Question

Hyram Company, which is located in State A, had an average annual payroll of $850,000 for the three 12-month periods ending on June 30, 2014 (the computation date for the tax year 2015). As of June 30, 2014, the total contributions that had been made to Hyram Company's reserve account, in excess of the benefits charged, amounted to $17,440. Compute the following, showing steps:

a.Smallest contribution that the company can make in order to reduce its tax rate if State A permits voluntary contributions.

b. Tax savings realized by the company, taking into consideration the voluntary contribution made in (c) if the taxable payroll in 2015 is $980,000.

Answer 1

The smallest contribution that Hyram Company can make to reduce its tax rate is $8,500. The tax savings realized by the company, taking into consideration the voluntary contribution, is $9,800 if the taxable payroll in 2015 is $980,000.

Step-by-step explanation:

In order to calculate the smallest contribution that Hyram Company can make to reduce its tax rate, we need to determine the tax rate reduction that can be achieved with a given contribution. To do this, we can use the formula:

Contribution / Taxable Payroll x Tax Rate = Tax Rate Reduction

Let's assume that State A has a tax rate of 10%. We can plug in the values to calculate the smallest contribution:

Contribution / $850,000 x 0.10 = 0.01 (Tax Rate Reduction)

Solving for Contribution:

Contribution = $850,000 x 0.01 = $8,500

Therefore, the smallest contribution that Hyram Company can make to reduce its tax rate is $8,500.

To calculate the tax savings realized by the company, we can use the formula:

(Taxable Payroll x (Original Tax Rate - New Tax Rate)) / 100 = Tax Savings

Let's assume that the original tax rate is 10% and the new tax rate after the voluntary contribution is 9%. We can plug in the values to calculate the tax savings:

($980,000 x (10 - 9)) / 100 = $9,800

Therefore, the tax savings realized by the company is $9,800.

Answer 2

a. 1,260

b. $1,680

Step-by-step explanation:

a. The computation of contribution needed is shown below:-

Contribution needed = Balance needed to qualify for 4.6% rate - Actual balance

= $18,700 - $17,440

= $1,260

b. The computation of tax savings realized is shown below:-

Tax savings realized = Tax without voluntary contribution - Tax with voluntary contribution - Amount of voluntary contribution

($980,000 × 4.9%) - ($980,000 × 4.6%) - $1,260

= $48,020 - $45,080 - $1,260

= $1,680