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23 June, 04:16

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) ?

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  1. 23 June, 06:49
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    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.
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