Mr. Longwood and Mrs. Kennett are the equal shareholders in LK Corporation. Both shareholders have a 39.6 percent marginal tax rate on ordinary income. LK's financial records show the following:

a. Compute the combined tax cost for LK, Mr. Longwood, and Mrs. Kennett attributable to LK's operations.
b. How would your computation change if the interest on the shareholder debt was $175,000 and LK paid no dividends?

Question

Mr. Longwood and Mrs. Kennett are the equal shareholders in LK Corporation. Both shareholders have a 39.6 percent marginal tax rate on ordinary income. LK's financial records show the following:
  
a. Compute the combined tax cost for LK, Mr. Longwood, and Mrs. Kennett attributable to LK's operations.
b. How would your computation change if the interest on the shareholder debt was $175,000 and LK paid no dividends?

Quizplus · Accepted Answer

The Answer of Mr. Longwood and Mrs. Kennett are the equal shareholders in LK Corporation. Both shareholders have a 39.6 percent marginal tax rate on ordinary income. LK's financial records show the following:
  
a. Compute the combined tax cost for LK, Mr. Longwood, and Mrs. Kennett attributable to LK's operations.
b. How would your computation change if the interest on the shareholder debt was $175,000 and LK paid no dividends?

Mr Longwood and Mrs