Question: Winter Corporation owns 80 percent of Ray
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:
Required:
Determine the amount of income tax expense that should be assigned to each company.
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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20X5 20X4 20X5 Reported Operating Intercompany Profit Realized in 20X5 Intercompany Profit Not Realized in 20X5 Company Income Winter Corporation Ray Guard Corporation Block Company $100,000 50,000 30,000 $40,000 $10,000 20,000 10,000 20,000
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