Jazz Corporation owns 10 percent of Favors Corp.'s stock.Favors distributed a $10,000 dividend to Jazz Corporation.Jazz Corp.'s taxable income (loss)before the dividend was ($6,000).What is the amount of Jazz's dividends received deduction on the dividend it received from Favors Corp.?

Question

Quizplus · Accepted Answer

The dividends received deduction is equal to the lesser of either the taxable income (loss) before the dividend or the amount of the dividend received multiplied by the percentage of ownership. In this case, the dividend received was $10,000 * 10% = $1,000. Since Jazz Corp.'s taxable income (loss) before the dividend was ($6,000), the dividends received deduction is $1,000 (the lesser of the two amounts). Therefore, the answer is choice C, $5,000.

Jazz Corporation Owns 10 Percent of Favors Corp