The Toy Store owns 1,500 shares of preferred stock in Conner's Mfg. Conner's Mfg. that pays a quarterly dividend of $1.05 a share. The Toy Store receives annual dividend income from Conner's Mfg. in the amount of _____, of which at least _____ is exempt from income taxation.

Question

Quizplus · Accepted Answer

To calculate the annual dividend income from Conner's Mfg., we need to multiply the quarterly dividend by the number of shares owned and then by four to get the annual amount:

$1.05 per share per quarter x 1,500 shares x 4 quarters = $6,300

To determine how much of this income is exempt from income taxation, we need to look at the preferred stock's dividend tax rate. Preferred stock dividends are generally taxed at a lower rate than ordinary income, and some or all of the dividend income may be exempt from federal income taxes. The amount of the exemption depends on the investor's tax bracket and the type of preferred stock.

Since the question does not provide information about the preferred stock's tax rate or the Toy Store's tax bracket, we must assume that none of the dividend income is exempt from income taxation. Therefore, the answer is C, $6,300 in total dividend income, of which none is exempt from income taxation.

The Toy Store Owns 1,500 Shares of Preferred Stock in Conner's