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. (Polly Corporation does not record income tax expense on income from subsidiaries because a consolidated tax return is filed.)

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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