Question

Riverbend Inc. received a $372,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,820,000 before deducting the dividends received deduction (DRD), a $47,500 NOL carryover, and a $146,000 charitable contribution. Use Exhibit 16-6.

**a.** What is Riverbend’s deductible DRD assuming
it owns 10 percent of Hobble Corporation?

**b.** Assuming the facts in part (a), what is
Riverbend’s marginal tax rate on the dividend?

**c.** What is Riverbend’s DRD assuming it owns 31
percent of Hobble Corporation?

**d.** Assuming the facts in part (c), what is
Riverbend’s marginal tax rate on the dividend?

Answer #2

Solution: | |||||||||

Assuming the tax rate is 34% | |||||||||

a. | As Riverbend ownes less than 20% of Hobble Corporation , its DRD is 70% | ||||||||

Deductible DRD = ($372,500*70%) = $260,750 | |||||||||

b. | Assuming the facts in part a , Riverbend's marginal tax rate on dividend | ||||||||

[($372,500-$260,750)*34%]/$372,500 = 10.20% | |||||||||

c. | As Riverbend ownes more than 20% but less than 80% of Hobble Corporation , its DRD is 80% | ||||||||

Deductible DRD = ($372,500*80%) = $298,000 | |||||||||

d. | Assuming the facts in part c , Riverbend's marginal tax rate on dividend | ||||||||

[($372,500-$298,000)*34%]/$372,500 = 6.80% |

answered by: anonymous

Riverbend Inc. received a $372,500 dividend from stock it held
in Hobble Corporation. Riverbend's taxable income is $2,820,000
before deducting the dividends received deduction (DRD), a $47,500
NOL carryover, and a $146,000 charitable contribution. Use Exhibit
16-6. (Round your tax rates to 1 decimal place. Leave no
answer blank. Enter zero if applicable.)
XHIBIT 16-6 Stock Ownership and Dividends Received
Deduction Percentage
Receiving Corporation’s Stock Ownership in Distributing
Corporation’s Stock
Dividends Received Deduction Percentage
Less than 20 percent
50%...

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