Question

In: Accounting

Delta corporation owns 2% of the stock in a U.S. corporation Azul. It receives a dividend...

Delta corporation owns 2% of the stock in a U.S. corporation Azul. It receives a dividend from that corporation of $100,000. Delta has $3 million of taxable income not including the dividend from Azul.

a) Suppose that before the dividends Delta had a taxable loss from all other activities of ($40,000). How much gross income from the dividend does Delta report?

b)What if Delta’s taxable loss before dividends was ($55,000) would your answer change and if so how?

Solutions

Expert Solution

a) As per IRS rule, if a corporation receives dividend from a corporation having a stake of less than 20%, it will get 70% dividend received deduction. So, taxable dividend income is:-

= 100,000 - 100,000(70%)

= 30,000

Since, delta corporation falls in the bracket of 35%, his dividend income will be taxed at 20% (Because it is qualified dividend)

According to the Internal Revenue Service, an investor "must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date" to be considered a qualified dividend.

So, gross income = Taxable income + Dividend income - Taxable loss

= 3000000+30,000-40,000

=2990000 which will be taxed as,

30000 @ 20% and 2960000 @ 35%.

b) If delta's taxable loss is $ 55,000:-

Gross income = 3000000+30000-55000

= 2975000 which will be taxed as,

30000 @ 20% and 2945000 @ 35%.


Related Solutions

Hagle Corp owns 2% of the stock in Hawk Corp. a U.S corporation. Hagle's gross income...
Hagle Corp owns 2% of the stock in Hawk Corp. a U.S corporation. Hagle's gross income from operations for the current year is $1,000. Hagle receives $200 dividend from Hawk during the year. This figure is IN ADDITION to Hagles' $1,000 gross income from operations. Hagle has $300 of operating expenses which are fully deductible. a.) what is the amount of Hagle's dividends received deduction? 2018 rates 50% for (less)>20% answer $100 b.) assume instead that Hagle's operating expenses are...
LN Corporation, a U.S corporation, owns all the stock of Foreign Sub 1, a foreign corporation....
LN Corporation, a U.S corporation, owns all the stock of Foreign Sub 1, a foreign corporation. Foreign Sub 1 in turn owns 20% of the voting stock of Foreign Sub 2, also a foreign corporation. LN Corporation also owns 10% of the nonvoting common stock of Foreign Sub 2 but owns no voting stock in Foreign Sub 2. During the current year, Foreign Sub 2 pays dividends on its nonvoting common stock, but pays no dividends on its voting stock....
Paton Corporation, a U.S. corporation, owns 100 percent of the stock of Tappan Ltd, a British...
Paton Corporation, a U.S. corporation, owns 100 percent of the stock of Tappan Ltd, a British corporation, and 100 percent of the stock of Monroe N.V., a Dutch corporation. Monroe has post-1986 undistributed earnings of €726 and post-1986 foreign income taxes of $484. Tappan has post-1986 undistributed earnings of £968 and post-1986 foreign income taxes of $242. During the current year, Tappan paid Paton a dividend of £520, and Monroe paid Paton a dividend of €520. The dividends were exempt...
Problem 2 (Property Dividend) Goodie Corporation owns 20,000 shares of JFC Corporation recorded as “Investment in...
Problem 2 (Property Dividend) Goodie Corporation owns 20,000 shares of JFC Corporation recorded as “Investment in JFC Corporation” amounting to P 1.1 million as of December 31, 2019. On December 15, 2020, Goodie Corporation declared a property dividend to shareholders of record of December 30, distributable on January 5, 2021. The corporation will distribute three (3) ordinary shares of JFC Corporation for every share of Goodie Corporation owned by the shareholders. Goodie Corporation has 5,000 issued and outstanding shares at...
An acquiring corporation transfers property and stock to the target corporation in a reorganization and receives...
An acquiring corporation transfers property and stock to the target corporation in a reorganization and receives the target’s assets in exchange. What type of reorganization is recommended including the relevant tax issues? Please provide specific examples to support your post and discuss the reasons why your recommendation is the most tax efficient.
10. Google Corporation owns 85% of the single class of Yahoo Corporation stock. Yahoo Corporation owns...
10. Google Corporation owns 85% of the single class of Yahoo Corporation stock. Yahoo Corporation owns 35% of Twitter Corporation. Google Corporation also owns 50% of Twitter Corporation, and Twitter Corporation owns 75% of Facebook Corporation. A) Google, Twitter, Yahoo, and Facebook Corporations are an affiliated group. B) Google, Twitter, and Facebook Corporations are an affiliated group. C) Google, Twitter, and Yahoo Corporations are an affiliated group. D) None of the above are correct.
Maureen owns all of the stock in Green Corporation. Green owns 10,000 shares of Micro Corporation,...
Maureen owns all of the stock in Green Corporation. Green owns 10,000 shares of Micro Corporation, whose value has increased by 1000% since they were purchased eight years ago. Maureen would like to have the shares distributed to her, but she wants to avoid the tax bill that would result if they were distributed as a dividend from Green Corporation. Her son, who is taking classes for his MBA, has suggested that she create Brown Corporation with herself as the...
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which...
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a library.) Cardinal borrowed funds to purchase the municipal bonds and pays $20,000 of interest on the loan. Excluding these three items, Cardinal's taxable income is $500,000. Cardinal has $150,000 of accumulated E & P at the end...
Explain the benefits of a stock dividend both to the corporation issuing the dividend and to...
Explain the benefits of a stock dividend both to the corporation issuing the dividend and to the shareholder receiving the dividend. Use at least one Internet Resource.
Topic: Equity method investments LO 2 Delta Corporation acquired 25% of the voting stock of Davidson...
Topic: Equity method investments LO 2 Delta Corporation acquired 25% of the voting stock of Davidson Company in 2019. There were no basis differences. It is now 2020. Davidson reported 2020 net income of $5,000,000, other comprehensive income of $100,000, and declared and paid cash dividends of $1,500,000. Delta’s ending inventory contains $1,020,000 purchased from Davidson, and its beginning inventory contains $750,000 purchased from Davidson. Davidson sells inventory to Delta at a markup of 20% on cost. Delta uses the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT