Question

Assume that Clampett, Inc., has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. Assume that Clampett, Inc., has $1,000 of earnings and profits from prior C corporation years and that the corporate tax rate is 21 percent. Clampett, Inc.'s taxable income would have been $122,000 this year if it had been a C corporation. What is Clampett, Inc.'s excess net passive income tax?

Answer 1

Clampett, Inc. does not have excess net passive income tax as its net passive income is negative.

Step-by-step explanation:

To calculate Clampett, Inc.'s excess net passive income tax, we need to determine the net passive income and apply the appropriate tax rate. Net passive income is calculated by subtracting the deductible expenses from the passive income. In this case, the passive income includes interest income and dividends ($60,000 + $40,000 = $100,000), and the deductible expenses include cost of goods sold ($150,000).

Net passive income = passive income - deductible expenses = $100,000 - $150,000 = -$50,000.

Since the net passive income is negative, there is no excess net passive income tax. The corporate tax rate of 21 percent is only applied to positive net passive income.

Answer 2

$21,000

Step-by-step explanation:

Data provided in the question:

Sales = $200,000

Cost of goods sold = $150,000

Interest income = $60,000

Dividends = $40,000

Earnings and profits = $1,000

Tax rate = 21%

Taxable income = $122,000

Now,

Net Passive income tax = Net passive income × Tax rate

or

= ( Interest income + Dividends ) × 0.21

= ( $60,000 + $40,000 ) × 0.21

= $21,000