In: Accounting
a)VQQ Inc owns 15% stock in Cehen laboratories inc, VQQ Inc would be allowed a DRD of 50% of the lower of Dividend Income or taxable Income befor DRD.
Dividend Income = $350,000
Taxable income before DRD = $300,000 - 30,000 = $270,000
Therefore DRD = 50% of Lower of $350,000 or $270,000
= 50% of $270,000
= $135,000
b)DRD is permanent difference, it shall not be evaluated while calculating deffered tax asset or liability. Therefore, DRD does not create a deffered tax asset or liability.
c)Charitable contributions in excess of the permisible limits is allowed to be carried forward and for 5 years.These carried forward charitable contribution can be adjusted against the future income.
Therefore, Charitable contribution carried forward is a temporary difference.
This will result in reduction of the future taxable income and the future tax liability, this difference is favorable difference.
Also this favorable temporary difference would create a deffered tax asset for the corporation.