Eagle Corporation owns stock in Hawk Corporation and has taxable income of $100,000 for the year before considering the dividends received deduction.Hawk Corporation pays Eagle a dividend of $130,000, which was considered in calculating the $100,000.What amount of dividends received deduction may Eagle claim if it owns 25% of Hawk's stock?
A)$0.
B)$80,000.
C)$100,000.
D)$104,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The dividends received deduction is calculated as a percentage of the dividend income received from other corporations. The deduction percentage is dependent on the percentage of ownership in the distributing corporation. In this case, Eagle Corporation owns 25% of Hawk Corporation.
The maximum percentage for a 20% or greater ownership is 65%, which means that Eagle can claim a deduction of 65% of the $130,000 dividend received. 
Therefore, the dividends received deduction that Eagle Corporation can claim is $84,500 (65% x $130,000). 
However, the deduction cannot exceed Eagle's taxable income before the deduction, which is $100,000. Therefore, the maximum deduction Eagle can claim is $100,000, and the answer is D ($104,000 is incorrect because it exceeds Eagle's taxable income).

Eagle Corporation Owns Stock in Hawk Corporation and Has Taxable