T Corp. manufactures Product A and reports the following results for the current year: Taxable income...
T Corp. manufactures Product A and reports the following results for the current year:
Taxable income $500,000
Federal income tax (21%) 105,000
Dividends paid in June 75,000
The following are included in taxable income:
Long-term capital gain $ 30,000
Short-term capital gain 10,000
Dividends from 52%-owned corporation 100,000
Excess charitable contribution from last year deducted this year 25,000
Jan. 1 E&P $125,000
Reasonable business needs 900,000
T Corp.’s accumulated E&P balance and its reasonable business needs on January 1 of the current year were $125,000. The firm can justify retaining $90,000 of current E&P to meet its reasonable business needs. What is T Corp.’s accumulated earnings tax liability?
Homework Answers
As per the given information:
T Corp's accumlated E & P balance as on january 1 of current year is: $ 125000
Out of these dividends are declared: $ 75000
Accumlated Balance in E & P : $50000
Firm's justifiable accumlated balance for the end of current year is: $215000(125000+90000)
Accumlated Balance in E & P after dividends paid: $50000
Current year profit to be retained: 165000
So, current year profit to be retained after payment of tax is $ 165000, then Profit before tax should be: 208861. Tax of 21% on $ 208861 is $ 43861, Profit after tax is: 165000
Tax liability is: $43861
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