Question

Pear, Inc. generates a $100,000 net operating loss in the current year. Plum, Inc. generates $500,000 of taxable income. Compute the current year tax if Pear and Plum do/do not file a consolidated return.

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Pear, Inc. generates a $100,000 net operating loss in the current year. Plum, Inc. generates $500,000 of taxable income.

If the company files a consolidated tax return, the gain and losses of both companies are combine on a single return.

Consolidated tax return:

Income= 500,000 - 100,000= 400,000

Assuming a tax of 35%

Tax= 400,000*0.35= $140,000

Without a consolidated:

Plum Inc= $500,000

Pear Inc= $100,000 loss

Plum Inc:

Tax= 500,000*0.35= $175,000