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: $84,000 if consolidated; $105,000 if not consolidated.

Explanation: Reason: If consolidated, taxable income is $400,000: ($500,000 - $100,000) x 21% = $84,000. If not consolidated, Plum pays $500,000 x 21% = $105,000, and Pear will carryback or carryforward the loss if possible.

Answer 2

Instructions are listed below.

Step-by-step 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