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Topic
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Wiley Question –
During 2013, Nale Corp. received dividends of $1,000 from a 10%-owned taxable domestic corporation. When Nale computes the maximum allowable deduction for contributions in its 2013 return, the amount of dividends to be included in the computation of taxable income is
a. $0
b. $ 200
c. $ 300
d. $1,000
(d) The requirement is to determine the portion of the dividends received of $1,000 that is to be included in taxable income when Nale Corp. computes its maximum allowable deduction for contributions. A corporation’s maximum allowable deduction for charitable contributions is limited to 10% of its taxable income before the charitable contributions and dividends received deductions. Thus, Nale must include all $1,000 of dividends in its taxable income for purposes of computing its maximum allowable deduction for contributions.
Why is the answer 1000 instead of 300? The question says nothing about chartiable contributions. Since Nale Corp received dividends from a 10% owned corporation, it can deduct 70% of the dividents, which leaves 300 out of the original 1000.
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