Clark has a controlling interest in Rogers' outstanding stock. At the current year-end, the following information has been accumulated for these two companies.
Operating Income Dividends Paid
Clark $500,000 $90,000
(includes a $90,000 net unrealized
Gain on intercompany inventory transfers)
Rogers $240,000 $80,000
Clark uses the intial value method to account for the investment in Rogers. The operating income figures just presented include neither dividend nor other investment income. The effective tax rate for both companies is 40%.
a) Assume that Clark owns 80% of Rogers voting stock, but the companies elect to file seperate tax returns. What is the total amount of income taxes that these two companies pay for the current period?
b)Assume that Clark owns 70% of Rogers voting stock, requiring separate tax returns. What is the total amount of income tax expense to be recognized in teh consolidated income statement for the current period?
c) Assume that Clark owns 70 percent of Roger's voting stock so that separate tax returns are required. What amount of income taxes does Clarke have to pay for the current year?
Attached is the Excel file with the computations.
This solution provides calculations for taxes and income in Excel.