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 |

Please upvote , if found the answer useful. | |||||||

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