Denver Corporation Owns 25 Percent of the Voting Shares of Alamos

Multiple Choice

Denver Corporation owns 25 percent of the voting shares of Alamos Corporation. In 20X8, Alamos reported net income of $120,000 and paid dividends of $30,000. Denver uses the equity method to account for this investment. Denver reported taxable income of $160,000 on its separate operations and has an effective tax rate of 40 percent. There is an 80 percent exemption on intercompany dividends.
Based on the preceding information, income tax expense for Denver for the year 20X8 will be:

A) $67,000
B) $64,600
C) $64,000
D) $66,400