Question

Required information [The following information applies to the questions displayed below.) Wasatch Corp. (WC) received a $200,000 dividend from Tager Corporation (TC). WC owns 15 percent of the TC stock. Compute WC's deductible DRD in each of the following situations: a. WC's taxable income (loss) without the dividend income or the DRD is $10,000. Answer is complete but not entirely correct. Deductible DRD $ 147,000

Answer 1

I guess You tried to used old DRD New DRD is below

PERCENT OWNERSHIP	DEDUCTION % OLD RULES	DEDUCTION % NEW RULES
Less than 20%	70%	50%
20% up to 80%	80%	65%
80% or more	100%	100%

As per the New Deduction Rules

A) with income 10000

Full Deductible DRD = 50%(dividend received )

                            = 50%(200,000)

                                    =100,000

But modified income for the taxable limitation is 210,000 that is 200,000 +10,000 which is other income

Now taxable income limit is 50% of 210,000 which is 105,000,which is higher then the Full Deductible DRD

So he can deduct full DRD of 100,000

B) with loss 10000

Full Deductible DRD = 50%(dividend received )

                            = 50%(200,000)

                                    =100,000

But modified income for the taxable limitation is 190,000 that is 200,000 -10,000 which is other income loss

Now taxable income limit is 50% of 190,000 which is 95,000, which is less than the Full Deductible DRD

And deducting the full drd does not leave the company in loss position

That is (190,000-100,000)>0

So the limitation of DRD is 95,000

d) with loss of 101,000

Full Deductible DRD = 50%(dividend received )

                            = 50%(200,000)

                                    =100,000

But modified income for the taxable limitation is 99,000 that is 200,000 -101,000 which is other income loss

Now taxable income limit is 50% of 99,000 which is 49500, which is less than the Full Deductible DRD

And deducting the full drd does leave the company in loss position

That is (99,000-100,000)<0

So the there is no limitation and he can use Full DRD is 100,000

e) B) with loss of 500,000

Full Deductible DRD = 50%(dividend received )

                            = 50%(200,000)

                                    =100,000

But modified income for the taxable limitation is -300,000 that is 200,000 -500,000 which is other income loss

Now taxable income limit is 50% of -300,000 which is -150,000, which is less than the Full Deductible DRD

And deducting the full drd does leave the company in loss position either way

That is (-300,000-100,000)<0

So the there is no limitation and he can use Full DRD is 100,000