Question

The Talley Corporation had taxable operating income of $500,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $60,000, (2) dividends received of $20,000, and (3) dividends paid of $25,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. What is the firm’s taxable income? Round your answer to the nearest dollar. $ What is the tax expense? Round your answers to the nearest dollar. $ What is the after-tax income? Round your answers to the nearest dollar. $

Answer 1

1) Talley Corporation's taxable income is calculated below:

Taxable operating income $500,000

less: Interest expense ($60,000)

__________

operating income less interest $440,000

Add: Taxable dividend received $10,000

($20,000*50%) __________

Taxable income $450,000

2) Talley Corporation's tax expense is calculated below:

Income tax expense = Taxable income*tax rate

= $450,000*21%

= $94,500

3)Talley Corporation's after-tax income is calculated below:

After-tax income= Taxable income-Income tax expense

= $450,000-$94,500

=$355,500