Question

b3.4

Quantitative Problem: Andrews Corporation has income from operations of $228,000. In addition, it received interest income of $22,800 and received dividend income of $29,300 from another corporation. Finally, it paid $9,000 of interest income to its bondholders and paid $46,700 of dividends to its common stockholders. The firm's federal tax rate is 21%. What is the firm's federal income tax? Do not round intermediate calculations. Round your answer to the nearest dollar.

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Answer 1

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Andrews Corporation
Calculation of firm's federal income tax:
		Note
Income from operations	228,000.00
Interest Income	22,800.00
Dividend income	8,790.00	Only 30% of Dividend income is taxable. So 30% of $ 29,300 is $ 8,790.
Less: Interest Expense	46,700.00
Taxable Income	212,890.00
Tax @ 21%	44,707.00	This is 21% of Taxable Income i.e. $ 212,890.
Note: Dividends paid to stockholders are not tax deductible; therefore, they are not relevant to the taxable income calculation.