Question

Shering Distributors Inc. At the end of the year, it earned $ 490,000 in pre-tax profit....

Shering Distributors Inc. At the end of the year, it earned $ 490,000 in pre-tax profit. Zig Manufacturing received $ 20,000 in bond interest and $ 20,000 in dividends from a 5% stake in Tank Industries Inc. Shering is in the 40% tax zone, and 70% of dividend income from Tank Industries shares is deductible from taxable income.
a. Calculate the tax on the company's operating profit.
b. Calculate the tax and post-tax amount related to interest income from Zig Manufacturing bonds.
c.Calculate the tax and post-tax amount of dividend income received from ordinary shares of Tank Industries Inc.
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Answer:

a)

Pre tax profit * tax rate = Tax on operating profit

$490,000 x 0.40 tax rate = $196,000

b)

c)

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