Question

You own 100 shares of a "C" corporation. The corporation earns $4.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 20% and your personal tax rate on (both dividend and non-dividend) income is 20%, then how much money is left for you after all taxes have been paid?

Answer 1

Answer: $320

Explanation:

Given the following ;

Number of shares = 100

Earning per share = $4

Corporate tax rate = 20%

Individual tax rate(dividend and nin-dividend) = 20%

Income accrued by shareholders of a corporation are subjected to double taxation, first is the corporate tax paid by the corporation and then the personal tax paid individually after shareholders have received their dividend.

Total earning = earning per share × number of shares

Total earning = $4 × 100 = $400

Personal tax rate of 20% (dividend and non-dividend)

Tax amount = (20 ÷ 100) × $400

Tax amount = 0.2 × $400 = $80

Amount left after taxes = $400 - $80 = $320

Answer 2

Answer:

$320 left for me after all taxes have been paid.

Explanation:

Individual Tax is paid on dividend received from the investment in the shares. The corpporation declare the dividend after deducting the corporate tax.

Amount of Earning = Number of shares x Per share earning = 100 shares x $4per share = $400

Earning After tax = Amount of Earning x ( 1 - Individual Tax rate )

Earning After tax = $400 x ( 1 - 0.20 )

Earning After tax = $400 x 0.8

Earning After tax = $320