Question

During 2019, Coyote Corp. (a calendar year C corporation) has the following transactions:    Income from...

During 2019, Coyote Corp. (a calendar year C corporation) has the following transactions:   

Income from operations $260,000 Expenses from operations 305,000 Dividends received from Roadrunner Corporation 115,000

Required: Determine Coyote’s dividends received deduction assuming Coyote owns: a. 5% of Roadrunner’s stock. b. 25% of Roadrunner’s stock Show your work.

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Answer #1

A) If coyote owns a 5% of Roadrunner's stock:

Dividends received deduction ( $115,000*70%) = $80,500

B) If coyote owns a 25% of Roadrunner's stock:

Dividends received deduction ( $115,000*80%) = $92,000

Explanation:

There are three tiers of possible deductions. First, the general rule states that the Dividend Received Deduction(DRD) is equal to 70% of the dividend received. Second, 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. Finally, if the company receiving the dividend owns more than 80% of the company paying the dividend, the DRD equates to 100% of the dividend.

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