Your corporation has the following cash flows: If the applicable income tax rate is 40 percent, and if 70 percent 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 percent, and if 70 percent 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 first calculate the taxable income.

Taxable income = Total cash flows - Exempt dividends

Total cash flows = R200,000 + R150,000 + R100,000 = R450,000

Exempt dividends = 70% of R100,000 = R70,000

Taxable income = R450,000 - R70,000 = R380,000

Now, we can calculate the tax liability:

Tax liability = Taxable income * Tax rate 
Tax liability = R380,000 * 40% = R152,000

Therefore, the answer is B) R88,400.

Your Corporation Has the Following Cash Flows: If the Applicable