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QUESTION

B.I.G. Corporation sold a plot of undeveloped land to SubCo this year for $100,000. B.I.G. had acquired the land several years ago for $40,000. The consolidated return also reflects the operating resu

B.I.G. Corporation sold a plot of undeveloped land to SubCo this year for $100,000. B.I.G. had acquired the land several years ago for $40,000. The consolidated return also reflects the operating results of the parties: B.I.G. generated $130,000 income from operations (exclusive of the sale of the land), and SubCo produced a $20,000 operating loss.

If required, use the minus sign to indicate a loss.

a.  Compute the group members' separate taxable incomes and the group's consolidated taxable income or loss.

 Taxable

B.I.G. Co

SubCo

Consolidated

b.  Same as part (a), except that five years later SubCo sold the land to Outsider Corporation for $130,000, when its operating income totaled $20,000 (exclusive of the sale of the land) and B.I.G.Co's operating income amounted to $90,000.

 Taxable

B.I.G. Co

SubCo

Consolidated

c.  Using a 25% combined state and federal income tax rate compute the benefit to the group of deferring the gain on the sale of the land. The B.I.G. group uses a 4% after-tax internal rate of return for purposes of this analysis. The present value factor at 4% for 5 years is 0.8219.

Round your answers to the nearest dollar.

The present value of the tax on the sale of the land, as deferred for 5 years is ????

Therefore, the net tax benefit to the group as a result of the deferral would be??

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