In the current year, Auburn Corporation (a calendar year taxpayer), has the following income and expenses:

Auburn Corporation owns 20% of the stock in Blond Corporation. The dividends received deduction for the current year is:

Question

In the current year, Auburn Corporation (a calendar year taxpayer), has the following income and expenses: ​
​
 Auburn Corporation owns 20% of the stock in Blond Corporation. The dividends received deduction for the current year is:

Quizplus · Accepted Answer

To calculate the dividends received deduction (DRD), we need to first determine Auburn Corporation's taxable income.

Revenue: 
- Sales revenue: $2,600,000

Expenses: 
- Cost of goods sold: $1,100,000 
- Depreciation expense: $220,000 
- Wages and salaries: $400,000 
- Rent expense: $180,000 
- Interest expense: $50,000 
- Charitable contributions: $10,000 
- Net operating loss carryforward: $60,000

Taxable Income: 
$2,600,000 - $1,100,000 - $220,000 - $400,000 - $180,000 - $50,000 - $10,000 + $60,000 = $700,000

Now that we have Auburn Corporation's taxable income, we can calculate the DRD. Since Auburn Corporation owns 20% of Blond Corporation, it can exclude 80% of the dividends received from Blond Corporation from its taxable income.

Dividends received: $200,000 
DRD: $200,000 x 80% = $160,000

Therefore, the answer is B) $160,000.

In the Current Year, Auburn Corporation (A Calendar Year Taxpayer)