9 pane corporation owns 100 of alder corporation 85 of ball corporation 70 of cake 4307597

9) Pane Corporation owns 100% of Alder Corporation, 85% of Ball Corporation, 70% of Cake Corporation, 40% of Dash Corporation, and 10% of Eager Corporation. All of these corporations are domestic corporations. Pane, Alder and Ball belong to an affiliated group. Pane's marginal income tax rate is 35%. All investees have paid out all their net income in the form of dividends. During 2011, Pane Corporation received the following cash dividends:

From Alder:$180,000

From Ball:$170,000

From Cake:$160,000

From Dash:$100,000

From Eager:$ 60,000

Required:

1. Compute the amount of the dividend income that would be excluded from taxation under the current Internal Revenue Code.

2. Compute Pane's current income tax liability for the dividend income received in 2011.

Answer: 

Requirement 1

Excluded dividend income:

From Alder: $180,000 × 100%$180,000

From Ball: $170,000 × 100%170,000

From Cake: $160,000 × 80%128,000

From Dash: $100,000 × 80%80,000

From Eager: $60,000 × 70%42,000

Total excluded dividend income$600,000

Requirement 2

Total dividend income received$670,000

Total excluded dividend income600,000

Included dividend income$70,000

Current Income Tax Liability:

$70,000 × 35% =  $24,500

Objective:  LO3

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