Coconut, an individual, has a 35% marginal tax rate and owns 100% of the stock of Tropical Corporation, a C Corporation for federal tax purposes. This year, Tropical Corporation generated $6,000,000 of taxable income, paid $1,260,000 of corporate income tax, and paid a $750,000 dividen to Coconut. Suppose that the federal income tax system has been amended to allow shareholders to gross up dividend income by the corporate tax paid with respect to the dividend and credit this tax against their individual tax. Further assume that dividends-received by individuals are not eligible for a preferential tax rate. Assuming the corporate tax rate is 21%, calculate Coconut's reported dividend income.
Coconut, an individual, has a 35% marginal tax rate and owns 100% of the stock of Tropical Corporation, a C Corporation for federal tax purposes. This year, Tropical Corporation generated $6,000,000 of taxable income, paid $1,260,000 of corporate income tax, and paid a $750,000 dividen to Coconut. Suppose that the federal income tax system has been amended to allow shareholders to gross up dividend income by the corporate tax paid with respect to the dividend and credit this tax against their individual tax. Further assume that dividends-received by individuals are not eligible for a preferential tax rate. Assuming the corporate tax rate is 21%, calculate Coconut's reported dividend income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Coconut, an individual, has a 35% marginal tax rate and owns 100% of the stock of Tropical
Corporation, a C Corporation for federal tax purposes. This year, Tropical Corporation generated
$6,000,000 of taxable income, paid $1,260,000 of corporate income tax, and paid a $750,000 dividend
to Coconut. Suppose that the federal income tax system has been amended to allow shareholders to
gross up dividend income by the corporate tax paid with respect to the dividend and credit this tax
against their individual tax. Further assume that dividends-received by individuals are not eligible for a
preferential tax rate. Assuming the corporate tax rate is 21%, calculate Coconut's reported dividend
income.
$441,000
$949,367
$750,000
$907,500
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