Q1. You want to compare the earningsfrom two different legal forms for a firm: C

Question

Q1. You want to compare the earningsfrom two different legal forms for a firm: Corporate andProprietor. Your pre-tax income is $500,000 in both. However thereis a difference in the taxes you pay.

- Corporate pays corporate tax rate of 30%. After paying corporatetaxes the rest is distributed as dividends to owners. They paypersonal tax on these dividends at the rate 18%.

- Proprietor pays personal tax on 36% only.

P1: Create an Excel worksheet in which you show the pre-taxearnings, the taxes paid, the earnings after taxes for bothcorporate and proprietor.

Explanation / Answer

Corporation Income $500,000 Corporate Tax Rate 30% Corporate Tax $150,000 Earnings After Taxes $45,000.00 Dividends $45,000.00 Personal Tax Rate 18% Personal Tax ? Earnings After Taxes $8,100.00 Proprietor Income $500,000 Personal Tax Rate 36% Personal Tax $180,000 Earnings After Taxes $64,800

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