Please, explain and show steps. The Federal Income Tax System Problem 6-7 Corpor
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Question
Please, explain and show steps.
The Federal Income Tax System
Problem 6-7 Corporate Tax Liability
To complete the assignments listed below, refer to the Table 2-1.
The Talley Corporation had a taxable income of $350,000 from operations after all operating costs but before: (1) interest charges of $70,000, (2) dividends received of $10,500, (3) dividends paid of $14,000, and (4) income taxes. What are the firm's income tax liability and its after-tax income? Round your answers to two decimal places.
Income tax liability =$
After-tax income =$
What are the company's marginal and average tax rates on taxable income? Round your answers to two decimal places.
Marginal tax rate =%
CengageBrain-My Home × , MindTap-Cengage learn Table2-1.jpg (802x350) x The Talley Corporation ha Stanley- x cnow.apps.ng.cengage.com/ilrn/books/bdif12h/images/Table2-1.jpg ABP li Apps Aol. AOL Mail Gmail WSNY Times Y Yahoo Finance N Newsweek in Linkedln w Wells FargoRegions BanksBank of America C Home | Chegg.com P MyAccountinglabCengageBrain BbBlackboard FaithChapel.tv TABLE 2-1 Corporate Tax Rates as of January 2012 If a Corporation's Taxable Income Is It Pays This Amount on the Base of the Bracket Plus This Percentage on the Excess Over the Base Average Tax Rate at Top of Bracket Up to $50,000 $50,000-$75,000 $75,000-$100,000 $100,000-$335,000 $335,000-$10,000,000 $10,000,000-$15,000,000 $15,000,000-$18,333,333 Over $18,333,333 $0 $7,500 $13,750 $22,250 $113,900 $3,400,000 $5,150,000 $6,416,667 15% 25 34 39 34 35 38 35 15.0% 18.3 22.3 34.0 34.0 34.3 35.0 35.0 © Cengage-earning 2014Explanation / Answer
1) Calculation of firm's Income tax liability and after tax income :
Given taxable income = $350,000
Add: Dividend received = $10,500
Less: Interest paid =($70,000)
Correct taxable income = $290,500
Less:Income tax liability = ($96,545) **(50000*15%+25000*25%+25000*34%+190500*39%)
After tax income = $193955
Note : Since dividend is a non deductible expenditure we should not deduct it from taxable income.
2) Company's marginal and average tax rates :
Average tax rate = 96545/290500 = 33.23%
Marginal tax rate = 39% (Highest tax bracket for additional dollar income)