Question

Jazz Corporation owns 10 percent of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($6,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.? correct answer: 5000

azz Corporation owns 10 percent of the Williams Corp. stock. Williams distributed a $10,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.? correct answer: 4000

can someone please explain how to work them out?

Answer 1

Solution :

( 1 )

• Jazz owns less than 20% of the william stock, the DRD percentage is 50%
  • Taxable income before DRD

​​​​​​​= ( 10,000 - 6,000 ) * 50%

= $2,000

Hence, Taxable income before DRD ( $2,000 ) is less than full DRD $5,000 ( 10,000 * 50% )

Correct Answer is $5,000

( 2 )

• ​​​​​​​Jazz owns less than 20% of the Williams Stock, Then DRD is 50%
  • ​​​​​​​Taxable income before DRD

​​​​​​​= ( 10,000 - 2,000 ) * 50%

= $4,000

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