Your corporation has the following cash flows: If the applicable income tax rate is 40% (federal and state combined),and if 70% of dividends received are exempt from taxes,what is the corporation's tax liability?

Question

Your corporation has the following cash flows:  ​ If the applicable income tax rate is 40% (federal and state combined),and if 70% of dividends received are exempt from taxes,what is the corporation's tax liability?

Quizplus · Accepted Answer

To calculate the corporation's tax liability, we need to find the taxable income first. The taxable income can be calculated as follows:

Revenue - Expenses = Taxable Income
$560,000 - $418,000 = $142,000

Now, we need to subtract the dividends received from this taxable income, but only 30% of dividends received are taxable (since 70% are exempt). We can calculate the taxable dividends as follows:

Dividends Received x (1 - Exempt Percentage) = Taxable Dividends
$60,000 x (1 - 0.7) = $18,000

Therefore, the taxable income after subtracting the taxable dividends is:

Taxable Income - Taxable Dividends = Taxable Income After Dividends
$142,000 - $18,000 = $124,000

Now, we can calculate the corporation's tax liability using the applicable tax rate of 40%, which is:

Taxable Income After Dividends x Applicable Tax Rate = Tax Liability
$124,000 x 0.4 = $49,600

So, the corporation's tax liability is $49,600. However, we need to remember that the question asks for the tax liability, not the total taxes paid. So, we need to subtract the tax credits (if any) from the tax liability to get the final answer. In this case, there is no mention of any tax credits, so the answer is:

Tax Liability = $49,600
Answer: B

Your Corporation Has the Following Cash Flows: ​ If

Your Corporation Has the Following Cash Flows: If