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Robots, Inc. reports the following financial data for last year: Gross income fr

ID: 2422125 • Letter: R

Question

Robots, Inc. reports the following financial data for last year:

Gross income from sales and services

$200,000

Wages, cost recovery and other expenses

180,000

Dividend income from at least 20 percent owned U.S. corporations

40,000

Net operating loss carryover

20,000

Capital losses

10,000

Charitable contribution carryover

7,000

Current charitable contributions

11,000

(a.) What is Robots's charitable contribution deduction?

(b.) How much of the charitable contribution carryover is used up?

(c.) What is taxable income?

(d.) What is the dividends received deduction

Gross income from sales and services

$200,000

Wages, cost recovery and other expenses

180,000

Dividend income from at least 20 percent owned U.S. corporations

40,000

Net operating loss carryover

20,000

Capital losses

10,000

Charitable contribution carryover

7,000

Current charitable contributions

11,000

Explanation / Answer

Answer:(a) Contribution base: $200,000 - $180,000 + $40,000 - $20,000 = $40,000 Thus, only $4,000 is deductible. The remaining $7,000 of current distributions is carried forward, as is last year's carryover.

Answer:(b) None of it, since current contributions exhausted the 10 percent limitation.

Answer:(c) Robots's taxable income is as follows:

Net income from operations $20,000

Dividends $40,000

Less 80 percent 32,000 8,000

                                         $28,000

NOL carryback (20,000)

Charitable contributions       (4,000)

                                       $ 4,000

Answer:(d) $32,000, the full deduction, since the taxable income limitation equals $60,000 ($20,000 + $40,000)

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