A corporation pays taxes at the flat rate of 40% and has operating profit of $1 million. It pays interest of $200,000 and dividends of $300,000 to its investors. All investors share the same tax
Rates: 35% on interest income and 15% on dividend income. What are the total taxes collected
By the government?

Question

Quizplus · Accepted Answer

First, we need to calculate the corporation's taxable income: 
Operating profit = $1,000,000 
Interest paid = $200,000 
Dividends paid = $300,000

Taxable income = $1,000,000 - $200,000 - $300,000 = $500,000

Now, we can calculate the corporation's tax liability: 
Taxable income = $500,000 
Tax rate = 40%

Tax liability = $500,000 x 40% = $200,000

Next, we need to calculate the tax on the investors' income:

Interest income tax = $200,000 x 35% = $70,000 
Dividend income tax = $300,000 x 15% = $45,000

Total tax collected by the government = $200,000 + $70,000 + $45,000 = $315,000

Therefore, the best choice is B.

A Corporation Pays Taxes at the Flat Rate of 40