Red Corporation has taxable income before DRD of $174,000.Included in that amount is a dividend of $20,000 from a large publicly-traded domestic corporation.Red also made a $25,000 cash contribution to a qualified charitable organization.The contribution is not included in the net income amount given.What is taxable income of Red Corporation?

Question

Quizplus · Accepted Answer

The DRD (Dividends Received Deduction) allows corporations to deduct a portion of the dividends received from other corporations. The deduction amount depends on the ownership percentage of the stock. However, since the dividend received is from a large publicly-traded domestic corporation, the DRD is 50% of the dividend amount. Therefore, the DRD for Red Corporation from the $20,000 dividend is $10,000 (50% x $20,000).

Red Corporation made a $25,000 cash contribution to a qualified charitable organization. Since this is a charitable contribution, it is deductible from the taxable income. Therefore, the taxable income of Red Corporation can be calculated as follows:

Taxable income = Income before DRD - DRD - Charitable contribution
Taxable income = $174,000 - $10,000 - $25,000
Taxable income = $139,000

Therefore, the answer is B) $142,600 (which is the closest answer option).

Red Corporation Has Taxable Income Before DRD of $174,000