Polly Corporation owns 80 percent of Sonny Corporation’s stock and 90 percent of Daughter 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

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.

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Company Polly Corporation Sonny Corporation Daughter Company 20X5 Reported Operating Income $100,000 50,000 30,000 20X4 Intercompany Profit Realized in 20X5 $40,000 20,000 20X5 Intercompany Profit Not Realized in 20X5 $10,000 20,000 10,000