Question

Sigma Corporation owns 80% of the stock of Epsilon Corporation, which pays it a dividend of $100,000. Sigma Corporation also owns 20% of the stock of Intergalactic Corporation, which pays it a $40,000 dividend. Assuming the taxable income limitation does not apply, how much is Sigma Corporation's dividend received deduction for the year?

a. $126,000.
b. $98,000.
c. $118,000.
d. $132,000.
e. none of the above.

Answer 1

d. $132,000

Step-by-step explanation:

Sigma Corporation holds the stock of Epsilon Corporation and is subsidiary for the Sigma. The dividend declared by of $100,000 is entirely for the sigma whereas Sigma Corporation also holds 20% of the shares of Intergalactic Corporation. The dividend of $40,000 will be calculated in the dividend amount of Sigma but 20% will be deducted.

$100,000 + $40,000 * 80% = $132,000