Ask Question
23 December, 03:38

Wayne Corporation owns 40% of the stock of Robin Corporation and 90% of the stock of Bat Corporation. All of the corporations are U. S. corporations. Wayne has taxable income before the dividends-received deduction of $200,000, and received the following dividends during the year: Robin $ 5,000 Bat 20,000 The dividends-received deduction for Wayne Corporation would be:

A. $23,250

B. $12,500

C. $16,250

D. $20,000

+1
Answers (1)
  1. 23 December, 03:45
    0
    The correct answer is not listed in the options. However, the answer is $23,500. The explanation is given below.

    Explanation:

    It is important to understand the three levels of possible deductions as dividends are collected from US corporations.

    General rule: DRD is equal to 70% of dividend received If the company receiving the dividend owns more than 20% but less than 80% of the company paying the dividend, the DRD amounts to 80% of the dividend received. If the company receiving the dividend owns more than 80% of the company paying the dividend, the DRD equates to 100% of the dividend.

    From our scenario, Wayne corporation holds the following percent holdings.

    Robin Corporation = 40%

    Bat Corporation = 90%

    ==> Using the Third Rule, Bat Corporation owns more than 80% which is 100%, therefore, we have:

    $20,000 * 100% = $20,000

    ==> By using the second rule,

    deductible amount = $5,000 * 80% = $4,000

    ==> By applying the general rule to Robin Corporation, we have

    $5,000 * 70% = $3,500

    Therefore, the total dividend deductible amount is $20,000 + $3,500 = $23,500
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Wayne Corporation owns 40% of the stock of Robin Corporation and 90% of the stock of Bat Corporation. All of the corporations are U. S. ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers