Marathon Inc. (a C corporation) reported $1,350,000 of taxable income in the current year. During the...

Marathon Inc. (a C corporation) reported $1,350,000 of taxable income in the current year. During the year, it distributed $135,000 as dividends to its shareholders as follows: $6,750 to Guy, a 5 percent individual shareholder. $20,250 to Little Rock Corp., a 15 percent shareholder (C corporation). $108,000 to other shareholders.

How much of the dividend payment did Marathon deduct in determining its taxable income?
Assuming Guy’s marginal ordinary tax rate is 37 percent, how much tax will he pay on the $6,750 dividend he received from Marathon Inc. (including the net investment income tax)?
What amount of tax will Little Rock Corp. pay on the $20,250 dividend it received from Marathon Inc. (50 percent dividends received deduction)?
(Round your final answers to the nearest whole dollar amounts.)

Solutions

Expert Solution

A) How much of the dividend payment did Marathon deduct in determining its taxable income

= amount $0 because Marathon Inc. is a corporation and hence it is not allowed to deduct dividend payments.

B) Assuming Guy’s marginal ordinary tax rate is 37 percent, how much tax will he pay on the $6,750 dividend he received from Marathon Inc. (including the net investment income tax)?

= Individual would give tax on dividend @ 23.8% tax rate i.e., 20% plus 3.8% of net investment income tax.

Total dividend: - $ 6750 *23.8% = $ 1607

c) What amount of tax will Little Rock Corp. pay on the $20,250 dividend it received from Marathon Inc. (50 percent dividends received deduction)?

= Tax paid = (dividend received - 50% dividend received ) * tax rate

= ( 20250 - 50% 20250) *21%

= (20250-10125)*21%

= 21216.25

21% is federal corporation tax rate

ekkarill92 answered 1 year ago

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