Question
In: Accounting
________ will ALL increase a company's capital dividend account. Choose the correct answer. A. Life insurance...
________ will ALL increase a company's capital dividend account.
Choose the correct answer.
A. Life insurance proceeds, net capital gains, and the additional refundable tax on investment income (ART)
B. Stock dividends received from other corporations, non-taxable life insurance proceeds & non-taxable portion of capital gains
C. Capital dividends received from other corporations, non-taxable life insurance proceeds & non-deductible portion of capital losses
D. Capital dividends received from other corporations, non-taxable life insurance proceeds & non-taxable portion of capital gains
Solutions
Expert Solution
Capital dividend account is prepared to pay tax free dividends to the shareholders. Only certain specified items will be part of Capital dividend account
Correct Statement:
Capital dividends received from other corporations, non-taxable life insurance proceeds & non-taxable portion of capital gains will ALL increase a company's capital dividend account.
Option D is correct
Explanation why other options are not correct:
| Option No. | Option details | Explanation |
| A | Life insurance proceeds, net capital gains, and the additional refundable tax on investment income (ART) | Only non-taxable portion of capital gains will form part of Capital dividend. Also additional refundable tax on investment income (ART) will not form part of Capital dividend |
| B | Stock dividends received from other corporations, non-taxable life insurance proceeds & non-taxable portion of capital gains | Only capital dividends received from other corporations will form part of capital dividend, not all dividends |
| C | Capital dividends received from other corporations, non-taxable life insurance proceeds & non-deductible portion of capital losses | Non deductible portion of capital losses will be reduced from capital dividend. It will not increase a a company's capital dividend account |
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