Corporate Taxes Scuba, Inc. is concerned about the taxes paid by the company in
ID: 2704831 • Letter: C
Question
Corporate Taxes Scuba, Inc. is concerned about the taxes paid by the company in 2008. In addition to $5 million of taxable income, the firm received $80,000 of interest on state-issued bonds and $500,000 of dividends on common stock it owns in Boating Adventures, Inc. What is Scuba's tax liability, average tax rate, and marginal tax rate, respectively? $1,637,100, 31.788%, 34% $1,751,000, 34%, 34% $1,983,900, 36.07%, 34% $1,870,000, 34%, 34% $1,637,100, 31.788%, 34% $1,751,000, 34%, 34% $1,983,900, 36.07%, 34% $1,870,000, 34%, 34% $1,637,100, 31.788%, 34% $1,751,000, 34%, 34% $1,983,900, 36.07%, 34% $1,870,000, 34%, 34%Explanation / Answer
B. $1,751,000, 34.00%, 34%---------correct answer
============================================================================
In this case, interest on the state-issued bonds is not taxable and should not be included in taxable income. Further, the first 70 percent of the dividends received from Boating Adventures is not taxable. Thus, only 30 percent of the dividends received are taxed, so: Taxable income = $5,000,000 + (.3)$500,000 = $5,150,000
Now Scuba's tax liability will be: Tax liability = $113,900 + .34 ($5,150,000 - $335,000) = $1,751,000
The $500,000 of dividend income increased Scuba's tax liability by $51,000 (= (.3) x $500,000 x (.34))
. Scuba's resulting average tax rate is now: Average tax rage = $1,751,000/$5,150,000 = 34.00%
Finally, if Scuba earned $1 more of taxable income, it would still pay 34 cents (based upon its marginal tax rate of 34 percent) more in taxes