Problem

Allocation of Income Tax ExpenseWinter Corporation owns 80 percent of Ray Guard Corporatio...

Allocation of Income Tax Expense

Winter Corporation owns 80 percent of Ray Guard Corporation’s stock and 90 percent of Block Company’s stock. The companies file a consolidated tax return each year and in 20X5 paid a total tax of $80,000. Each company is involved in a number of intercompany inventory transfers each period. Information on the companies’ activities for 20X5 is as follows:

Company

20X5 Reported Operating

Income

20X4 Intercompany Profit

Realizedin 20X5

20x5 Intercompany Profit

Realizedin 20X5

Winter Corporation

$100,000

$40,000

$10,000

Ray Guard Corporation

50,000

 

20,000

Block Company

30,000

20,000

10,000

Required

a.Determine the amount of income tax expense that should be assigned to each company.


b.Compute consolidated net income and income to the controlling interest for 20X5. (Note: Win­ter Corporation does not record income tax expense on income from subsidiaries because a consolidated tax return is filed.)

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