Question

Problem 11-5 (Algorithmic)
Special Deductions and Limitations (LO 11.3)

Fisafolia Corporation has gross income from operations of $423,000 and operating expenses of $359,550 for 2018. The corporation also has $42,300 in dividends from publicly traded domestic corporations in which the ownership percentage was 45%.

Below is the Dividends Received Deduction table to use for this problem.

Percent Ownership 2018 Dividends Received Percentage Less than 20 percent 50% 20 percent or more, but less   than 80 percent 65% 80 percent or more 100%

If require, round final answers to the nearest dollar.

a. Calculate the corporation's dividends received deduction for 2018.
$

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b. Assume that instead of $423,000, Fisafolia Corporation has gross income from operations of $317,250.

Calculate the corporation's dividends received deduction for 2018.
$

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c. Assume that instead of $423,000, Fisafolia Corporation has gross income from operations of $350,000. Calculate the corporation’s dividends received deduction for 2018.
$

Answer 1

a. Calculate the Fisafolia corporation's dividends received deduction for 2018.

Taxable Income = (Gross Income - operating expenses + Dividend received)

Taxable Income = ( $423,000 - $359,550 + $42,300)

Taxable Income = $105750

Since ownership in all corporations was 45%

Corporation's dividends received deduction = lower of ( 65% of Dividend received, 65% of Taxable Income)

Corporation's dividends received deduction = lower of (65%* $42,300, 65%* $105750)

Corporation's dividends received deduction = 65%* $42,300 = $ 27495

b. Assume that instead of $423,000, Fisafolia Corporation has gross income from operations of $317,250.

Taxable Income = (Gross Income - operating expenses + Dividend received)

Taxable Income = ( $317,250 - $359,550 + $42,300)

Taxable Income = 0

If the dividends received deduction increases or creates a net operating loss, the limitation does not apply Since Taxable Income is zero, than limitation of Taxable income is not applicable

Since ownership in all corporations was 45%

Corporation's dividends received deduction = 65% of Dividend Received

Corporation's dividends received deduction = 65%* $42,300

Corporation's dividends received deduction = $ 27495

c. Assume that instead of $423,000, Fisafolia Corporation has gross income from operations of $350,000 .

Taxable Income = (Gross Income - operating expenses + Dividend received)

Taxable Income = ( $350,000 - $359,550 + $42,300)

Taxable Income = $32750

As the dividends received deduction does not creates a net operating loss after deduction ($32750 - 65% of Dividend), the limitation shall apply. hence

Since ownership in all corporations was 45%

Corporation's dividends received deduction =lower of ( 65% of Dividend Recieved , 65% of Taxable Income)

Corporation's dividends received deduction = lower of ( 65% of 42300 , 65% of $32750)

Corporation's dividends received deduction = 65% of $32750 = $21287.50