Question

jazz Corporation owns 10 percent of the Mitchell Corporation stock. Mitchell distributed a $10,000 dividend to Jazz Corporation. Jazz Corporations taxable income (loss) before the dividend income was ($2,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Mitchell Corporation

Answer 1

Answer: $2,000

Step-by-step explanation:

When a corporation owns less than 20% of another corporation, only 50% of the dividend it receives can be used as a deduction.

In this case, Jazz owns less than 10% of Mitchell and so can use 50% of $10,000 as a deduction:

= 50% * 10,000

= $5,000

However, Jazz incurred a loss of $2,000 which means that they will only need to deduct that $2,000 from the allowable $5,000.