Question

Riverbend Inc. received a $305,000 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,380,000 before deducting the dividends received deduction (DRD), a $78,000 NOL carryover, and a $132,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.) a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation?

Answer 1

Riverbend Inc. owns less than 20 % of Hobble Corporation, its DRD percentage is 70 %. So, its full DRD is ( 305000 * 70 % ) $ 213500.

Riverbend Inc. modified taxable income for the taxable income limitation is ( $2,380,000 - $132,000 charitable contribution ) $ 2248000.

Thus, the taxable income limit is ( $ 2248000 * 70 % ) = $ 1573600

Becuase the full $ 213500 DRD is less than the taxable income limit, Riverbend may deduct the entire $ 213500 DRD.

a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation?

$ 213500