During its first year of operation, K Corporation had a gross profit from operations of $180,000 and deductions of $250,000 before considering its dividend income or dividends-received deduction.K received dividends of $50,000 from a taxable domestic corporation in which K owned 4.5 percent of the stock.Assuming its ownership of the dividend-paying corporation's stock is not debt financed, what is K Corporation's net operating loss for the year?

Question

Quizplus · Accepted Answer

K Corporation's net operating loss is calculated by subtracting its total deductions from its gross profit and then considering the dividends-received deduction. The gross profit is $180,000, and the total deductions before dividends are $250,000, resulting in a preliminary loss of $70,000. Since K owns less than 20% of the dividend-paying corporation, it is entitled to a 50% dividends-received deduction on the $50,000 dividends, which is $25,000. Therefore, the net operating loss is $70,000 (preliminary loss) + $25,000 (dividends-received deduction) = $95,000. However, since the question asks for the net operating loss before considering dividend income or the dividends-received deduction, the correct answer is the preliminary loss of $70,000 - $180,000 (gross profit) + $250,000 (deductions) = $70,000. The inclusion of the dividends-received deduction and dividend income was a mistake in my explanation. The correct calculation for the net operating loss should only consider the gross profit and deductions before dividends, which indeed results in a loss of $70,000 ($180,000 - $250,000).

During Its First Year of Operation, K Corporation Had a Gross