Aparent 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

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

the correct answer is - no.

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