Question

Riverbend Inc. received a $200,000 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,100,000 before deducting the dividends received deduction (DRD), a $40,000 NOL carryover, and a $100,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.) Problem 16-48 Part a a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation?

Answer 1

ANSWER

a)

Calculate Riverbend’s deductible DRD as follows:

Dividend received =$200,000

Holding percentage =10%

Because Riverbend holds less than 20% in hobble,the deductible DRD would be 50% of the dividend received

Therefore,.

Deductible DRD =$200,000 x 50%

=$200,000 x0.50

=$100,000

Deductible DRD =$100,000

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