Answer:
(a) The firm's Income tax liability is $59,771.25.
(b) The firm's after-tax income is $233,478.75.
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows
The Talley Corporation had a taxable income of $345,000 from operations after all operating costs but before (1) interest charges of $69,000, (2) dividends received of $17,250, (3) dividends paid of $20,700, and (4) income taxes. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall 50% of dividends received are tax exempt. What are the firm's income tax liability and its after-tax income?
The explanation to the anwer is now given as follows:
Adjusted taxable income = Income after operation - Interest charges + Taxable dividend received ................. (1)
Where;
Income after operation = $345,0000
Interest charges = $69,000
Taxable dividend received = 50% * $17,250 = $8,625
Substituting the values into equation (1), we have:
Adjusted taxable income = $345,000 - $69,000 + $8,625 = $284,625
(a) Income tax liability = Adjusted taxable income * Tax rate = $284,625 * 21% = $59,771.25
(b) After-tax income = (Adjusted taxable income - Income tax liability) + (50% of dividend received) = ($284,625 - $59,771.25) + (50% * $17,250) = $224,853.75 + $8,625 = $233,478.75
