Question

Dix Company reported operating income (loss) before income tax in its first three years of operations as follows:

20X1 $ 100,000
20x2 (200,000)
20x3 240,000
Dix had no permanent or temporary differences between book income and taxable income in these years. Assume a 21% tax rate for all years, and assume there is no valuation allowance.
What amount of taxes does dix pay related to its 20x3 tax return?

Answer 1

Dix Company will pay $50,400 in federal corporate income taxes for the year 20x3, calculated by multiplying their taxable income of $240,000 by the tax rate of 21%.

Step-by-step explanation:

To calculate the amount of taxes Dix pays related to its 20x3 tax return, we need to consider its operating income for that year. As given, Dix Company reported an operating income of $240,000 in 20x3. There were no permanent or temporary differences between book income and taxable income, so the taxable income is also $240,000. With a tax rate of 21%, the taxes payable by Dix for 20x3 would be 21% of $240,000.

To calculate this, multiply 240,000 by 0.21 (21%), which equals $50,400. Thus, Dix will pay $50,400 in federal corporate income taxes for the year 20x3 assuming the tax rate remains constant at 21% and there are no tax credits or other adjustments that would affect the final tax payment.