Final answer:
To calculate Western Corporation's tax payment, first determine its taxable income by adjusting the sales revenue with expenses and other incomes or losses. This includes subtracting cost of goods sold, operating expenses, and interest, while adding dividend income and accounting for capital gains and losses on stock. The net income before taxes is $1.52 million, which is subject to the corporate tax rate to find the tax payment.
Step-by-step explanation:
To calculate the firm's tax payment, we need to determine its taxable income, which is its net income before taxes. This involves adding or subtracting various revenues and expenses from the sales revenue.
First, we have sales of $5 million, from which we subtract the cost of goods sold ($3 million) and operating expenses ($175,000), along with depreciation ($125,000). This gives us an operating income of $1.7 million. Then, we add other income, such as dividend income ($40,000) and subtract interest expenses ($200,000). As for the gains and losses from stock, the net effect is a loss of $20,000 ($40,000 gain minus $60,000 loss).
Operating Income: $5 million - $3 million - $175,000 - $125,000 = $1.7 million
Additional Income and Expense: $1.7 million + $40,000 (dividend) - $200,000 (interest) = $1.54 million
Net Capital Loss: $1.54 million - $20,000 (net stock gain/loss) = $1.52 million
This results in a net income before taxes of $1.52 million. To find the actual tax payment, we would need to apply the relevant corporate tax rate to this figure. Without the specific tax rate, we cannot calculate the exact tax payment, but this is how you would approach finding the net income subject to tax.