Can someone explain why Becker used 70% in this question when no percentage was given or implied (I think)?
In Year 1, Best Corp., an accrual-basis calendar-year C corporation, received $100,000 in dividend income from the common stock that it held in an unrelated domestic corporation. The stock was not debt-financed and was held for over a year.
Best recorded the following information for Year 1:
Loss from Best's operations
$ (10,000)
Dividends received
100,000
Taxable income (before dividends-received deduction)
90,000
Best's dividends-received deduction on its Year 1 tax return was:
a. $63,000
b. $70,000
c. $100,000
d. $80,000
Explanation:
Choice “a” is correct. The dividends-received deduction (DRD) is 70% of the lesser of: i) taxable income (70% x $90,000 = $63,000), or ii) dividends received (70% x $100,000 = $70,000). In this case, $63,000 is the dividends-received deduction. 70% is used in this case because the question indicates the corporations are “unrelated” (i.e., less than 20% owned).
Becker, Wiley Test Bank, and Ninja 10 Point Combo!
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