Question

Andrews Corporation has income from operations of $253,000. In addition, it received interest income of $25,300 and received dividend income of $28,900 from another corporation. Finally, it paid $13,000 of interest income to its bondholders and paid $47,400 of dividends to its common stockholders. Using the 2013 corporate tax schedule, what is the firm’s federal income tax? Round your intermediated and final answers to the nearest cent. $

Answer 1

$107,122

Step-by-step explanation:

corporate tax rate during 2013 = 39.1%

Andrews Corporation net taxable income:

• from operations $253,000
• from interests $25,300
• from dividends $28,900 - dividends received deductions $20,230 = $8,670

Deductions on net taxable income*:

• interest paid to bondholders = $13,000

Net taxable income = $286,970 - $13,000 = $273,970

federal income tax = $273,970 x 39.1% = $107,122

*Dividends are paid with retained earnings which include after tax net income. They are not tax deductible.