Wow Corporation manufactures an exercise machine at a cost of $700 and sells the machine to Kite Corporation for $1,000 in 2012.Kite incurs TV advertising expenses of $300 and sells the machine by phone order for $1,600.If Wow and Kite corporations are members of an expanded affiliated group (EAG),their DPAD is:

Question

Quizplus · Accepted Answer

To calculate the DPAD, we need to first calculate the QPAI (Qualified Production Activities Income). QPAI is calculated as follows:
QPAI = Domestic Production Gross Receipts (DPGR) - Cost of Goods Sold (COGS) - Other Expenses Related to Production (OERP)

DPGR = $1,000 (sales to Kite Corporation) + $300 (TV advertising expenses incurred by Kite Corporation) = $1,300
COGS = $700 (cost of production) = $700
OERP = 0 (there is no other expense related to production mentioned in the problem)

QPAI = $1,300 - $700 - $0 = $600

Now, we need to calculate the DPAD (Domestic Production Activities Deduction), which is a percentage of the QPAI. The percentage depends on the taxable income of the taxpayer. Since we do not have any information about the taxable income, we will assume it to be in the highest bracket, which gives a DPAD percentage of 9%.

DPAD = 9% x $600 = $54

Therefore, the answer is C.

Wow Corporation Manufactures an Exercise Machine at a Cost of $700