Which of the following statements is CORRECT?
A) Retained earnings,as reported on the balance sheet,represent the amount of cash a company has available to pay out as dividends to shareholders.
B) 70% of the interest received by corporations is excluded from taxable income.
C) 70% of the dividends received by corporations is excluded from taxable income.
D) Because taxes on long-term capital gains are not paid until the gain is realized,investors must pay the top individual tax rate on that gain.
E) The corporate tax system favors equity financing,as dividends paid are deductible from corporate taxes.

Question

Quizplus · Accepted Answer

Statement a is false,because retained earnings represent the cumulative accrued value to shareholders that a firm has amassed.Statement b is false,because interest income does not benefit from tax exclusion.Statement c is true,because dividend income does benefit from tax exclusion.Statement d is false,because long-term capital gains are taxed at the L-T capital gains rate,which depends upon the investor's taxable income but is usually significantly lower than personal tax rates.Statement e is false,because the tax deductibility of interest paid shows the tax system favors debt financing.

Which of the Following Statements Is CORRECT