1. ABC Corporation receives $10,000 dividend income from its equity investment in DEF Corporation. ABC is...

1. ABC Corporation receives $10,000 dividend income from its equity investment in DEF Corporation. ABC is in the 34% marginal tax bracket. The tax on dividend income would amount to: a. $900 b. $3,000 c. $1,020 d. $3,400

2. ABC Corporation’s revenue from sales is $250,000; its COGS is $100,000; its SG&A is $50,000; its interest expense is $20,000; it pays $20,000 as cash dividends. How much is the firm’s income taxes? (Corporate marginal tax rate is $0-50,000: 15%; $50,000-75,000: 25%; $75,000-100,000: 34%; $100,000-335,000: 39%) a. $15,450 b. $10,000 c. $27,200 d. $15,000

Solutions

Expert Solution

1. Tax on dividends = 10,000 * 34% *30% = $1020

2. Option a, $15450

Taxable income = 250,000 - 100,000 - 50,000 - 20,000 = 80,000

Tax of first 50,000 - 50,000 *15% = 7500

Tax on next 25,000 - 25,000 *25% = 6250

Tax on 5000 ( 80000- 75000) = 5000 *34% = 1700

Income taxes to be paid = 7500 + 6250 + 1700 = 15450

jeff jeffy answered 1 year ago

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