Question

In 2020, Avalanche Corporation has $70,000 of net income from operations during the current year. In addition, Avalanche received $180,000 of dividend income from a corporation in which Avalanche has a 10% ownership interest. What is Avalanche’s dividends received deduction for 2020?

a) 0

b) 36,000

c) 90,000

d) 117,000

e) 180,000

Answer 1

ANSWER

CORRECT OPTION (c)= $90,000

Calculation:

Here, we need to calculate Avalanche’s dividends received deduction for 2020.

Avalanche dividend income from a corporation = $180,000

The company receiving the dividend owns less than 20% of the company paying the dividend, the DRD amounts to 50% of the dividend received. Here the ownership is 10%

So, the Dividends Received Deduction is 50% of total dividends received by Avalanche.

Dividends Received Deduction (DRD) = 50% x 180,000 = $90,000

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