Question

# Griffey Communications recently realized \$125,000 in operating income. The company had interest income of \$25,000 and...

Griffey Communications recently realized \$125,000 in operating income. The company had interest income of \$25,000 and realized \$70,000 in dividend income. The company’s interest expense was \$40,000.

 Taxable Income Tax on Base of Bracket Percentage on Excess above Base (%) Up to \$50,000 0 15 50,000-75,000 7,500 25 75,000-100,000 13,750 34 100,000-335,000 22,250 39 335,10,000,000 113,900 34 10,000,000-15,000,000 3,400,000 35 15,000,000-18,333,333 5,150,000 38 Over 18,333,333 6,416,667 35

Using the corporate tax schedule above, what is Griffey's tax liability?

(please explain where you got numbers/any formula's used)

Operating Income = \$125,000

Interest Expense= \$40,000

Interest Income= \$25,000

Dividend Income = \$70,000

Dividend Exclusion= 70% (as per rule, which can be exempted)

Taxable Income= Operating Income - Interest Expense + Interest Income + Taxable Dividend Income (\$70,000*30%)

=\$125,000 - \$40,000 + \$25,000 + \$21,000

=\$131,000

Tax on base= \$22,250

Tax on Excess Base (\$131,000-\$100,000)= \$31,000*39%

=\$12,090

Total Tax Liability= \$22,250 + \$12,090

=\$34,340

Thankyou and all the best for future

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