Last year, California Sushi and Such (CSS) had sales of $65 million. The firm\'s

Question

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $6 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

Explanation / Answer

Assumin Tax rate = 35%

Taxable Income = (Sales - costs of goods sold - operating expenses - Interest Expenses - Depreciation Expenses) + (Income from sale of Land) + Dividend Income*30%

Taxable Income = (65 - 15-20- 25*9% - 6) + (3.5 - 2.5) + 0.08*30%

Taxable Income = 22.774 Million

Taxable Income = 22,774,000

Firm's tax liability = Taxable Income * tax rate

Firm's tax liability = 22,774,000*35%

Firm's tax liability = $7,970,900

Answer

B) $7,970,900

Note : Dividend Recieved by the firm are usually 70% excluded from taxation

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