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Coop Inc. owns 40% of Chicken Inc., both Coop and Chicken are corporations. Chicken pays Coop a dividend of $10,000 in the current year. Chicken also reports financial accounting earnings of $20,000 for that year. Assume Coop follows the general rule of accounting for investment in Chicken. What is the amount and nature of the book-tax difference to Coop associated with the dividend distribution (ignoring the dividends received deduction)?

Respuesta :

Karabo99

Answer:

The dividend for income tax is greater than the income as per the books, the difference is unfavourable and is $ 2000.

Explanation:

Coop inc. must take into consideration $ 10000 dividend for tax purposes.

on the books, the income is = $20000*40%

                                               = $ 8000

the difference = $ 10000 - $ 8000

                        = $ 2000

clearly, the dividend for income tax is greater than the income as per the books, the difference is unfavourable and is $ 2000.