Question

Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and...

Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and received $20,000 dividends from Innsbrook (not included in operating income).

Westside's taxable income is:

A) $60,000

B) $70,000

C) $50,000

D) $40,000

Business   Accounting   
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Homework Answers

Answer #1

The company which receives the dividend from another company can claim DRD i.e dividend received deduction or dividend exclusions.

The dividends received deduction is a federal tax write-off for eligible corporations in the US that receive dividends from related entities.

The general rule states that the DRD is equal to 70% of the dividend received, but after the tax cuts and jobs act the deduction is reduced to 50% for less than 20% of holding of common stock.

Here the Westside Inc, owns 15% of common stock hence it will be allowed to claim 50% of deduction.

Hence $10000 (20000*50%) can be claimed as deduction.

Thus the taxable income = Operating income + Dividend income - Dividend recieved deduction

Taxable income = $50000 +$20000- $10000

Taxable income = $ 60000.

The correct option is -----A

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