Bronco Corporation realizes $270,000 from sales during the current year. Bronco also receives $20,000 of dividends from a 2% owned corporation. Operating expenses totals $275,000. Bronco's taxable income is
A)$(15,000)
B)$(5,000)
C)$5,000
D)$7,500
E)$15,000

Question

Quizplus · Accepted Answer

Bronco's taxable income is calculated by adding its sales revenue to its dividend income and then subtracting its operating expenses. Sales revenue is $270,000, dividend income is $20,000, and operating expenses are $275,000. Therefore, taxable income is $270,000 + $20,000 - $275,000 = $15,000. However, since the dividends are received from a corporation in which Bronco has less than 20% ownership, the dividends received deduction applies, which is generally 50% of the dividends received. Thus, the taxable portion of the dividends is $10,000 (50% of $20,000). The taxable income then becomes $270,000 + $10,000 - $275,000 = $5,000. However, this calculation did not account for the dividends received deduction correctly in the context of taxable income calculation. The correct taxable income should consider the gross income (sales plus dividends) minus expenses, and then apply any specific deductions or credits. Given the options and the mistake in the explanation, the correct taxable income considering the dividends received would still be closer to the options provided, but the explanation provided was incorrect in the calculation process. The correct approach to find the taxable income would involve considering the dividends as part of the gross income and then subtracting the operating expenses. The dividends received deduction would typically be applied in the calculation of taxable income, but the net effect in this scenario, given the options, was misinterpreted in the explanation. The correct taxable income, without specific tax code exceptions or deductions beyond what's provided, would be more straightforwardly calculated as income minus expenses.

Bronco Corporation Realizes $270,000 from Sales During the Current Year