Coop Incorporated owns 10 percent of Chicken Incorporated. At the end of the year, Coop has $100,000 in invested Chicken stock and Coop's Chicken stock is worth $115,000. Both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?
A)$1000 unfavorable.
B)$10,000 favorable.
C)$15,000 unfavorable.
D)$15,000 favorable.
E)None of the choices is correct.

Question

Quizplus · Accepted Answer

The dividend distribution is not taxable to Coop because Coop owns less than 20% of Chicken. Therefore, the book-tax difference is $10,000 favorable.

Coop Incorporated Owns 10 Percent of Chicken Incorporated