Question

white company owns 60% of cody company. separate tax returns are required. for 2020, white's operating income (excluding taxes and any income from cody) was $300,000 while cody reported a pretax income of $125,000. during the period, cody declared total dividends of $25,000; $15,000 (60%) to white and $10,000 to the noncontrolling interest. white declared dividends of $180,000. the income tax rate for both companies i

Answer 1

White Company owns 60% of Cody Company. Since they are separate entities, they will need to file separate tax returns.

For the year 2020, White Company had an operating income (excluding taxes and any income from Cody) of $300,000. On the other hand, Cody Company reported a pretax income of $125,000.

During this period, Cody Company declared total dividends of $25,000. Out of this, $15,000 (which is 60% of the total dividends) went to White Company, and $10,000 went to the non controlling interest.

White Company declared dividends of $180,000.

To determine the income tax for both companies, we need to know the income tax rate. Unfortunately, the income tax rate is not provided in the question. Without this information, we cannot calculate the exact amount of income tax for each company.

In summary:
- White Company owns 60% of Cody Company.
- Separate tax returns are required for both companies.
- White Company had an operating income of $300,000.
- Cody Company reported a pretax income of $125,000.
- Cody Company declared total dividends of $25,000, with $15,000 going to White Company and $10,000 to the noncontrolling interest.
- White Company declared dividends of $180,000.

Please provide the income tax rate for both companies so that we can calculate the exact amount of income tax for each.

Answer 2

White Company and Cody Company, which must file separate tax returns, both fall under the 34% flat tax rate based on their respective incomes. Dividend payments received by White from Cody are typically included in White's taxable income, while the declared dividends from each company to shareholders do not affect the corporate tax calculation.

Step-by-step explanation:

Corporate Tax Rate Application

When applying the corporate tax rates to the incomes of White Company and Cody Company, both operating as separate entities requiring separate tax returns, we must consider their earnings individually. Given that White Company has an operating income of $300,000 and Cody Company has a pretax income of $125,000, neither company's income exceeds the $335,000 threshold for the 34% flat tax rate. Therefore, both companies would be taxed at this rate before any other tax considerations are made.

White Company received $15,000 in dividends from Cody Company, which is typically included in taxable income unless a dividends-received deduction applies. Cody Company also declared $10,000 in dividends to the noncontrolling interest. White Company declared dividends of $180,000, which does not directly affect the corporate tax but rather impacts the distribution of after-tax profits to shareholders.

When preparing their tax returns, each company must apply the 34% flat tax rate to their respective incomes, alongside any tax rules about dividend income and distributions to shareholders. By following this tax structure, they adhere to federal corporate tax guidelines within the income brackets mentioned.