Question

This year, Napa Corporation received the following dividends: KLP Inc (a taxable Delaware corporation in which Napa holds an 8% stock interest) - $55,000 Gamma Inc (a taxable Florida corporation in which Napa holds a 90% stock interest) - $120,000 Napa and Gamma do not file a consolidated tax return. Compute Napa's dividends-received deduction. Please show complete calculation.

Answer 1

$147,500

Step-by-step explanation:

Computation of Napa's dividends-received deduction

Napa is said to holds less than 20% stock interest in KLP Inc which means that the dividends received deduction in the case of dividends received from KLP would be 50%.

And in case of dividends received from Gamma, the dividends received deduction would be 100% reason been that KLP holds more than 80% of the stock interest in Gamma.

Hence:

Napa’s dividends-received deduction will be:

= ($55,000 x 50%) + $120,000

=$27,500 +$120,000

= $147,500

Therefore Napa's dividends-received deduction will be $147,500