Question

Orange Corporation, a calendar year C corporation, owns stock in White Corporation and has net operating income of $400,000 for the current year. White Corporation pays Orange a dividend of $60,000. What amount of dividends received deduction may Orange claim if it owns 45% of White stock (assuming Orange's dividends received deduction is not limited by its taxable income)?

a. $39,000
b. $30,000
c. $60,000
d. $42,000

Answer 1

Step-by-step explanation:

To calculate the dividends received deduction (DRD) for Orange Corporation, we need to determine the eligible percentage of dividends that can be deducted. The DRD is based on the ownership percentage and the amount of dividends received.

Given:

Net operating income of Orange Corporation = $400,000

Dividends received from White Corporation = $60,000

Percentage of White Corporation's stock owned by Orange = 45%

The dividends received deduction formula is:

DRD = Dividends Received × Ownership Percentage

DRD = $60,000 × 0.45

DRD = $27,000

The dividends received deduction that Orange Corporation may claim is $27,000. Since none of the options provided matches this amount exactly, it seems there might be an error in the given choices. However, the closest option to the calculated DRD is option "b" ($30,000).