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In: Accounting

ABC Corporation Limited has A, B and C three owners, with 50%, 30% and 20% ownership...

ABC Corporation Limited has A, B and C three owners, with 50%, 30% and 20% ownership respectively. In a particular financial year, the total revenue of the corporation is $1,250,000, and the total cost is $500,000. In this financial year, 60% of the after tax net income is paid as dividends. Assuming (1) the company income tax rate is 25% and the personal income tax rate is 18%, (2) A, B and C do not have any other income from any other source, and (3) A, B and C each has a total amount of deductions and exemptions of $50,000, what is the income tax paid by the company and what is the personal income tax paid by A, B and C respectively?

Solutions

Expert Solution

Calculation of dividend paid by ABC Corp

Revenue 1250000
Less: Cost 500000
Profit before tax 750000
Less: Tax @ 25% 187500
Profit after tax 562500
Payout ratio 60%
Dividend 337500

Calculation of individual income tax

A B C
Dividend income (50:30:20) 168750 101250 67500
Less: Deductions 50000 50000 50000
Taxable income 118750 51250 17500
Tax @ 18% 21375 9225 3150

ekkarill92 answered 1 year ago
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