Question

4.JDog corporation owns stock in Oscar, Inc.  JDog received a $20,000 dividend from Oscar, Inc.  JDog owns 5 percent of the Oscar, Inc. stock. Oscar’s net income after tax for the year was $500,000. What temporary book-tax difference associated with the dividend will JDogreport for the current year (ignore the dividends received deduction)? (Enter any favorable difference as positive and an unfavorable difference as negative.)

5. JDog corporation owns stock in Oscar, Inc.  JDog received a $20,000 dividend from Oscar, Inc.  JDog owns 40 percent of the Oscar, Inc. stock. Oscar’s net income after tax for the year was $500,000. What temporary book-tax difference associated with the dividend will JDogreport for the current year (ignore the dividends received deduction)? (Enter any favorable difference as positive and an unfavorable difference as negative.)

Answer 1

4. JDog will include the $20,000 dividend in book income. For tax purposes, JDog will also include the $20,000 in gross income so that it will not report a temporary book-tax difference on the dividend. JDog is entitled to a dividends received deduction that will result in a permanent favorable book-tax difference but there will not be a temporary book-tax difference.

5. JDog can have a significant influence over Oscar, Inc. at 40 percent ownership.,Instead of including the dividend in its income, JDog recognizes $200,000 (40% x$500,000) of income for book purposes under the equity method of accounting. This is JDog’s pro-rata share of Oscar’s net income for the year.For tax purposes, JDog includes only the $20,000 dividend in gross income.Consequently, JDog will report a $180,000 favorable temporary book-tax difference.