Question

Last​ year, Shering Corporation had pretax earnings from operations of $ 493 comma 000. In​ addition, it received $ 28 comma 000 in income from interest on bonds it held in Zig Manufacturing and received $ 28 comma 000 in income from dividends on its 5 % common stock holding in Tank​ Industries, Inc. Shering is in the 21 % tax bracket and is eligible for a 50 % dividend exclusion on its Tank Industries stock.
a. Calculate the​ firm's tax on its operating earnings only.
b. Find the tax and the​ after-tax amount attributable to the interest income from Zig Manufacturing bonds.
c. Find the tax and the​ after-tax amount attributable to the dividend income from the Tank​ Industries, Inc., common stock.
d.​ Compare, contrast, and discuss the​ after-tax amounts resulting from the interest income and dividend income calculated in parts b. and c.
e. What is the​ firm's total tax liability for the​ year?

Answer 1

Answer:

(A) Operating income expense   103,530

(B) Bonds income tax expense       5,880

(C) Dividends income tax expense 2,940

(D)

The dividends come from earnings of another ifrn, which had been taxes already, so this exclusion decreases the double taxation.

While the bonds income are entirely subject to taxes as they haven't been taxed before.

(E) no tax liability, as his is a pernament difference it will not be reverse.

Explanation:

493,000 operating

28,000 bonds

28,000 dividends

The firm tax on operating earnings only:

493,000 x 21% = 103,530

bonds:

28,000 x 21% = 5,880

DIvidends

28,000 - 50% = 14,000

14,000 x 21% = 2,940