The Dakota Corporation had a 2015 taxable income of $27,500,000 from operations

Question

The Dakota Corporation had a 2015 taxable income of $27,500,000 from operations after all operating costs but before (1) interest charges of $8,000,000; (2) dividends received of $700,000; (3) dividends paid of $5,000,000; and (4) income taxes.

Use the tax schedule in Table 2.3 to calculate Dakota’s income tax liability. (Round your answer to the nearest dollar amount.)

What are Dakota’s average and marginal tax rates on taxable income? (Round your answers to the nearest whole percent.)

The Dakota Corporation had a 2015 taxable income of $27,500,000 from operations after all operating costs but before (1) interest charges of $8,000,000; (2) dividends received of $700,000; (3) dividends paid of $5,000,000; and (4) income taxes.

Explanation / Answer

(a) Dakota Income tax Liability The first 70% of the dividends received is not tax Taxable So the balance 30% is tax able. Taxable income Income Form Operations 3,33,65,000 Less: Interest charges -8500000 Add: 30% of Dividend ($750,000*0.30) 225000 2,50,90,000 Tax rate Applicable 35% Tax Liability ($25,090,000*35%) 87,81,500 (b) Dakota Corp Average tax rate Average tax rate =$8781,500/$25,090,000   *100 =35% Dakota marginal tax rate =35% if the Dakota earned a extra $1 , it has to pay 35 cents as a tax liability. So it marginal Tax rate is 35%

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