Question

In: Accounting

Citron Company is a wholesale distributor of children's clothing. During the year, it donates clothes (cost...

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.

Solutions

Expert Solution

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


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