Consolidated Tax Return With Intercompany Transactions
Consolidated Tax Return
Greenacre Corp and its subsidiary Blueacre are calendar year corporations that keep their respective books on the accrual basis. The companies have taxable income of $300,000 and $350,000, respectively, for tax year 20×4 (before consolidation adjustments, elimination entries and charitable deductions). The following transactions are included:
- Land was sold by Greenacre Corp to a third party for $90,000. The land was acquired from Blueacre in 20×2. Blueacre acquired the land in 20×0 for $52,000.
- Greenacre Corp’s taxable income includes a $15,000 dividend Blueacre paid to Greenacre Corp.
- Greenacre Corp sold inventory to Blueacre in 20×5 for a realized $120,000 profit. The intercompany profit on the unsold inventory is $9,500. Greenacre Corp sold inventory to Blueacre in 20×6 for which deferred profit at the beginning of the year is $8,000. Blueacre sold this inventory to an external party. Greenacre Corp sold additional inventory to Blueacre in 20×6 for a realized $155,000 profit. The intercompany profit on the unsold inventory is $7,000.
- Greenacre Corp and Blueacre contribute $16,000 and $15,000 to charity, respectively.
Calculate the consolidated taxable income and consolidated tax liability of Greenacre Corp and Blueacre for 20×6. Then calculate the basis of Greenacre Corp’s stock at the end of 20×6, assuming that it was $1,650,000 at the beginning of the year.
Click the link below to download the case study “Corporate Inversions: Stanley Works and the Lure of Tax Havens.”
In addition to the questions at the end of the case study, use reliable sources to discuss ethical implications of tax avoidance and tax evasion, as well as the tax accountant’s role and obligations in such situations. Explain your answer in 5 pages, Submit your answers as the second part of the portfolio assignment.