A parent holding company sells shares in its subsidiary such that the parent now owns only 65% of the subsidiary and, thus, the tax returns of the parent and its subsidiary can't be consolidated. The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received? Question 32 options: 10.2%; $2,245,000 10.2%; $2,135,000 23.8%; $1,905,000 10.2%; $1,750,000 34.0%; $1,650,000

Question

Lea Montoya

Business

27 January, 13:49

A parent holding company sells shares in its subsidiary such that the parent now owns only 65% of the subsidiary and, thus, the tax returns of the parent and its subsidiary can't be consolidated. The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received? Question 32 options: 10.2%; $2,245,000 10.2%; $2,135,000 23.8%; $1,905,000 10.2%; $1,750,000 34.0%; $1,650,000

+2

Answers (2)

Know the Answer?

Tania Cantrell · Answer 1

2,500,000 is going to be the answer

Rafael Buck · Answer 2

correct option is a) 10.2%; $2,245,000

Explanation:

given data

Gross dividends = $2,500,000

tax rate = 34%

inter company dividends = 70%

to find out

effective tax rate and net dividends

solution

Effective tax rate = (1 - Exclusion) * (Tax rate) ... 1

Effective tax rate = (1 - 0.70) * (0.34)

Effective tax rate = 10.2 %

and

net dividends = Gross dividends - Tax ... 2

net dividends = $2,500,000 - [ $2,500,000 (1 - 0.70) * (0.34) ]

net dividends = $2,500,000 - $255,000

net dividends = $2,245,000

so correct option is a) 10.2%; $2,245,000