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Griffin Corporation received $50,000 of dividend income from Eagle, Inc. Griffin owns 5 percent of the...

Griffin Corporation received $50,000 of dividend income from Eagle, Inc. Griffin owns 5 percent of the outstanding stock of Eagle. Griffin’s marginal tax rate is 21 percent.

Calculate Griffin’s allowable dividends-received deduction and its after-tax cash flow as a result of the dividend from Eagle.

How would your answers to a change if Griffin owned 55 percent of the stock of Eagle?

How would your answers to b change if Griffin owned 85 percent of the stock of Eagle?

Solutions

Expert Solution

When stock own is 5%

Particulars Amount Amount
Dividends received        50,000
Percentage deduction 70%
Deduction      35,000
Taxable dividends      15,000
Tax on dividends        3,150           3,150
After tax cash flow        46,850

When stock owned is 55%

Particulars Amount Amount
Dividends received        50,000
Percentage deduction 80%
Deduction      40,000
Taxable dividends      10,000
Tax on dividends        2,100           2,100
After tax cash flow        47,900

When stock owned is 85%

Particulars Amount Amount
Dividends received        50,000
Percentage deduction 100%
Deduction      50,000
Taxable dividends              -  
Tax on dividends              -                   -  
After tax cash flow        50,000

ekkarill92 answered 1 year ago
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