Pink Corporation, which owns stock in Sienna Corporation, had net operating income of $125,000 for the year.Sienna pays Pink a dividend of $60,000.Pink takes a dividends received deduction of $48,000.Which of the following statements is correct?
A)Pink owns less than 20% of Sienna Corporation.
B)Pink owns 20% or more, but less than 80% of Sienna Corporation.
C)Pink owns 80% of Sienna Corporation.
D)Pink owns more than 80% of Sienna Corporation.
E)None of the above.

Question

Quizplus · Accepted Answer

To qualify for the dividends received deduction, Pink must own at least 20% of Sienna Corporation. Since Pink takes a dividends received deduction of $48,000 and Sienna pays Pink a dividend of $60,000, we can calculate Pink's dividend income as $60,000 - $48,000 = $12,000.

Using the formula:
Dividend income / Dividend received percentage = Total dividends paid by Sienna Corporation

$12,000 / X = $60,000
X = 20%

Therefore, Pink owns 20% or more, but less than 80% of Sienna Corporation.

Pink Corporation, Which Owns Stock in Sienna Corporation, Had Net