Question

Citron Company is a wholesale distributor of children's clothing. During the year, it donates clothes (cost of $60,000; retail value of $100,000) to Clothes for Needy (a qualified charitable organization). Disregarding percentage limitations, Citron's charitable contribution deduction is:

a.$80,000 if Citron is an individual.

b.$100,000 if Citron is a C corporation.

c.$60,000 if Citron is a C corporation.

d.$80,000 if Citron is a C corporation.

e.None of these choices are correct.

Skinner Corporation, a calendar year C corporation, had the following transactions during 2019:

Income from operations	$800,000
Expenses from operations	900,000
Dividends from Siskin Corporation (20% ownership)	200,000

Skinner's taxable income (or NOL) for 2019 is:

a.$60,000 NOL.

b.$100,000 taxable income.

c.$30,000 NOL.

d.$100,000 NOL.

e.None of these choices are correct.

During the 2019, Goose Corporation (a calendar year, cash basis taxpayer) receives cash dividends as follows:

Source of Dividends	Ownership Percentage	Dividends
Emu Corporation	90%	$90,000
Robin Corporation	21%	60,000
Crane Corporation	10%	30,000

Presuming the taxable income limitation does not apply, Goose Corporation's dividends received deduction for 2019 is:

a.$144,000.

b.$126,000.

c.$135,000.

d.$159,000.

e.None of these choices are correct.

Answer 1

1) Solution: 80,000 if Citron is a C corporation

Explanation:

When Citron is an individual, the permitted deduction has to be limited to the lesser of basis ($60,000) or fair market value ($100,000)

When Citron is a C corporation, a special ruling which states that donated inventory donated for specific purposesis permitted for a deduction of basis plus half of any appreciation, thus willcomputed as:

= $60,000 + [50% * ($100,000 - $60,000)]

= $80,000

　

2) Solution: $30,000 NOL

Working:

Income from operations	800,000
Dividends	200,000
	1,000,000
Expenses from operations	900,000
	100,000
Dividends received deduction (70% * 100,000)	70,000
	30,000

　

The deduction on dividends received will be limited to 70% of taxable income because taking 70% of $200,000 will not create an NOL

　

3) Solution: $159,000 NOL

Working:

Total dividend (90,000 + 60,000 + 30,000)	180,000
Deduction	21,000
Balance	159,000