Sonic Corporation has a 21% marginal tax rate and received $10,000 of dividends from Roller,Inc.,a U.S.corporation in which Sonic owns less than 2% of the outstanding stock.Sonic's effective tax rate on the Roller dividend is:

Question

Quizplus · Accepted Answer

Sonic Corporation can claim a 50% dividends received deduction (DRD) because it owns less than 20% of Roller, Inc. Therefore, the taxable portion of the dividend is $5,000 ($10,000 * 50%). The tax on this amount at a 21% rate is $1,050, resulting in an effective tax rate of 10.5% ($1,050 / $10,000).

Sonic Corporation Has a 21% Marginal Tax Rate and Received