Question

Corporations earn most of their income from operations; however, they may also receive interest and dividend income. income is taxed as ordinary income; however, income is taxed more favorably. 50% of received is excluded from taxable income, while the remaining 50% is taxed at the ordinary tax rate. For businesses, payments are regarded as an expense so they are tax deductible; however, payments are not tax deductible. Consequently, our tax system encourages financing over financing. Depreciation expense is tax deductible, so the larger the depreciation, the the taxable income, the the taxes, and the the firm's operating cash flow.

Quantitative Problem: Andrews Corporation has income from operations of $232,000. In addition, it received interest income of $23,200 and received dividend income of $32,600 from another corporation. Finally, it paid $9,000 of interest income to its bondholders and paid $45,900 of dividends to its common stockholders. The firm's federal tax rate is 21%. What is the firm's federal income tax? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 1

Calculation of Taxable Income
Income from opertaions	$ 232,000.00
Interest Income	$    23,200.00
Dividend Income(50% of 32,600)	$    16,300.00
Interest Paid	$    (9,000.00)
Taxable Income	$ 262,500.00
NOTE : Dividend paid do not reduce your tax liability.
Tax is charged flat 21% as given in the question
Tax Liability = Taxable Income*21%
= 262500*21%	= $    55,125.00
Therefore tax liability is $55,125.00

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