Choice "b" is correct. Corporate taxable income is calculated as follows for
a corporation:
Choice "c" is incorrect. The dividends received deduction allows for a
special deduction of 80% of the dividends received from a 20% to <80% owned
domestic corporation, not 100% of the dividends received (which applies only to
ownership of 80% or more). [$600,000 + $100,000 − $400,000 − $100,000 DRD =
$200,000]
Gross income | $ 600,000 |
|
Dividend income | 100,000* |
|
Operating expenses | (400,000) |
|
Dividends received deduction | (80,000) | [80% DRD] |
Taxable income | $ 220,000 |
|
* Note that the "gross income" amount for the calculation of taxable income
should include dividend income; however, it does not appear that the $100,000 of
dividends is included in the $600,000 gross income amount given. If it were, the
answer options would be $100,000 less than they are.
Choice "a" is incorrect. The dividends received deduction allows for a
special deduction of 80% of the dividends received from a 20% to <80% owned
domestic corporation, not 70% of the dividends received (which applies only to
ownership of 0% to <20%). [$600,000 + $100,000 − $400,000 − $70,000 DRD =
$230,000]
Choice "d" is incorrect. This answer option does not include the special
dividends received deduction [$600,000 + $100,000 − $400,000 − $0 DRD =
$300,000].
