Question

The following information is from Robin Hood Inc.

Advertising Expenses	$ (400,000)
Capital Gains	$ 150,000
Capital Losses (this year)	$ (200,000)
Capital Losses (prior year)	$ -
Cost of Goods Sold	$ (4,000,000)
Dividend "A" income	$ 200,000
Dividend "B" income	$ 100,000
Dividend "C" income	$ 50,000
General and Admin Expenses	$ (1,300,000)
Interest Expense	$ (500,000)
Sales	$9,000,000

1. In addition, Robin purchased equipment at the beginning of the year for $750,000. The equipment has a useful life and a salvage value of 14 years and $50,000 respectively.

2. Robin Hood Inc. has varying ownership interest in the 3 companies listed below and receives dividend income from each company.

Robin owns 15% of Company “A”

Robin owns 45% of Company “B”

Robin owns 90% of Company “C”

Adjusted taxable income $ 35,000,000

   Business interest income $ 1,000,000

   Business interest expense $ 15,000,000

1.Robin wishes to deduct the maximum amount of depreciation on its tax return. How much can it deduct on the equipment?

2.How much of the dividends received from Company A is taxable to Robin?

3.How much of the dividends received from Company B is taxable to Robin?

4.How much of the dividends received from Company C is taxable to Robin?

5.How much of Robin's capital gains will be taxable this year?

6.Calculate Robin's interest expense deduction.

7.Assuming taxable income is $3,500,000 calculate Robin's tax liability?

Answer 1

Part1) Calculation of Depreciaion Expense

Depreciation=Cost-Salvage value/Life

Depreciation=750000-50000/14=50000

Part 2) When Robin owns 15% of Company A

DIvidend received deduction (DRD)= 70% of Dividend received

=70%*200000=140000

Taxable Dividend= 200000-140000=60000

Part 3) When Robin owns 45% of Company B

DIvidend received deduction (DRD)= 80% of Dividend received

=80%*100000=80000

Taxable Dividend= 100000-80000=20000

Part 4) When Robin owns 90& of Company C

DIvidend received deduction (DRD)= 100% of Dividends received

Hence, nothing is taxable