Question

ASSUME ALL CORPORATIONS ARE C CORPORATIONS
X Corp received a dividend form Y corp. in the amount of $100,000. X owns 70 percent of Y.
Calculate the dividends received deduction for X Corp given the following:
1.Sales revenue=120,000
2.operating expenses=70,000

Answer 1

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ASSUME ALL CORPORATIONS ARE C CORPORATIONS
X Corp received a dividend form Y corp. in the amount of $100,000. X owns 70 percent of Y.
Calculate the dividends received deduction for X Corp given the following:
Solution:
If corporation owns stock in another corporation and receives dividends, a portion of dividends may be deducted from income:
% owned	Deduction Percent
Less than 20%	70%
>= 20% to <80%	80%
80% or more and affiliated	100%
Step 1
X owns 70 percent of Y do deduction percent will be 80%.
Dividend amount	100,000.00
Deduction amount	80,000.00
Step 2
Sales	120,000.00
Dividend amount	100,000.00
Operating expenses	(70,000.00)
Income before dividends received deduction	150,000.00
80% of income	120,000.00
Dividends received deduction will be lower of amount in step 1 and step 2
So deduction amount of $ 80,000 is less than 80% of income of $ 120,000.
So dividends received deduction will be $ 80,000.