Marathon Inc. (a C corporation) reported $2,050,000 of taxable income in the cur
ID: 2334986 • Letter: M
Question
Marathon Inc. (a C corporation) reported $2,050,000 of taxable income in the current year. During the year, it distributed $205,000 as dividends to its shareholders as follows...
Required Information Marathon Inc. (a C corporation) reported $2,050,000 of taxable Income In the current year. During the year, It distributed $205,000 as dividends to lts shareholders as follows: (Leave no answer blank. Enter zero if applicable.) $10,250 to Guy. a 5 percent Individual shareholder. . $30,750 to Little Rock Corp. a 15 percent shareholder (C corporation). $164,000 to other shareholders. a. How much of the dividend payment did Marathon deduct In determining its taxable Income? b. Assuming Guy's marginal ordinary tax rate Is 37 percent how much tax will he pay on the $10,250 dvidend he recelved from Marathon Inc. (Including the net Investment Income taxj? C.What amount of tax will Little Rock Corp. pay on the $30,750 dlvidend It recelved from Marathon Inc. (50 percent didends recelved deduction)? (Round your final answers to the nearest whole dollar amounts.) a. Amount deductible c. Tax paidExplanation / Answer
a. Amount deductible is $0.
As Marathon Inc. is a corporation, it is not allowed to deduct dividend payments to arrive at its taxable income.
b. Tax paid is $1,537.50 (10,250 x 15%)
Dividend income is taxed at the rate of 15% in case of individuals.
c. Tax paid is $3,228.75.
Little Rock Corp. will have to pay 21% tax on the dividend income it received after 50% deductions.
$30,750 x 50% dividends received deduction = $15,375.
$15,375 x tax rate 21% = $3,228.75.
e-1. Little Rock Corp will report the dividend on Form 1120, page 1, line 4 - $30,750.
e-2. Little Rock Corp will report its dividends received deduction on Form 1120, page 1, line 29b - $15,375.