Question

Craig Corporation realizes $150,000 from sales during the current year. Craig also receives $20,000 of dividends from a 3% owned corporation. Operating expenses totals $155,000. Craig's dividends-received deduction is

$10,500

$12,000

$14,000

$16,000

$20,000

Answer 1

The Dividend received deduction is LOWER of the follwoing calculated amount:

1. 70% of total taxable Incomer, OR
2. 70% of dividend income received.

1. Taxable Income = Sales - Operating expenses + Dividends = 150000 - 155000 + 20000 = $ 15,000

70% of $ 15,000 = $ 10,500

2. Dividend income = $ 20,000
70% of $ 20,000 = $ 14,000

The lowest of the two amounts ($ 10,500 and $ 14,000) is $ 10,500

Hence the correct answer = Option #1: $ 10,500 = Carigs Dividends received deduction.