Question

Senior, Ltd., acquires all of the stock of JuniorCo for $30 million at the beginning of year 1. The group immediately elects to file income tax returns on a consolidated basis. Senior’s operations generate a $50 million profit every year. In year 2, JuniorCo pays its parent a $9 million dividend. Operating results for JuniorCo are as follows.
Tax Year Taxable Income
1 ........ $ 4 million
2 ........ 12 million
3 ........ 15 million
a. Compute Senior’s basis in the JuniorCo stock as of the end of years 1, 2, and 3.
b. Same as (a), except that JuniorCo’s tax year 2 produced a $6 million NOL.
c. Same as (a), except that JuniorCo’s tax year 2 produced a $40 million NOL.


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  • CreatedSeptember 09, 2015
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