Question

Corporate Tax Liability The Talley Corporation had taxable operating income of $340,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $50,000, (2) dividends received of $25,000, and (3) dividends paid of $35,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. What is the firm’s taxable income? Round your answer to the nearest dollar. $ What is the tax expense? Round your answers to the nearest dollar. $ What is the after-tax income? Round your answers to the nearest dollar. $

Answer 1

Taxable income:

Dividends received are 50% exempted from taxation. Taxable income is:

= Taxable operating income +(Dividends received * 50%) - Interest charges

= 340,000 + (25,000 * 50%) - 50,000

= $302,500

Tax expense:

= Taxable income * federal tax rate

= 302,500 * 21%

= $63,525

After-tax income:

= Taxable income - Tax expense

= 302,500 - 63,525

= $238,975