Question

Larry is the sole owner of Larry’s Moving Company, Incorporated (LMC). In one year, LMC collects $2,000,000 from customers to help them move. LMC’s equipment depreciates in value by $200,000. LMC pays $1,400,000 to its workers, who pay $500,000 in taxes on this income. LMC pays $175,000 in corporate income taxes and pays Larry a dividend of 100,000. Larry pays taxes of $50,000 on this dividend income. LMC retains $125,000 of earnings in the business to finance future expansion. How much does this economic activity contribute to each of the following? Compensation of Employees = $ Proprietors’ Income = Corporate Profits = $

Answer 1

LMC has paid $1,400,000 to its workers.

Payment made to workers' is termed as compensation of employees.

So,

Compensation of employees = $1,400,000

Larry is the owner of LMC. Larry is paid a dividend of $100,000. Being the owner, Larry is proprietor of business and has received $100,000.

So,

Proprietor's income = $100,000

Corporate profits = Corporate income taxes + Dividend paid + Retained earnings

Corporate profits = $175,000 + $100,000 + $125,000

Corporate profits = $400,000

So,

Corporate profits = $400,000