Question

In: Accounting

The Dawg corporation owns 7.000000000000001% of Company A and 32.99999999999999% of Company B. Dividends received from...

The Dawg corporation owns 7.000000000000001% of Company A and 32.99999999999999% of Company B. Dividends received from Company A were $116,000 and from Company B were $212,000. If Dawg's "adjusted" taxable income is $2,000,000, calculate Dawg's taxable income after including the dividend information.

Solutions

Expert Solution

Dividends received deduction: dividends received by corporations are taxable at ordinary income tax rates applicable to them. Dividends received deduction is available as a percentage of dividends received based on the ownership in the dividend paying corporation by the dividend receiving corporation.

Percentage of dividend received deduction is 70% when the ownership is less than 20 percent. When ownership is at least twenty percent but less than eighty percent then the percentage deduction is eighty percent. When the ownership is more than eighty percent then the percentage of deduction is 100%.

Dividends received deduction for A is 70% and for B is 80%. Amount of deduction is:

Particulars Company A Company B
Dividends $ 116,000.00 $ 212,000.00
× deduction percent 70% 80%
Deduction $   81,200.00 $ 169,600.00
Total deduction $ 250,800.00

Amount of deduction is $250,800.

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