Question

In: Accounting

In 2020, VQQ Inc. received $350,000 in dividends from Cohen Labratories Inc. VQQ's taxable income before...

  1. In 2020, VQQ Inc. received $350,000 in dividends from Cohen Labratories Inc. VQQ's taxable income before the dividends received deduction (but including the dividend income) AND before a $30,000 charitable contribution deduction is $300,000. What is VQQ's DRD assuming it owns 15% of the Cohen Labratories Inc. stock, as well as its taxable income for 2020? (20 points)

  1. Is the DRD a temporary or permanent difference? Favorable or unfavorable? Will it create a deferred tax asset or liability? Briefly explain your answers. (5 points)

  1. Assume the corporation made $50,000 in charitable contributions but was allowed only the $30,000 deduction. Assuming VQQ expects to be profitable and have taxable income in future years, and that it does not plan to make any future charitable contributions, is this a temporary or permanent difference? Favorable or unfavorable? Will it create a deferred tax asset or liability? Briefly explain your answers. (5 points)

Solutions

Expert Solution

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.


Related Solutions

This year, GHJ Inc. received the following dividends. - BP Inc. (a taxable California corporation in...
This year, GHJ Inc. received the following dividends. - BP Inc. (a taxable California corporation in which GHJ holds a 2% stock interest) $21900 - MN Inc. (a taxable Florida corporation in which GHJ holds a 60% stock interest) $83100 - AB Inc. (a taxable French corporation in which GHJ holds a 26% stock interest) $21900 Compute GHJ's dividends-received deduction. (I keep getting the answer $81810 and it says it's wrong)
A corporation's taxable income before the dividends receiveddeduction (DRD) is $80,000. Included in the $80,000...
A corporation's taxable income before the dividends received deduction (DRD) is $80,000. Included in the $80,000 is $90,000 for dividend income the corporation received from another corporation in which it owns 60% of the common stock. The corporation's DRD is:A.$52,000B.$54,000C.$58,500D.$48,000
This year, GHJ Inc. received the following dividends. BP Inc. (a taxable California corporation in which...
This year, GHJ Inc. received the following dividends. BP Inc. (a taxable California corporation in which GHJ holds a 6% stock interest) $ 18,900 MN Inc. (a taxable Florida corporation in which GHJ holds a 42% stock interest) 81,600 AB Inc. (a taxable French corporation in which GHJ holds a 20% stock interest) 18,900 Compute GHJ’s dividends-received deduction.
This year, GHJ Inc. received the following dividends: BP Inc. (a taxable California corporation in which...
This year, GHJ Inc. received the following dividends: BP Inc. (a taxable California corporation in which GHJ holds a 2% stock interest) $ 17,300 MN Inc. (a taxable Florida corporation in which GHJ holds a 52% stock interest) 80,800 AB Inc. (a taxable French corporation in which GHJ holds a 21% stock interest) 17,300 Required: Compute GHJ’s dividends-received deduction.
This year, GHJ Inc. received the following dividends. BP Inc. (a taxable California corporation in which...
This year, GHJ Inc. received the following dividends. BP Inc. (a taxable California corporation in which GHJ holds a 6% stock interest) $ 21,300 MN Inc. (a taxable Florida corporation in which GHJ holds a 55% stock interest) 82,800 AB Inc. (a taxable French corporation in which GHJ holds a 32% stock interest) 21,300 Compute GHJ’s dividends-received deduction.
Riverbend Inc. received a $327,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income...
Riverbend Inc. received a $327,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,200,000 before deducting the dividends received deduction (DRD), a $62,500 NOL carryover, and a $148,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.) a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation? b. Assuming the facts in part (a), what is Riverbend’s marginal tax rate...
Riverbend Inc. received a $372,500 dividend from stock it held in Hobble Corporation. Riverbend’s taxable income...
Riverbend Inc. received a $372,500 dividend from stock it held in Hobble Corporation. Riverbend’s taxable income is $2,820,000 before deducting the dividends received deduction (DRD), a $33,500 domestic production activities deduction, and a $146,000 charitable contribution. A) What is riverbend deductible DRD asuming it owns 16 percent of hobble Corp? B) Assuming the facts in part A what is riverband marginal tax rate on the dividend? c) what is riverbends DRD assuming it owns 31 percent of hobble corp? D)...
riverbend inc. received a $367500 dividend from stock it held in Hobble corporation. riverbends taxable income...
riverbend inc. received a $367500 dividend from stock it held in Hobble corporation. riverbends taxable income is $2450000 before deducting the dividends received deduction, a $60500 NOL carryover, and a $138,000 charitable contribution. a. what is riverend's deductible drd assuming it owns 10 percent? answer 183750 b. assuming the facts in part a what is riverbends marginal tax rate on the dividend?
Riverbend Inc. received a $367,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income...
Riverbend Inc. received a $367,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,450,000 before deducting the dividends received deduction (DRD), a $60,500 NOL carryover, and a $138,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.) a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation? DRD    b. Assuming the facts in part (a), what is Riverbend’s effective...
Alex knows that cash dividends are taxable in general. But when he received stock dividends, he...
Alex knows that cash dividends are taxable in general. But when he received stock dividends, he was wondering if the stock dividend is taxable, because he didn't really receive anything other than the stock certificate which only means a piece of paper to him. He wishes to consult you on whether his stock dividend is taxable. How would you answer and what are the questions you may ask Alex, if any, for your accurate and proper consultation?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT