Question

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $5 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

Answer 1

$ 4,992,540

Step-by-step explanation:

In this question, we first need to know the steps to follow. We shall use the formula:

Taxable Income = (Sales - costs sales - operating expenses - Interest Expenses - Depreciation Expenses) + Dividend Income*30% + Capital Income from sale of Land

$ $

Sales 65,000,000

Cost of sales 15,000,000

Gross profit 50,000,000

Operating expenses (20,000,000)

Dividend Income 80,000

Less 70% excluded (56,000) 24,000

Add Capital Income from sale of Land

Sale 3,500,000

Cost 2,500,000 1,000,000

Less Interest Expenses (9%*25,000,000) (2,250,000)

Less depreciation Expenses (5,000,000)

Net Income 23,774,000

Assuming a tax rate of 21%,

Tax liability = .21* 23,774,000 = $ 4,992,540