Coop Incorporated Owns 40percent of Chicken Incorporated

question 117

Multiple Choice

Coop Incorporated owns 40percent of Chicken Incorporated. 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) ?

• A)$2,000 unfavorable.
• B)$2,000 favorable.
• C)$10,000 unfavorable.
• D)$10,000 favorable.
• E)None of the choices is correct.

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