Question

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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.

$

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 2 years ago

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