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The Talley Corporation had a taxable income of $300,000 from operations after all operating costs but...

The Talley Corporation had a taxable income of $300,000 from operations after all operating costs but before (1) interest charges of $30,000, (2) dividends received of $15,000, (3) dividends paid of $24,000, and (4) income taxes.

What are the firm's income tax liability and its after-tax income? Round your answers to two decimal places.

Income tax liability	$
After-tax income	$

What are the company's marginal and average tax rates on taxable income? Round your answers to two decimal places.

Marginal tax rate	%
Average tax rate	%

Expert Solution

First let’s calculate Talley's taxable income in following manner

Income after all operating costs - $300,000

Less: Interest charges - $30,000

Plus: Taxable Dividends received (30% of total dividend) - $4,500

Taxable Income- $274,500

Now calculate your tax liability (Refer the Corporate Tax Rates schedule)

$274,500 falls into the $100,000 to $335,000 tax bracket which has 39% of tax rate

Therefore the corporate tax = Base Amount + marginal tax rate * difference between taxable income - lower base

= $22,250 + 39% ($274,500 - $100,000)

= $22,250 + $ 68,055

= $90,305

Therefore Income tax Liability is $90,305

After-tax income = Taxable income - Income tax Liability

=$274,500 - $90,305

= $184,195

The company's marginal and average tax rates on taxable income are -

Talley's marginal tax rate is 39.00% as its taxable income $274,500 falls into the $100,000 to $335,000 tax bracket which has 39% of marginal tax rate.

Talley's average tax rate = Talley's Income tax Liability / Talley's Taxable income

Average Tax Rate = $90,305 / $274,500 = 32.90%

jeff jeffy answered 2 years ago

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