Craig Corporation realizes $150,000 from sales during the current year.Craig also receives $20,000 of dividends from a 3% owned corporation.Operating expenses totals $155,000.Craig's dividends-received deduction is
A)$10,500
B)$12,000
C)$14,000
D)$16,000
E)$20,000

Question

Quizplus · Accepted Answer

The dividends-received deduction for a corporation with less than 20% ownership is 50% of the dividends received. Therefore, 50% of $20,000 is $10,000. However, the deduction cannot exceed 50% of the taxable income before the deduction, which is $15,000 ($150,000 sales - $155,000 expenses + $20,000 dividends). Since $10,000 is less than $15,000, the deduction is $10,000.

Craig Corporation Realizes $150,000 from Sales During the Current Year