$500 |
|
Gain on land |
200 |
— |
|
Total revenue |
1,200 |
500 |
|
Cost of sales |
500 |
300 |
|
Gross profit |
700 |
200 |
|
Operating expenses |
400 |
100 |
|
Pretax accounting income |
$ 300 |
$100 |
The only intercompany transaction during 2011 was a gain on land sold to Sol. Assume a 34 percent flat income tax rate.
REQUIRED
1. What amount should be shown on the consolidated income statement as income tax expense if separateecompany tax returns are filed?
2. Compute the consolidated income tax expense if a consolidated tax return is filed.
3. What will be the income taxes currently payable if separate income tax returns are filed? If a consolidated return is filed?