Question

Chapman & Power Incorporated is concerned about the taxes paid by the company. In addition to $146,000,000 of taxable income, the firm received $21,000,000 of interest on state-issued bonds and $17,500,000 of dividends on common stock it owns in Hunt Taxidermy. (Use corporate tax rate of 21 percent for your calculations.) Calculate Chapman & Power’s tax liability.

Answer 1

Chapman & Power Incorporated's tax liability is calculated by adding their taxable income of $146,000,000 with interest on state-issued bonds and dividends received, totaling $184,500,000. Multiplying this by the corporate tax rate of 21%, they incur a liability of $38,745,000.

Step-by-step explanation:

Chapman & Power Incorporated is evaluating their tax liability. To calculate this, we consider their taxable income, which is $146,000,000. Then, we note that certain types of income may be tax-exempt or taxed at different rates. However, the question provides a corporate tax rate of 21 percent and does not stipulate any exceptional treatment for interest on state-issued bonds or dividends, which suggests that these should be included in the taxable income. Thus, we will add the $21,000,000 of interest and the $17,500,000 of dividends to the taxable income, making the total income subject to tax $184,500,000. Applying the 21 percent tax rate:

Tax Liability = Taxable Income × Tax Rate = $184,500,000 × 21%
= $38,745,000

The firm's tax liability, therefore, would be $38,745,000.