Parent Holding Company Sells Shares in Its Subsidiary Such That

question 42

Multiple Choice

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

---

Definitions:

Systematic Management

An approach to management focusing on procedures and techniques for increasing organizational efficiency and effectiveness.

Financial Incentive

Monetary rewards offered to individuals or groups to encourage desired behaviors or achieve specific performance targets.

Goals

Objectives or desired results that an individual or organization aims to achieve.

Objectives

Specific, measurable goals set by an individual or organization to achieve in a defined timeframe.