Mrs. Ford, who has a 37% marginal tax rate, is the sole shareholder and CEO of Fast Inc. She also holds a $1 million interest-bearing note issued by Fast. The corporation's current-year financial records show the following: $\begin{array}{llr}
\text {Sales revenue } &\$1,879,000\
\text { Mrs. Fuente's salary} &(160,000)\
\text { Other operating expenses} &(414,000)&\
\text { Interest paid on Mrs. Fuente's note} &(60,000)\
\text { Dividend distributed to Mrs. Fuente } &(100,000)\
\end{array}$

Compute Fast's taxable income.

Question

Mrs. Ford, who has a 37% marginal tax rate, is the sole shareholder and CEO of Fast Inc. She also holds a $1 million interest-bearing note issued by Fast. The corporation's current-year financial records show the following: $\begin{array}{llr}
  \text {Sales revenue  } &\$1,879,000\
 \text {  Mrs. Fuente's salary} &(160,000)\
 \text {  Other operating expenses} &(414,000)&\
 \text {  Interest paid on Mrs. Fuente's note} &(60,000)\
 \text { Dividend distributed to Mrs. Fuente } &(100,000)\
\end{array}$

Compute Fast's taxable income.

Quizplus · Accepted Answer

Fast's taxable income is calculated by subtracting the operating expenses, Mrs. Fuente's salary, and the interest paid on her note from the sales revenue. This calculation does not include dividends distributed, as they are not deductible for the corporation. Therefore, the taxable income is $1,879,000 - $160,000 - $414,000 - $60,000 = $1,245,000.

Mrs Ford, Who Has a 37% Marginal Tax Rate, Is