ABC Company owns 40 percent of JMT Company and 95 percent of DEM Company

Accounting May 27, 2021

ABC Company owns 40 percent of JMT Company and 95 percent of DEM Company. JMT pays a $100,000 dividend to ABC and DEM pays a $40,000 dividend to ABC in 2013. Assuming that ABC has $1,000,000 of taxable income, calculate ABC's dividends received deduction for 2013.

Expert Solution

Computation of ABC's Dividends Received Deduction for 2013:

Deduction for ABC Company When It owns 40 percent of JMT Company = 65% * $80,000 = $52,000

Deduction for ABC Company When It owns 95 percent of DEM Company = 100% * $40,000 = $40,000

Total Dividends Received Deduction ($52,000 + $40,000) = $92,000

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