Question

Riverbend Inc. received a $282,500 dividend from stock it held in Hobble Corporation. Riverbend's taxable income is $2,330,000 before deducting the dividends received deduction (DRD), a $69,000 NOL carryover, and a $101,000 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 58 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

Receiving Corporation’s Stock Ownership in Distributing Corporation’s Stock	Dividends Received Deduction Percentage
Less than 20 percent	50%
At least 20 percent but less than 80 percent	65
80 percent or more*	100

* To qualify for the 100 percent dividends received, the receiving and distributing corporations must be in the same affiliated group as described in §1504. The 80 percent ownership requirement is the minimum ownership level required for inclusion in the same affiliated group.

Answer 1

a $141,250] Beaccise Raveolend owns less than 201. of Hobble, 945 DRD Percentage is Oy, Il-s Frell DRD PS $141,250 CO-5% 282,500). Rucoberdo modo ffed taxable income for the taxable Pncome Imitation Rs $2,229 poo ($2,330.000 $101,000 chorrtable Contofleffon). Thes, the taxable Pncome limoPs $1,114,500 C$2,229,000 XDY) Beceroje The Feell $141,20 DROPS less than the taxable pncome 1met, Rauerbend may deduct the conve $141,250 DRD: b. T1057 Rpuedbends tax date Ps 20. So, PHs maogancel tax rate on the dividend cefleo taking the DRD Poto ccrocat Po comparede as follows => [C$282, 300 - $ 161,200)x02)] / $ 282,500 =) (29,662.5] / $282, 00 => 0.105 => 10:57 C. $ 183625 Beaccese Rierbend ocung 207.00 more bcelless than 80%. Of Hobble, its DRD Y. Po 659., its full DRD Ps $183,625 (0.65$ 282, 500) Riverbend's modefped taxable Prcome foo the taxable income l Pmitation Ps $ 2, 229,000 ($2,330,000 Menw $ 101.000 Chaoftalde Contoh beetfon) 50, The tearable lampf Ps $ 1,448,850 $2,229,000x654.). Becurare The Feell $183,625 DRDS less than the taxable income limit Rredband maideduct the enthoe $183,625 DRD. 7.357. Rreobend's tex dale B 21.7.,50 .Pts margindel tax oale on the diud end afted taking the DRD Poto account is compoled as follows: [C$282,500 - $183,625)x0.21] ) $282, 500 => 20,763.75 / $282,500 => 0.0735=) 7035%. C. $282,500) Peacuse of ocons 8o4. oo move Of Hobble coop, Rover bend is entitles to a 100%. DRD F. LOD Deverbend does not pay any income tax on the douiden [C$ 282,500 - $ 282, S00)x0.21] / $282,500 103 / $ 282,500 =>04.