PQR Corporation has taxable income before DRD of $60,000 that includes a dividend of $10,000 from a large publicly-traded domestic corporation.What is the tax liability of PQR Corporation?

Question

Quizplus · Accepted Answer

PQR Corporation can apply a domestic production activities deduction (DPAD) of $3,000 ($60,000 x 5%) to reduce the taxable income to $57,000. The DRD allows for a deduction of 50% of the dividend received, or $5,000 ($10,000 x 50%). Thus, PQR Corporation's taxable income after DRD is $52,000 ($57,000 - $5,000). The tax liability can be calculated by using the corporate tax rate schedule for the year. For simplicity, assuming a flat 15% tax rate, the tax liability would be $7,800 ($52,000 x 15%). However, corporations with taxable income below $50,000 are subject to a lower tax rate of 12.5%. Therefore, PQR Corporation's tax liability would be $8,250 ($50,000 x 12.5%) + [$2,000 x 15%] = $6,250 + $300 = $8,250. Hence, the correct answer is C.

PQR Corporation Has Taxable Income Before DRD of $60,000 That