Question

Griffin Corporation received $50,000 of dividend income from Eagle, Inc. Griffin owns 5 percent of the stock of Eagle. Griffin's marginal tax rate is 21 percent.

a. Calculate Griffin's allowable dividends-received deduction and the tax due from the dividend received from Eagle after deducting DRD.

b. How would your answers to part a change if Griffin owned 55 percent of the stock of Eagle?

c. How would your answers to part b change if Griffin owned 85 percent of the stock of Eagle?

Answer 1

Solution:
	The amount of dividend received deduction (DRD) dpends upon ownership stake in the company
	as follows
	Less than 20%	DRD is 50%
	More than 20% but less than 80%	DRD is 65%
	More than 80% and above	DRD is 100%

Requirement	Stake %	Dividend	DRD %	DRD	Taxable dividend	Tax @ 21%	After tax
		Received					dividend
a.	5%	$50,000	50%	$25,000	$25,000	$5,250	$44,750
b.	55%	$50,000	65%	$32,500	$17,500	$3,675	$46,325
c.	85%	$50,000	100%	$50,000	$0	$0	$50,000
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