Question

The Wendt Corporation reported $30 million of taxable income. Its federal tax rate was 21% (ignore any possible state corporate taxes).

1. What is the company's federal income tax bill for the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

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2. Assume the firm receives an additional $3 million of interest income from some bonds it owns. What is the additional tax on this interest income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

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3. Now assume that Wendt does not receive the interest income but does receive an additional $3 million as dividends on some stock it owns. Recall that 50% of dividends received are tax exempt. What is the additional tax on this dividend income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

Answer 1

a. Taxable Income = $30,000,000

Federal Income Tax @21% = $30,000,000 * 21% = $6,300,000

b. Additional Income = $3,000,000

Federal Income Tax @21% on additional income = $3,000,000 * 21% = $630,000

c. Additional Income = $3,000,000

Less: Dividend received deduction = $1,500,000

Additional Taxable Income = $1,500,000

Federal Income Tax @21% on additional income = $1,500,000 * 21% = $315,000

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