Patton's Operating Income Excludes Income from the Investment in Stevens

Essay

Patton's operating income excludes income from the investment in Stevens, but includes $150,000 of unrealized gains on intra-entity transfers of inventory. Patton uses the initial value method to account for the investment in Stevens.
-Assume Patton owns 90 percent of the voting stock of Stevens and files a consolidated income tax return. What amount of income taxes would be paid? $$\begin{array} { | l | c | c | } \hline \text { Operating Income } & \$ 2,250,000 & { [ \$ 2,000,000 + \$ 400,000 - \$ 150,000 ] } \\\hline \text { Tax rate } & 30 \% & \\\hline \text { Taxes to be paid } & \$ 675,000 & \\\hline\end{array}$$