In the current year, Red Corporation (a calendar year C corporation), which owns stock in Blue...

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In the current year, Red Corporation (a calendar year C corporation), which owns stock in Blue...

In the current year, Red Corporation (a calendar year C corporation), which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $20,000. Which of the following statements is correct?

a. Red owns 80% of Blue Corporation. b. Red owns 20% or more, but less than 80% of Blue Corporation. c. Red owns 80% or more of Blue Corporation. d. Red owns less than 20% of Blue Corporation. e. None of these choices are correct.

business accounting

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Answer 1

Answer #1

d. Red owns less than 20% of Blue Corporation.

Red’s dividends received deduction is 50% of the dividend received ($20,000 ÷ $40,000).

The 50% dividends received deduction applies if ownership is less than 20%

d. Red owns less than 20% of Blue Corporation.

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Answer 2

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