Riverbend Inc. received a $277,500 dividend from stock it held in Hobble Corpora

Question

Riverbend Inc. received a $277,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,970,000 before deducting the dividends received deduction (DRD), a $59,500 NOL carryover, and a $127,000 charitable contribution. Use Exhibit 16-6.(Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.)

a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation?

b. Assuming the facts in part (a), what is Riverbend’s marginal tax rate on the dividend?

c. What is Riverbend’s DRD assuming it owns 64 percent of Hobble Corporation?

d. Assuming the facts in part (c), what is Riverbend’s marginal tax rate on the dividend?

e. What is Riverbend’s DRD assuming it owns 94 percent of Hobble Corporation (and is part of the same affiliated group)?

f. Assuming the facts in part (e), what is Riverbend’s marginal tax rate on the dividend?

EXHIBIT 16-6 Stock ownership and Dividends Received Deduction Percentage Receilving Corporation's Stock Dividends Received Deduction Percentage 50% 65 Ownership in Distributing Corporation's Stock Less than 20 percent At least 20 percent but less than 80 percent 80 percent or more 22 100

Explanation / Answer

Solution:-

= 35% * (1 - 50%)

= 17.5%

= 35% * (1 - 65%)

= 12.25%

= 35% * (1 - 100%)

= 0%

a. What is Riverbend’s deductible DRD assuming it owns 10 percent of Hobble Corporation :-

for 10% ownership , 50% dividend received deduction  permissible .

b. Assuming the facts in part (a), what is Riverbend’s marginal tax rate on the dividend?

c. What is Riverbend’s DRD assuming it owns 64 percent of Hobble Corporation:-

d. Assuming the facts in part (c), what is Riverbend’s marginal tax rate on the dividend:-

For 64% ownership , 65% dividend received deduction permissible .

e. What is Riverbend’s DRD assuming it owns 94 percent of Hobble Corporation (and is part of the same affiliated group):-

f. Assuming the facts in part (e), what is Riverbend’s marginal tax rate on the dividend:-

Note :- According to the corporate duty table 2017,maximum rate 35% .and friends falling under that rate . consequently , in minor duty rate on profit 35% is considered.

Ownership percentage Dividends received deduction percentage Implied tax rate on dividends Less than 20% 50%

= 35% * (1 - 50%)

= 17.5%

At least 20% but less than 80% 65%

= 35% * (1 - 65%)

= 12.25%

80% or more 100%

= 35% * (1 - 100%)

= 0%

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