A Parent Holding Company Sells Shares in Its Subsidiary Such

question 1

Multiple Choice

A parent holding company sells shares in its subsidiary such that the parent now owns only 65% of the subsidiary and,thus,the tax returns of the parent and its subsidiary can't be consolidated.The parent receives annual dividends from the subsidiary of $2,500,000.If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%,what is the effective tax rate on the intercompany dividends,and how much net dividends are received?

• A) 10.2%;$2,245,000
• B) 10.2%;$2,135,000
• C) 23.8%;$1,905,000
• D) 10.2%;$1,750,000
• E) 34.0%;$1,650,000

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