1. When Pop Corporation acquired its 100 percent interest in Son Corporation in a tax-free reorganization; Son's equipment had a fair value of $12,000,000 and a book value and tax basis of $8,000,000. If Pop's effective tax rate is 34 percent, how much of the purchase price should be allocated to equipment and to deferred income taxes?
a. $8,000,000 and $0, respectively
b. $10,640,000 and $1,360,000, respectively
c. $12,000,000 and $1,360,000, respectively
d. $12,000,000 and $4,080,000, respectively
2. Pop Corporation, whose effective income tax rate is 34 percent, received $400,000 dividends from its 30 percent-owned domestic equity investee during the current year and recorded $1,000,000 equity in the investee's income.
Pop's income tax expense for the year should include taxes on the investment of:
a. $27,200
b. $40,800
c. $68,000
d. $136,000
3. During 2016, Pop Corporation reported $120,000 investment income from Son Corporation, its 30 percent-owned investee, and it received $60,000 dividends from Son. Pop's effective income tax rate is 34 percent, and it is entitled to an 80 percent dividends-received deduction on dividends received from Son. On the basis of this information, Pop should:
a. Report investment income from Son of $115,920
b. Increase its investment in Son for 2016 in the amount of $55,920
c. Credit its deferred tax liability in the net amount of $4,080 for 2016
d. Debit its deferred tax liability in the net amount of $4,080 for 2016
4. Pop Corporation owns 35 percent of the voting stock of Son Corporation, a domestic corporation. During 2016, Son reports net income of $200,000 and pays dividends of $100,000. Pop's effective income tax rate is 34 percent. What amounts should Pop record as income taxes currently payable and as deferred income taxes from its investment in Son?
a. $34,000 and $0, respectively
b. $11,900 and $11,900, respectively
c. $6,800 and $6,800, respectively
d. $2,380 and $2,380, respectively
5. Pop Corporation and its 100 percent-owned domestic subsidiary, Son Corporation, are classified as an affiliated group for tax purposes. During the current year, Son pays $160,000 in cash dividends. Assuming a 34 percent income tax rate, how much income tax expense on this dividend should be reported in the consolidated income statement of Pop Corporation and Subsidiary?
a. $0
b. $54,400
c. $10,880
d. $5,440