Question

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)

Thank you in advanced :D

Answer 1

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

hope you got the answer, please comment for any clarification

Thankyou and all the best for future

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