Question

ST2–1 Corporate taxes Montgomery Enterprises, Inc., had operating earnings of
$280,000 for the year just ended. During the year, the firm sold stock that it held in
another company for $180,000, which was $30,000 above its original purchase price
of $150,000, paid 1 year earlier.
a. What is the amount, if any, of capital gains realized during the year?
b. How much total taxable income did the firm earn during the year?
c. Use the corporate tax rate schedule given in Table 2.1 to calculate the firm’s
total taxes due.
d. Calculate both the average tax rate and the marginal tax rate on the basis of
your findings.

Answer 1

We can calculate the desired result as follows:

Operating Earnings = $ 280,000

A) Capital gain realised during the year = Selling price of stocks - purchase price of stocks

= 180,000 - 150,000

= $ 30,000

B) Total taxable income = Operating Earnings + Capital Gain on sale of shares

= 280,000 + 30,000

= $ 310,000

As the details of the corporate tax rate schedule are not mentioned. So I have solved the above 2 parts.