Question

The Dakota Corporation had a 2015 taxable income of $27,500,000 from operations after all operating costs but before (1) interest charges of $8,000,000; (2) dividends received of $700,000; (3) dividends paid of $5,000,000; and (4) income taxes.

a.	Use the tax schedule in Table 2.3 to calculate Dakota’s income tax liability. (Round your answer to the nearest dollar amount.)

Income tax liability

$

b.	What are Dakota’s average and marginal tax rates on taxable income? (Round your answers to the nearest whole percent.)

Average tax rate	%
Marginal tax rate	%

Answer 1

(a) Dakota Income tax Liability
The first 70% of the dividends received is not tax Taxable So the balance 30% is tax able.
Taxable income
Income Form Operations	3,33,65,000
Less: Interest charges	-8500000
Add: 30% of Dividend ($750,000*0.30)	225000
	2,50,90,000
Tax rate Applicable	35%
Tax Liability ($25,090,000*35%)	87,81,500
(b) Dakota Corp Average tax rate
Average tax rate =$8781,500/$25,090,000   *100 =35%
Dakota marginal tax rate =35%
if the Dakota earned a extra $1 , it has to pay 35 cents as a tax liability. So it marginal Tax rate is 35%