Question

TABLE 2-1 Corporate Tax Rates as of January 2012 It Pays This Amount on the Base of the Bracket Plus This Percentage on the Excess Over the Base Average Tax Rate at Top of Bracket SC 15% $7,500 25 $13,750 34 If a Corporation's Taxable Income is Up to $50,000 $50,000-$75,000 $75,000-$100,000 $100,000-$335,000 $335,000-$10,000,000 $10,000,000-$15,000,000 $15,000,000-$18,333,333 Over $18,333,333 Cengage learning 2012 $22,250 $113,900 $3,400,000 $5,150,000 $6,416,667 15.0% 18.3 22.3 34.0 34.0 34.3 35.0 35.0 To Be @ 9

Corporate Tax Liability

To complete the assignments listed below, refer to the Table 2-1.

The Wendt Corporation had $10.5 million of taxable income.

1. What is the company's federal income tax bill for the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
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2. Assume the firm receives an additional $2.25 million of interest income from some bonds it owns. What is the tax on this interest income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
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3. Now assume that Wendt does not receive the interest income but does receive an additional $1 million as dividends on some stock it owns. What is the tax on this dividend income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
   $  

Answer 1

a)
company's federal income tax bill for the year = $3,400,000 + ($10,500,000 - 10,000,000) * 35%
= $3,400,000 + $175,000
= $3,575,000.

b)
Tax on interest income = $2,250,000 * 35%
= $787,500.

c)
Tax on dividend income = $1,000,000 * 0.30 * 0.35
= $105,000.