In each of the following independent situations determine th

In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends.

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Almond Corporation Blond Corporation Cherry Corporation Income from operations $700,000 $800,000 $900,000 Expenses from operations (600,000) (850,000) (910,000) Qualifying dividends 100,000 100,000 100,000

Solution

(a) Dividend received deduction for Almond Corporation $       70,000 (b) Dividend received deduction for Blond Corporation $       70,000 (c) Dividend received deduction for Cherry Corporation $       63,000 Almond Corporation Blond Corporation Cherry Corporation Step I 70% X Dividend received $       70,000 $       70,000 $       70,000 ($1,00,000 X 70%) ($1,00,000 X 70%) ($1,00,000 X 70%) Step II 70% X Taxable income before DRD (W.N.1) $   1,40,000 $       35,000 $       63,000 (DRD = dividend received deduction) ($2,00,000 X 70%) ($50,000 X 70%) ($90,000 X 70%) Step III Lesser of I or II generates operating loss $       70,000 $       70,000 $       63,000 The dividend received deduction for Almond corporation is $70,000 under general rule. Blond corporation will also claim dividend received dedution of $70,000 because a net operating loss results when the step I amount of ($70,000) is deducted from 100% taxable income before DRD of ($50,000). Cherry corporation, subject to taxable income limitation is allowed only $63,000 as a dividend received deduction. (W.N.1) : Almond Corporation Blond Corporation Cherry Corporation Income from operations $   7,00,000 $   8,00,000 $   9,00,000 Less: Expenses from operations $   6,00,000 $   8,50,000 $   9,10,000 Add: Qualifying dividends $   1,00,000 $   1,00,000 $   1,00,000 Taxable income before DRD $   2,00,000 $       50,000 $       90,000