Question

The Talley Corporation had taxable operating income of $380,000 (i.e., earnings from operating revenues minus all operating costs). Talley also had (1) interest charges of $40,000, (2) dividends received of $15,000, and (3) dividends paid of $25,000. Its federal tax rate was 21% (ignore any possible state corporate taxes). Recall that 50% of dividends received are tax exempt. What is the firm’s taxable income? Round your answer to the nearest dollar. $ 380,000 What is the tax expense? Round your answers to the nearest dollar. $ What is the after-tax income? Round your answers to the nearest dollar.

Answer 1

1]	Taxable operating income	$ 380,000
	Less: Interest charges	$           40,000
	Add: Taxable portion of dividends = 15000*50% =	$             7,500
	Taxable income	$ 347,500
2]	Tax expense = 347500*21% =	$           72,975
3]	Operating income	$ 380,000
	Add: Dividend income	$           15,000
	Less: Interest charges	$           40,000
	Income before taxes	$ 355,000
	Tax expense [as calculated at (2) above]	$           72,975
	After tax income	$ 282,025