Question

Interest versus dividend income Last year, Shering Corporation had pretax earnings from operations of $485,000. In addition, it received S28,000 in income from interest on bonds it heid in Zig Manufacturing and a. Calculate the firm's tax on its operating eamings only b. Find the tax and the after-tax amount attributable to the interest income from Zig Manufacturing bonds c. Find the tax and the after-tax amount attributable to the dividend income from the Tank Industries, Inc., common stock. d. Compare, contrast, and discuss the after-tax amounts resulting from the interest income and dividend income calculated in parts b. and c. e. What is the firm's total tax liability for the year? a. The tax on operating eamings is $ (Round to the nearest dollar) b. Complete the table below to compute the tax and the after-tax amount attributable to the interest income: (Round to the nearest dollar.) Interest Income Before-tax amount Less: Applicable exclusion Taxable amount Tax (21% ) After-tax amount c. Complete the table below to compute the tax and the after-tax amriount attributable to the dividend inoome: (Round to the nearest dollar.) Dividend Income Before-tax amount Less: Applicable exclusion Taxable amount Tax (21%)

Answer 1

A В C E G J K L M a) 2 Tax on operating earnings Pretax operating earnings* Tax rate $485,000 21% = $101,850. 4 5 6 b) 7 Interest income Before tax amount 8 28000 Less: Applicable exclusion Taxable amount Tax (21%) 9 0 10 28000 11 5880 After tax amount 12 22120 13 14 c) Dividend income 15 Before tax amount 16 28000 Less: Applicable exclusion Taxable amount Tax (21%) 17 14000 18 14000 19 2940 20 After tax amount 25060 21 22 d) The after tax amount of dividend received, $25,060, exceeds the after tax amount of interest,$22,120, due to the 50% corporate dividend exclusion 23 24 25 e) 26 Total tax liability Tax on Operating earnings Tax on interest income Tax on dividend income 27 = $101,850 $5,880 $2,940 = $110,670 28 I FL

EXCEL FORMULA:

A В C 6 b) 7 Interest income Before tax amount Less: Applicable exclusion Taxable amount |Таx (21%) After tax amount 28000 0 9 10 ЕC8-C9 C10*21% 11 12 C10-C11 13 14 c) 15 Dividend income Before tax amount Less: Applicable exclusion Taxable amount Tax (21%) After tax amount 28000 16 -C16*50% 17 18 ЕC16-С17 19 C18*21% 20 C16-C19 21 LC