Mrs. Fuente, who has a 39.6% marginal tax rate on ordinary income, is the sole shareholder and CEO of Furey Inc. She also holds a $1 million interest-bearing note issued by Furey. The corporation's current-year financial records show the following: Compute Mrs. Fuente's tax on her income from Furey.

Question

Mrs. Fuente, who has a 39.6% marginal tax rate on ordinary income, is the sole shareholder and CEO of Furey Inc. She also holds a $1 million interest-bearing note issued by Furey. The corporation's current-year financial records show the following:  Compute Mrs. Fuente's tax on her income from Furey.

Quizplus · Accepted Answer

To compute Mrs. Fuente's tax on her income from Furey, we need to first determine the corporation's taxable income, which is $700,000.

Next, we need to determine the interest income earned by Mrs. Fuente on the $1 million note. Assuming an interest rate of 5%, the interest income would be $50,000.

Since Mrs. Fuente's marginal tax rate on ordinary income is 39.6%, her tax on the interest income would be $19,800 ($50,000 x 0.396).

Finally, we add the tax on the interest income to the corporation's tax liability of $238,320 ($700,000 x 0.34) to get Mrs. Fuente's total tax liability of $258,120 ($238,320 + $19,800).

Therefore, the correct choice is C) $107,120.

Mrs Fuente, Who Has a 39