In: Accounting
Citron Company is a wholesale distributor of children's clothing. During the year, it donates clothes (cost of $60,000; retail value of $100,000) to Clothes for Needy (a qualified charitable organization). Disregarding percentage limitations, Citron's charitable contribution deduction is:
a.$80,000 if Citron is an individual.
b.$100,000 if Citron is a C corporation.
c.$60,000 if Citron is a C corporation.
d.$80,000 if Citron is a C corporation.
e.None of these choices are correct.
Skinner Corporation, a calendar year C corporation, had the
following transactions during 2019:
Income from operations | $800,000 |
Expenses from operations | 900,000 |
Dividends from Siskin Corporation (20% ownership) | 200,000 |
Skinner's taxable income (or NOL) for 2019 is:
a.$60,000 NOL.
b.$100,000 taxable income.
c.$30,000 NOL.
d.$100,000 NOL.
e.None of these choices are correct.
During the 2019, Goose Corporation (a calendar year, cash basis
taxpayer) receives cash dividends as follows:
Source of Dividends |
Ownership Percentage | Dividends |
Emu Corporation | 90% | $90,000 |
Robin Corporation | 21% | 60,000 |
Crane Corporation | 10% | 30,000 |
Presuming the taxable income limitation does not apply,
Goose Corporation's dividends received deduction for 2019 is:
a.$144,000.
b.$126,000.
c.$135,000.
d.$159,000.
e.None of these choices are correct.
1) Solution: 80,000 if Citron is a C corporation
Explanation:
When Citron is an individual, the permitted deduction has to be limited to the lesser of basis ($60,000) or fair market value ($100,000)
When Citron is a C corporation, a special ruling which states that donated inventory donated for specific purposesis permitted for a deduction of basis plus half of any appreciation, thus willcomputed as:
= $60,000 + [50% * ($100,000 - $60,000)]
= $80,000
2) Solution: $30,000 NOL
Working:
Income from operations |
800,000 |
Dividends |
200,000 |
1,000,000 |
|
Expenses from operations |
900,000 |
100,000 |
|
Dividends received deduction (70% * 100,000) |
70,000 |
30,000 |
The deduction on dividends received will be limited to 70% of taxable income because taking 70% of $200,000 will not create an NOL
3) Solution: $159,000 NOL
Working:
Total dividend (90,000 + 60,000 + 30,000) |
180,000 |
Deduction |
21,000 |
Balance |
159,000 |