Question

You are a shareholder in a C corporation. The corporation earns $1.76 per share before taxes. Once it has paid taxes, it will distribute the rest of its earnings to you as a dividend. Assume the corporate tax rate is 36%, and the personal tax rate on (both dividend and non-dividend) income is 20%. How much is left for you after all taxes are paid?

A) $0.92
B) $1.12
C) $1.44
D) $1.76

Answer 1

After applying a corporate tax of 36% and a personal tax rate of 20% on dividends, there would be approximately $0.90 left per share for the shareholder, which is not listed in the provided options.

Step-by-step explanation:

To calculate the amount left for a shareholder after all taxes are paid on a C corporation's dividends, we must first apply the corporate tax rate to the earnings per share and then apply the personal tax rate to the post-corporate-tax dividend amount received by the shareholder.

Step 1: Corporate tax calculation

$1.76 earnings per share * 36% corporate tax rate = $0.6336 taxes paid per share

$1.76 - $0.6336 = $1.1264 remaining per share after corporate taxes

Step 2: Personal tax calculation on dividends

$1.1264 per share after corporate tax * 20% personal tax rate on dividends = $0.22528 taxes paid per share by the shareholder

$1.1264 - $0.22528 = $0.90112 remaining per share after all taxes

The answer, rounded to the nearest cent, is $0.90 remaining per share after all taxes, which is not one of the provided options. Hence, there must be a miscalculation in the options given in the question.