Company P Purchased an 75% Interest in Company S on January

Company P purchased an 75% interest in Company S on January 1, 20X3, for $675,000. On the purchase date, Company S stockholders' equity was $800,000. Any excess of cost over book value was attributed to a patent with a 10-year life. In 20X3, Company P reported internally generated income before taxes of $80,000. Company S reported internally generated income before taxes of $40,000. The firms file separate tax returns at a 30% tax rate. Assume an 80% exclusion rate on intercompany income. The tax applicable to Company S's income is

A) $15,750
B) $9,750
C) $2,500
D) $4,500