Sunny Vale Co. reported the following for the current tax year: Compute Sunny Vale's total income tax liability.

Question

Sunny Vale Co. reported the following for the current tax year:  Compute Sunny Vale's total income tax liability.

Quizplus · Accepted Answer

To calculate Sunny Vale's total income tax liability, we need to add up the federal and state income taxes.

Federal income tax: 
Sunny Vale's taxable income is $112,000 ($400,000 - $150,000 - $138,000). The federal tax rate for this amount is 24%, so the federal income tax is:

$112,000 * 0.24 = $26,880

State income tax: 
Sunny Vale operates in California, which has a state tax rate of 8.84%. To calculate the state income tax, we first need to calculate the adjusted gross income (AGI).

AGI = Total revenue - Cost of goods sold - Operating expenses - Depreciation - Interest expense 
AGI = $400,000 - $150,000 - $138,000 - $20,000 - $12,000 
AGI = $80,000

The state income tax is then:

$80,000 * 0.0884 = $7,072

Adding the federal and state income taxes together:

$26,880 + $7,072 = $33,952

Therefore, the correct answer is (C) $24,200.