Question

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $8 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

$4,620,000

$4,382,700

$4,155,900

$4,147,500

$4,365,900

Answer 1

Considering the tax rate to be 21%, we can calculate the tax liability as follows:

Sales (A)	$ 65,000,000
Cost of goods sold (B)	$ 15,000,000
Gross Profit (C = A - B)	$ 50,000,000
Operating Expense (D)	$ 20,000,000
Operating Income (E = C - D)	$ 30,000,000
Dividend Income ($80,000 * 50%) (F)	$ 40,000
Interest Expense ($25 million * 9%) (G)	$ 2,250,000
Depreciation Expense (H)	$ 8,000,000
Capital Gain ($3.5 million - $2.5 million) (I)	$ 1,000,000
Net Income (J = E + F + J - G - H)	$ 20,790,000
Tax Rate	21%
Tax Liability ( J * 21%)	$ 4,365,900

So, the Tax Liability comes out to be $ 4,365,900.