Question

Larry is the sole owner of Larry’s Moving Company, Incorporated (LMC). In one year, LMC collects $2,000,000 from customers to help them move. LMC’s equipment depreciates in value by $200,000. LMC pays $1,400,000 to its workers, who pay $500,000 in taxes on this income. LMC pays $175,000 in corporate income taxes and pays Larry a dividend of 100,000. Larry pays taxes of $50,000 on this dividend income. LMC retains $125,000 of earnings in the business to finance future expansion. How much does this economic activity contribute to each of the following? Compensation of Employees = $ Proprietors’ Income = Corporate Profits = $

Answer 1

Compensation of employees implies the wages and salaries paid to workers in cash or kind.

In given case, LMC is paying $1,400,000 to its workers.

So,

The compensation of employees is $1,400,000.

Proprietor's income implies the money received by owner of the business in form of salary or dividend.

In the given case, LMC is paying the owner a dividend of $100,000.

So,

The proprietors' income is $100,000.

Corporate profits include corporate income tax, dividends paid, and retained earnings

Corporate profit = Corporate income taxes + Dividend + Retained earnings

Corporate profit = $175,000 + $100,000 + $125,000

Corporate profit = $400,000

The Corporate profits is $400,000.