Pomp Corporation and Its Wholly Owned Subsidiary Stage Company File

Pomp Corporation and its wholly owned subsidiary Stage Company file separate income tax returns. Pomp's income taxes expense for 2006 included $60,000 attributable to $100,000 unrealized intercompany profits on sales of merchandise to Stage. In the preparation of consolidated financial statements for 2006, assuming the criteria for recognition of a deferred tax asset without a valuation allowance are met:

A) The entire intercompany profit is eliminated; income taxes expense is not adjusted
B) Income taxes of $60,000 are deferred
C) The intercompany profit is reduced by $60,000 before elimination, and income taxes of $60,000 are deferred
D) Income taxes are recomputed, and a revised income tax return is filed
E) None of the foregoing takes place