Question

Problem 3-18 (similar to) (Computing income taxes) Sandersen Ino. sells minicomputers. During the past year, the company's sales were $3.06 million. The cost of its merchandise sold came to $1.85 million, and cash operating expenses were $370,000; depreciation expense was $92,000, and the firm paid $142,000 in interest on its bank loans. Also, the corporation paid $25,000 in the form of dividends to its own common stockholders. Calculate the corporation's tax liability by using the corporate tax rate structure in the popup window, E The corporation's tax liability is $. (Round to the nearest dollar.)

Answer 1

Calculation of corporation's tax liability
Sales	$3,060,000.00
Less : Cost of merchandise sold	$1,850,000.00
Gross Profit	$1,210,000.00
Less : Cash operating expenses	$370,000.00
Less : Depreciation	$92,000.00
Earnings before interest and taxes	$748,000.00
Less : Interest expense	$142,000.00
Earnings before taxes	$606,000.00
Tax @ 34% on $606000	$206,040.00
Corporation tax liability =	$206,040.00
Note :
As the pre tax income of Sandersen Inc.comes in the bracket of $75001 - $10,000,000 , hence tax rate applicable is 34%