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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