Reference no: EM132935663

On January 1, 2017, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows:

                                                                        2017                                2018
Abbey Company:
Sales                                                $(751,000)                   $(974,000)

Operating expenses                             490,000                          530,000
Intra-entity gross profits in ending

inventory (included in above figures)            (164,000)                 (204,000)

Dividend income-Benjamin Company            (13,500)                      (31,500)

Benjamin Company:

Sales                                                   (319,000)                        (363,000)

Operating expenses                           200,000                               210,000

Dividends paid                                     (15,000)                            (35,000)

Assume that a tax rate of 40 percent is applicable to both companies.

Problem A. On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group?

Problem B. On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns?