Question

2013 Corporate Tax Rates
If Your Taxable Income Is	You Pay This Amount on the Base of the Bracket	Plus This Percentage on the Excess over the Base (Marginal Rate)	Average Tax Rate at Top of Bracket
Up to $50,000	$0	15.0%	15.0%
$50,000 - $75,000	7,500	25.0	18.3
$75,000 - $100,000	13,750	34.0	22.3
$100,000 - $335,000	22,250	39.0	34.0
$335,000 - $10,000,000	113,900	34.0	34.0
$10,000,000 - $15,000,000	3,400,000	35.0	34.3
$15,000,000 - $18,333,333	5,150,000	38.0	35.0
Over $18,333,333	6,416,667	35.0	35.0

Quantitative Problem: Andrews Corporation has income from operations of $255,000. In addition, it received interest income of $25,500 and received dividend income of $32,000 from another corporation. Finally, it paid $10,700 of interest income to its bondholders and paid $45,900 of dividends to its common stockholders. Using the 2013 corporate tax schedule, what is the firm’s federal income tax? Round your intermediated and final answers to the nearest cent.
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Answer 1

Answer)

Important thing to note here is that Interest earnings are taxable along with any capital gain through investments as in the above case we have divident income

But Interest expence on debt is tax deductible, it act as a tax shield, but divident paid by company are still part of net earnings and are taxable

Income From Operations			$255000
Interest Income			$25500
Divident Income			$32000
Total Income			$312500
Interest Paid to Bondholders			$10700
Net Taxable Income			$301800
Income Tax			$139952

Net taxable income is 301800 which fall under the slab of $100,000 to $330,000