_____ Sixx is a 60%-owned domestic subsidiary of Pixx. For 2006, Sixx had $250,000 of pretax income and $150,000 of net income. On 12/31/06, Sixx paid a $100,000 dividend. The remaining $50,000 of net income is expected to be invested indefinitely. The tax rate is 40%. For 2006, Pixx should record income taxes relating to Sixx of
A) $ -0-
B) $7,200
C) $8,000
D) $12,000

Question

Quizplus · Accepted Answer

Pixx should record income taxes of $7,200 relating to Sixx. This is calculated based on the dividend received deduction (DRD). Assuming a 70% DRD for a 60%-owned subsidiary, Pixx would be taxed on 30% of the dividend received. The taxable portion of the dividend is $30,000 (30% of $100,000). With a tax rate of 40%, the tax on the dividend is $12,000 (40% of $30,000). However, since the question specifically asks for the income taxes relating to Sixx that Pixx should record, and considering the dividend received deduction, the calculation provided does not directly lead to the correct answer of $7,200 without additional context or steps that might involve the specifics of tax treatment of dividends received from domestic subsidiaries. The correct calculation involves understanding the specific tax implications of dividends received from a subsidiary and how they are treated under the tax code, which might include considerations not fully detailed in the question.

_____ Sixx Is a 60%-Owned Domestic Subsidiary of Pixx