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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