Paradise Corporation owns 100% of Aldred Corporation, 90% of Balme Corporation, 80% of Calder Corporation, 75% of Dale Corporation, 20% of East Corporation, and 8% of Faber Corporation

Paradise, Aldred, Balme and Calder belong to an affiliated group. All of these corporations are domestic corporations. During 2014, Paradise Corporation reports net income of $1,500,000. This net income includes the full amount of dividends received from Aldred and Faber, but does not include the dividends received from Balme, Calder, Dale, and East Corporations. All investees have paid out all of their net income in the form of dividends. Paradise's share of the various dividend distributions is as follows:

From Aldred: $90,000
From Balme: $92,000
From Calder: $88,000
From Dale: $66,000
From East: $50,000
From Faber: $40,000

Required:
Calculate the correct amount of taxable income for Paradise Corporation if a consolidated tax return is filed.
What will be an ideal response?

Net income as reported: $1,500,000
Excludable amount of dividends included in net income:
Exclude 100% of Aldred dividends (90,000)
Exclude 70% of Faber dividends (28,000)
Includable amount of dividends not yet added to net income:
Include 20% of Dale dividends 13,200
Include 20% of East dividends 10,000
Taxable income $1,405,200

The dividends from Balme and Calder are excluded in full. This problem also emphasizes the dividend exclusion ratio applicable when the percentage of stock held is right on the dividing line between the different exclusion percentages. The 70% exclusion ratio applies for stock holdings less than 20% and the 80% exclusion ratio applies for holdings less than 80% but at least 20%.