Question

Company G, which has a 35 percent marginal tax rate, owns a controlling interest in Company J, which has a 15 percent marginal tax rate. Both companies perform engineering services. Company G is negotiating a contract to provide services for a client. Upon satisfactory completion of the services, the client will pay $104,000 cash. a. Compute the after-tax cash from the contract assuming that Company G is the party to the contract and provides the services to the client. b. Compute the after-tax cash from the contract assuming that Company J is the party to the contract and provides the services to the client. c. Compute the after-tax cash from the contract assuming that Company J is the party to the contract, but Company G actually provides the services to the client. Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the after-tax cash from the contract assuming that Company J is the party provides the services to the client. (Negative amount should be indicated by minus After-tax cash flow for Company G $ 36,400 < Required B Required C

Company G, which has a 35 percent marginal tax rate, owns a controlling interest in Company J, which has a 15 percent marginal tax rate. Both companies perform engineering services. Company G is negotiating a contract to provide services for a client. Upon satisfactory completion of the services, the client will pay $104,000 cash.

1. Compute the after-tax cash from the contract assuming that Company G is the party to the contract and provides the services to the client.
2. Compute the after-tax cash from the contract assuming that Company J is the party to the contract and provides the services to the client.
3. Compute the after-tax cash from the contract assuming that Company J is the party to the contract, but Company G actually provides the services to the client.

Answer 1

Answer :- company G has marginal tax robe 35%. Han eruperose tax rate 15%. marginal company J has Requirement o Given that company G is party tho to the contract and provides services to the client here tax expense by company o is = $ 104000 x 35%. = 36400 then we subtract the tax expense forom. tax mcome we get after tax income after tar ancame] =$104000 - $36400 after tax cach J = $67,600 Requirement @r Criven that company J is a party to the contract and provides the services to the client here tax expense by company J is = $ 10400oX 15 $ 15,600 then we subtract the tax expense from ancome we get after tax mome after tax cach = $ 104000-$15,600 $88, 400

Requirement ③ here company J is party ix to the contract but ampany G actually provides the services to the client. clearly stated that company o is actual provider of services. tax expense = $ 104000 x 35= 36400 * du allows the expenditure mured m nexpect of specified persons Related parties) AF it in the opinion of the the assessing otticer that expenditure in exceuire and unreasonable.