In the current year, red corporation (a calendar year c corporation), which owns stock in blue corporation, had net operating income of $200,000 for the year. blue pays red a dividend of $40,000. red takes a dividends received deduction of $20,000. which of the following statements is correct? a. red owns 80% of blue corporation. b. red owns 20% or more, but less than 80% of blue corporation. c. red owns 80% or more of blue corporation. d. red owns less than 20% of blue corporation. e. none of these choices are correct.

The correct statement or the option is D

Explanation:

The Corporation which follows a C corporation calendar year, owns the stock in Blue Corporation. And the Blue pays the dividend of $40,000 to Red but Red take a deduction $20,000 of the dividend received.

So, Red's dividend received deduction is % of the dividend received:

= $20,000 / $40,000

= 50%

The 50% dividends received deduction applies when the ownership is less than 20%. Therefore, Red posses less than 20% of Blue Corporation.

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is this good enough?