The Talley Corporation had taxable operating income of $385,000 (i.e., earnings from operating revenues minus all operating costs).

Corporate Tax Liability

The Talley Corporation had taxable operating income of $385,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $60,000, (2) dividends received of $25,000, and (3) dividends paid of $40,000. 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.

Solutions

Expert Solution

Taxable income=Operating income-interest expense+taxable part of divident recieved

Here taxable part of dividend recieved=50% of 25000=12500

1. Taxable income=385000-60000+12500

=337500

2. Tax expense= Taxable income*tax rate=337500*.21

=70875

3. After tax income=Operating income-Interest expense+Dividend recieved-Tax expense

=385000-60000+25000-70875

=279125

jeff jeffy answered 1 year ago

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