30. LO.1 Mauve Corporation began operations as a farm supplies business and used
ID: 2456945 • Letter: 3
Question
30. LO.1 Mauve Corporation began operations as a farm supplies business and used a fiscal year ending October 31. The company gradually went out of the farm supplies business and into the mail-order Christmas gifts business. The company has received permission from the IRS to change to a fiscal year ending January 31, effective for the year ending January 31, 2016. For the short period November 1, 2015, through January 31, 2016, Mauve earned $20,000.
Calculate Mauve’s tax liability for the short period November 1, 2015, through January 31, 2016.
Explanation / Answer
The annual income would be $80,000, for the period of November 1 through January 31 (three months); ($20,000x12 months in a year /3 months).
Tax on
$ 50,000
x
15%
=
$ 7,500
Tax on
25,000
x
25%
=
6,250
Tax on
5,000
x
34%
=
1,700
Total
$ 80,000
=
$ 15,450
Tax liability for period of 3 months
3months/12
Mauve's liability for November to January
=
$ 3,862.50
Tax on
$ 50,000
x
15%
=
$ 7,500
Tax on
25,000
x
25%
=
6,250
Tax on
5,000
x
34%
=
1,700
Total
$ 80,000
=
$ 15,450
Tax liability for period of 3 months
3months/12
Mauve's liability for November to January
=
$ 3,862.50
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