Question

Last year, your company had sales of $4,800,000 and cash operating expenses of $400,000. The firm received $80,000 in dividend income and paid $50,000 in dividends to its shareholders. Costs of goods sold came to $1,600,000 and the firm had $600,000 in depreciation expense. Your firm has $900,000 in long-term debt outstanding with a 5% interest rate. Calculate the firm’s tax liability.

Answer 1

Answer:

The firm’s tax liability at 21% = $469350

Explanation:

Given that:

Sales = $4,800,000

cash operating expenses = $400,000

Dividend income = $80,000

Payment to shareholders = $50,000

Costs of goods sold  = $1,600,000

Depreciation expense of the firm = $600,000

long-term debt outstanding  = $900,000

Interest rate = 5% of long-term debt outstanding

= 0.05 × $900,000

= $45000

We are to Calculate the firm’s tax liability.

Since 2018; Tax rate = 21%

So:

The firm’s tax liability at 21% = (Sales + Dividend income - cash operating expenses  -  Costs of goods sold - Depreciation expense of the firm - Interest rate) × 21 %

The firm’s tax liability at 21% =  ( $4,800,000 + $80,000 - $400,000 -  $1,600,000 - $600,000 - $45000 ) × 21 %

The firm’s tax liability at 21% = $(4880000 −2645000) × 0.21

The firm’s tax liability at 21% = $2235000 × 0.21

The firm’s tax liability at 21% = $469350