Question

0 Required information [The following information applies to the questions displayed below] Riverbend Inc. received a $300,000 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,980,000 before deducting the dividends received deduction (DRD), a $41,000 NOL carryover, and a $182,000 charitable contribution. Use Exhibit 16-6. (Round your tax rates to 1 decimal place. Leave no answer blank. Enter zero if applicable.) c. What is Riverbend's DRD assuming it owns 37 percent of Hobble Corporation? Answer is complete but not entirely correct. DRD $ 240,000

Answer 1

c. Riverbend owns 37% of Hobble Corporation, i.e. more than 20% and less than 80%, hence DRD allowed will be 80%.
So, its full DRD is 80% of $300,000(dividend) that is equal to $240,000.

Riverbend's modified taxable income for the taxation limit will be Riverbend taxable income $2,980,000 minus charitable contribution $182,000 that is equal to $2,798,000.
Thus, the taxable limit is 80% of $2,798,000 which is equal to $2,238,400.

Since the full DRD is less than the taxable limit, Riverbend can deduct entire 100% of DRD.

Riverbend's DRD assuming it owns 37% of Hobble Corporation = $240,000