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20 October, 11:25

A parent holding company sells shares in its subsidiary such that the parent now owns only 65% of the subsidiary and, thus, the tax returns of the parent and its subsidiary can't be consolidated. The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received? Question 32 options: 10.2%; $2,245,000 10.2%; $2,135,000 23.8%; $1,905,000 10.2%; $1,750,000 34.0%; $1,650,000

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  1. 20 October, 12:00
    0
    correct option is a) 10.2%; $2,245,000

    Explanation:

    given data

    Gross dividends = $2,500,000

    tax rate = 34%

    inter company dividends = 70%

    to find out

    effective tax rate and net dividends

    solution

    Effective tax rate = (1 - Exclusion) * (Tax rate) ... 1

    Effective tax rate = (1 - 0.70) * (0.34)

    Effective tax rate = 10.2 %

    and

    net dividends = Gross dividends - Tax ... 2

    net dividends = $2,500,000 - [ $2,500,000 (1 - 0.70) * (0.34) ]

    net dividends = $2,500,000 - $255,000

    net dividends = $2,245,000

    so correct option is a) 10.2%; $2,245,000
  2. 20 October, 12:38
    0
    2,500,000 is going to be the answer
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