Question

The Talley Corporation had taxable operating income of $455,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $70,000, (2) dividends received of $5,000, and (3) dividends paid of $10,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt.
Required:
a. What is the firm’s taxable income?
b. What is the tax expense?

Answer 1

Answer:

a. What is the firm’s taxable income?

387.500

b. What is the tax expense?

81.375

Explanation:

You first need to determine Talley's taxable income:

Income after operating costs: $455,000

Less: Interest Expense             -$70,000

Plus: Taxable Dividends Received 2,500

                               .

Taxable Income:                         387.500

Federal tax rate                21%      

Tax expense                                    81.375